Week 11: Financial Analysis / Profiling - Undermine Defences Flashcards
Financial Analysis: What are the 4 main profiling methods
4 main financial profiling techniques are:
- Full net worth method (main one)
- Source and Application of funds (expenditures method).
- Bank analysis
- Unit & volume analysis
Financial Profiling - Net worth analysis
- used for mid to high value targets who have tangible assets like houses / cars etc
- formula: Assets minus liabilities equals net worth
- principle: any increase (or decrease) in net worth from year to year must be as a result of some income (or loss)
- simple & highly effective
- the accuracy improves naturally as the various strands of investigation move forward and more info becomes known.
- can generate important leads for the overall ccase.
We are not trying to prove any criminality here.
Financial Profiling - Full Net Worth Method: An example
Assets
MINUS
Liabilities (loans, mortgage etc)
EQUALS NET WORTH.
Then add in EXPENDITURE: living costs from census.
Then MINUS FUNDS OF KNOWN SOURCE. (Income, payouts etc)
What you are left with is FUNDS OF UNKNOWN SOURCE
Financial profiling - Expenditures Method (source & application of funds)
- Used for: Targets with low assets, high lifestyle (eg drug dealers)
- Similar to net worth method, but focuses on the target’s spending rather than assets.
- Principle: Look at what the target has spend in a given time period. Look at their known income in that period. If their spending is greater than their known income then the difference is funds of unknown source.
- quick, simple and easy to understand in court
- the financial investigation compliments the criminal detection aspects of the case. Knowledge of the actual criminal activities can be used to make inferences as to the source of the unknown funds
ALL SPENDING (EXPENDITURES) Minus KNOWN SOURCE OF FUNDS Equals FUNDS OF UNKNOWN SOURCE
Financial Profiling - Bank Depositis Analysis
used for: targets who make extensive use of banking. Can be useful for companies or people with multiple bank accounts.
Principle: Look at all bank deposits (incommings to all bank accounts) within a given period SUBTRACT any movement between their own accounts (cancel out double counting) ADD any cash expenditures (e.g identified through OSINT - holidays etc). What is left is the total INCOME that the target had during that period.
MINUS funds from known sources EQUALS funds on UNKNOWN SOURCE
- it is based on records that are third party (bank) & reliable.
Financial Profiling - Unit & Volume Analysis
Used for: Businesses & estimation of sales proceeds (incl drugs)
Method: Estimate sales based on known purchases of consumables or other info.
- allows us to make inferences re the business.
Examples:
Using towel usage as a means to estimate the number of customers at a brothel.
Using coal purchases to measure genuine business by a coal sales business used as a front by drug
dealers
Student example - cars sold with specific tyres. located the tyre seller got records for that car dealer - estimated how many cars he sold.
What are the 4 main defences used by criminals?
- Cash on Hand story (cash accumulated over time and hoarded)
- False loan, inheritance, gifts or windfall stories
- it’s not mine I’m looking after it (or car is insured in my name but belongs to someone else)
- husband / wife defence (yes it’s in both our names but he / she bought it)
Cash on Hand Defence - How to dismantle it
- where did it come from? from who and where?
- where was it stored?
- why not in bank?
- who saw it / knows about it
False loan / inheritance / gifts / windfall stories - how to dismantle
Investigate every claim thoroughly and ask lots of questions re origin
- investigate the sources, are they capable of making such a gift / loan etc
- records and paperwork?
- did it go through a solicitor?
- is the actual transfer of the ‘gift etc’ documented? STRs?
- If cash why? How?
It’s not mine I’m just looking after it (or I’m insured to drive it, but it doesn’t belong to me) - how to dismantle
A bit more difficult.
If vehicle:
Need to establish who the BENFICIAL OWNER is.
- who pays for runnning costs etc?
- who uses most - traffic stops ANPR camera etc
If cash.
- who are you looking after it for?
- why?
- for how long?
-evidence of agreement on phone etc
Jointly held by husband wife - how to dismantle
- trace funds used to pay for the asset
- examine transfer documentation e.g. if asset is house a conveyance file may show source of funds on settling house purchase.
- consider doing regressive net worth analysis on spouse around time of purchase (i.e go back a year and look at increase of assests)
Note for investigators - dismantling defences
- never let your target know you are doing this profiling / analysis
- ask lots of questions! Try to cut off any many defences as poss during interview
- REGRESSIVE ANALYSIS (previous years) can help undermine some defences such as the hoard of cash defence if they have missed mortgage payments or not paid bills in previous year).
- Forensic accountants are helpful
Notes for Investigators - course summary
- No matter what money laundering scheme he uses, the criminal will be forced to live by some rules that he cannot change
- Any scheme using banks or businesses will automatically begin to make a paper trial once he starts using them – evidence we can use if we can find it
- ML schemes depend on many movements of money, each move gives us opportunities
- Money laundering is about giving the appearance of legitimacy, most schemes are not complicated
- Evading reporting mechanisms (STR’s, currency reports) will be increasingly noticeable
- Same basic set of tactics and techniques are used and reused with only superficial
changes - Recognise and understand the basic set of methods
– Cycle of Placement Layering and Integration
– Avoidance tactics, Smurfing and Structuring
– Offshore methods including shell corporations
– Payback methods including Back to Back, Loan-Backs, Invoice scams etc. have healthy mistrust of docs
– Use of nominees
– Pyramiding of companies
