Interpol's FOPAC BULLETIN No. 12 concerning money laundering

CIRCULAR LETTER Series of 1994

TO : All Concerned

Attached is a copy of the Interpol's FOPAC BULLETIN No. 12 concerning money laundering.

For your information and guidance.

ARMANDO L. SURATOS General Counsel

BULLETIN NO. 12

The FOPAC Bulletin is designed to provide law enforcement agencies and other professional organizations involved in the fight against money laundering with internationally important money laundering related information, such as:

Characteristics of new, significant, unusual or otherwise interesting money laundering cases;

Developments, changes, trends and patterns with regard to money laundering techniques, mechanisms and schemes;

Money laundering investigative experiences from which law enforcement agencies can benefit;

Activities of the FOPAC Group to respond to money laundering criminality;

Programs initiated by member countries or international organizations which focus on countering money laundering;

Indicators of future effects on money laundering activities by such events as socio- economic developments, political efforts, new legislation, new structures enacted to assist law enforcement efforts or creation of police units or task force to combat money laundering.

The FOPAC Bulletin aims to provide information which is both informative and of practical use. Recipients are therefore requested to ensure that the contents of the Bulletin are circulated to concerned services and institutions. All readers are encouraged to contribute to the objectives of the FOPAC Bulletin by providing the FOPAC Group of the ICPO-Interpol General Secretariat with such information as indicated above. It is the intention to display information of that kind about all member countries.

The knowledge of new modus operandi used by money launderers is useful in the fight against this criminal activity. Please find enclosed an interesting article published by "FINCEN Trends", concerning the use of Mexican bank drafts in money laundering. Also included herewith are two charts which show the Mexican bank draft transfers, employed by money launderers. The FOPAC Group sincerely thanks FINCEN for authorizing its publication.

MONEY LAUNDERING TYPOLOGY

Mexican bank drafts are being used increasingly in money laundering activities along the US Southwest border, according to criminal investigators and prosecutors. These drafts are an important and commonly used instrument for financial transactions in the region. Currently, Mexican bank drafts are not subject to any government reporting requirement. The drafts are not defined as monetary instruments in bearer form by the United States Department of Treasury. Therefore, they do not require a Currency and Monetary Instrument Report. Mexico does not have Bank Secrecy Act (BSA) laws or currency transaction reporting requirements. Generally, Mexican banks issuing drafts do not require any identification from purchasers. The drafts can be purchased and used with almost complete anonymity.

MEXICAN BANK DRAFT CHARACTERISTICS

Mexican bank drafts are readily accepted because they are guaranteed by US banks. Mexican banks issue drafts payable against accounts they hold at US correspondent banks. The Mexican bank's drafts can be negotiated at any of its US correspondent banks. The person depositing the draft need not be an account holder: the Mexican bank holds the account at the correspondent bank from which the draft is paid. The US bank clears the Mexican Draft and it is returned to the issuing bank, usually within 24 hours. The Mexican bank typically maintains the negotiated drafts numerically, rather than by purchaser's name or clearing bank. Mexican bank drafts have no limits on their dollar value. According to one Mexican banker, purchasing a draft for one million dollars is "no problem". The fee for these drafts is relatively inexpensive (approximately $15).

Payment to cover issued drafts is made through a "bank to bank" transfer, usually by wire, to the correspondent bank. Often a single payment covers numerous drafts, in a process referred to as "funneling". Another method of bank to bank payment is bulk transfer, using armored car companies. One company reported to investigators that it transported up to $18 million from Mexico to the United State daily. Preliminary analysis conducted by a US Bank in Arizona regarding three of its correspondent Mexican banks revealed the following for a 12 month period:

the average amount per Mexican bank draft was $65,000

drafts of the $200,000 to $400,000 range were not uncommon

30% of the drafts were for amounts under $10,000

MONEY LAUNDERING METHODS

One common money laundering method using Mexican bank drafts works very simply; US currency is smuggled into Mexico and deposited into a Mexican bank account. The Mexican bank issues a bank draft which is transported or mailed to the United States and drawn against the Mexican bank's account at its US correspondent bank. The person negotiating the Mexican bank draft at the US correspondent bank need not be an account holder there. From the US bank, the funds can be wire transferred to anywhere in the United States or the world. This method allows the launderer to deposit criminally derived proceeds into the US banking system with a limited paper trial. Mexican bank drafts have been used to purchase real estate, cars, boats, airplanes, and other assets. The drafts have also been used to purchase cashier's checks.

INVESTIGATIVE PROBLEMS

The ease with which US currency is smuggled into Mexico and exchanged for bank drafts makes Mexican bank drafts ideal vehicles for laundering money. Investigators encounter various problems in obtaining and analysing data on the drafts.

— Important data is not captured due to the lack of information on the identity of the transactor and the absence of US Government reporting requirements. Any information that is available, such as where the drafts were negotiated and by whom, is only found on the physical instruments themselves. These are maintained at the Mexican bank and are usually not accessible to US investigators.

The name of a remitter is usually not printed on the draft at the time of issue, causing difficulty in linking the draft to a specific subject. In fact, the amount of information on the draft; such as remitter's name, date of birth or address, depends on the US correspondent bank's internal requirements.

Mexican bank drafts are often "leapfrogged" or exchanged for other instruments at different banks. The drafts are used in confusing, multi-layered schemes involving cashier's checks, certificates of deposit, line of credit and international wire transactions.

Sales of drafts are frequently "mixed and matched" so that serial numbers are not in numerical order within the different branches of the same Mexican bank. The drafts are not micro-encoded.

Money launderers often use Mexican bank drafts in conjunction with wire transfers to co-mingle legitimate business transactions with illicit proceeds.

REMARKS

At present, it is uncertain whether or not bank drafts with the same characters exist in Europe, Africa, Japan or in other countries.

Should any such similar bank drafts be used by money launderers in your country, please send all relevant information available to the FOPAC Group for collation and evaluation.

In order to assist police authorities identify likely routes, in their efforts to combat the criminal activities during the Placement, Layering and Integration stages of money laundering, please find the following suggestion from Mr. Rayburn Hesse, Chairman of Working Group III of the FATF. These suggestions could also be helpful in avoiding countries becoming targets for money launderers.

FACTORS MAKING A COUNTRY ATTRACTIVE TO MONEY LAUNDERERS

Today, any financial system can be penetrated and every country and territory has the potential of becoming a money laundering center. There is no precise measure of vulnerability for any financial system but the following check list of what drug money managers look for is a good, simple guide.

Money Launderers' Shopping List

Countries maintaining rigid bank secrecy that cannot be penetrated for authorized law enforcement investigation.

Minimal or no identification requirements to conduct financial transactions and/or widespread use of anonymous accounts and/or protected used of nominee accounts.

Lax foreign exchange controls (but traffickers will exploit countries with tight currency controls where businessmen have proven routes of evasion).

Ease of incorporation, especially where ownership can be held through nominees or bearer shares. Use of monetary instruments payable to bearer.

No currency monitoring upon entering or leaving the country.

No criminalization of money laundering.

Well established non-bank financial systems, especially where regulation and monitoring are lax.

No recording requirements for large cash transactions.

No requirement for reporting suspicious transactions.

Limited asset seizure or confiscation capability.

Limited or weak bank regulatory controls, especially in countries where the monetary and/or bank supervisory authority is understaffed, underskilled or uncommitted.

Limited narcotics and money laundering enforcement and investigative capabilities.

Well established offshore or tax-haven banking system, especially countries where such banks and accounts can be readily established with minimal background investigations.

Countries with free trade zones where there is little government presence or other oversight authority.

Well-established access to international bullion trading centers in New York, Istanbul, Zudrich, Dubai and Bombay.

Extensive foreign banking operations, especially where there is significant wire transfer activity and/or multiple branches of the foreign banks.

Patterns of official corruption and/or a laissez faire attitude in the business and banking communities.

Countries with a high volume of interbank transfers of currency and monetary instruments.

Countries where the dollar is readily acceptable, especially countries where banks and other financial institutions allow dollar deposits.

Countries where banks allow nominee or numbered accounts, or do not require disclosure of the beneficial owner of an account or the true beneficiary of a transaction.