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Scams and hot topics in money laundering

By Jennifer Morrison, VP, Senior Risk Manager

May 31, 2016 -- This month, I wanted to share a couple of topical scams and money laundering themes you might pass along to your credit union team. Some of the following will be familiar while some of these topics, schemes and scams may be new to you and your team.

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Member risk assessment and due diligence

Is your credit union guilty of risk assessing and then forgetting your members after they join?

It is often the tendency of financial institutions to conduct a lot of due diligence on a natural person or entity at the time of a new account opening but then stop. This is a huge mistake in the BSA/AML world.

Most credit unions conduct an initial risk assessment of a member when they join. Going forward, all members should be reassessed with a risk-based frequency (in most cases no less often than annually). The assessment of our members on a periodic basis includes the assignment of a “higher risk” label to certain members based on who they are, where they reside, where they conduct business, the products/services they use, the type of transactions they conduct, and/or previous suspicious activities, among other factors.

In the case of a natural-person member, this member is not static. He or she may move into or out of a high-risk geography, change professions or jobs, undergo financial stress, and/or engage in additional activities not observed in the initial due diligence work up.

For example, once casino gambling became legal in Ohio, persons who perhaps did not engage in gaming might have since become addicted, bringing with them a host of other suspicious, and perhaps illegal, transactions.

In the case of a business member, the financial health of the business changes over time. Companies might engage in very different behaviors when they are under financial stress than when profits are rising.

Your members should also be reassessed whenever you have knowledge that the conditions under which the member first joined might have changed, including external factors like economic conditions, regulations and laws (marijuana, gambling). You should also reassess members whenever you obtain a staff referral of possible illegal or suspicious activities they may have conducted especially after a SAR is filed.

More on human trafficking

A recent Risk & Compliance Journal article in The Wall Street Journal included a couple of “red flags” for financial activity associated with human trafficking. These red flags include:

  • Non-related parties using the same address
  • Account inflows inconsistent with the business
  • Large cash deposits attributed to businesses that do not normally make them

In addition, be alert to localized spending patterns inconsistent with what would be normal for your member.

Note that the Foreign Corrupt Practices Act can be enforced against companies that pay labor brokers to supply them with exploited laborers. This act can also be enforced in more general terms because corruption and bribery allow for human trafficking to occur.

With the arrival of spring, be alert to members who employ farm and other manual laborers typical of the construction industry. U.S. economic reports are consistently detailing shortages for workers in manual labor positions, as well as the construction trades. It is possible some members may resort to filling labor needs from outside the U.S.