Week 6 - ML Techniques & Methods Flashcards
Key Aims of a ML
Launderer seeks to gain control over entities and uses them to:
– hide his beneficial ownership
– open and operate bank accounts
– Insert new entities (eg. trusts)
– Layer and integrate the illegal funds
– Use intercompany and/or complex credit finance
– Co-mingle legitimate and illegal funds
*entities can be human or legal
How do Money Launderers set up and use Legal Persons?
Offshore companies (a legal person) are easy to set up.
– Can be done online using email via a TCSP or FCP
- Buy a shell company or IBC (international Business Corporation) ideally with bearer shares
– Can be cheap (typically less than €500) if set up in a tax haven
- Open a bank account with fake or photoshopped docs as you don’t need to visit in peprson.
– Low transparency – can’t see behind it
– Easy to manage ‘remotely’ through nominees. use nominees as directors.
– Can use multiple tax havens
– Simple to manipulate for criminal purposes
- can be used to add further layers
- Using multiple havens reduces transparency further
What is an LLC- Limited Liability Company?
There are variations in corporate structures. One is an LLC.
An LLC, or Limited Liability Company, is a legal structure for business that combines elements of both a corporation and a partnership. The owners are referred to as “members,” and they have limited liability for the company’s debts and liabilities. This means that the personal assets of the members are generally protected from business debts and lawsuits
Many US and Offshore states have them
Why are LLCs relevant to ML?
They can look more professional than a sole trader or partnership.
Some LLC’s have few ownership restrictions - beneficial ownership can be difficult to determine
Launderers can use LLC’s in syndicated transactions.
– Pools of funds, grouped together by banks, and offered to their business clients (which usually includes LLC’s).
– Main interest of the institution is how much the LLC can invest, not about who the beneficial owners are
– Launderer can thereby avoid the KYC checks
– Legitimate profits from investment are returned to criminals
What is a Trust?
A Trust is a legal arrangement that allows a person or entity (trustee or settlor) to transfer assets to a separate entity (trustee). unless you are in possession of the legal paperwork it is difficult to understand who legally owns what.
Trusts can be irrovocable or revokable.
Why are Trusts Relevant to ML?
Trusts can be set up by anyone do do anything. The rules of a trust are contained in the documents. Unless you have these documents you can’t know how the trust operates. Can be controlled by a beneficial owner for the benefit of himself.
– Many trusts are revocable trusts – can be changed by the settlor
– Offshore structures increase difficulty for investigators
– The settlor can alter the beneficiaries, incl make himself the beneficiary
– A trust can be established to manage a company’s shares
– Trusts can have escape clauses and can move jurisdiction if certain events occur (such as an investigation).
Using Nominee services for ML
Acting as director and receiving
instructions (often via email)
* Acting as trustee (under instructions)
* Assistance in opening bank accounts
* Virtual office - Phone answering service - Mail and fax forwarding
Tipping off provisions!
What is a Loan Back Scheme?
A money laundering or tax avoidance scheme in which money is deposited in an offshore bank and then borrowed back by a shell company controlled by the holder of that bank account.
An example:
1. Cash is moved abroad, lodged into a bank account. Normally the bank account will be in the name of a legal entity established in a tax or ML haven (offshore company).
2. Monies are wired or transferred to another account established in tax/ML haven
3. ‘Loan’ agreement is made between a domestic entity and the offshore company.
Monies are then transferred in to the domestic entity and used to buy property
4. Criminal uses nominees to front this domestic company, but is seen to be the beneficiary of the transactions
Things to look for to ID a loan back ML scheme as an investigator
- Best clue is that no financial institution is involved
- May be no loan agreement or real repayments
- Examine any loan agreements carefully!
– Lack of security, payment ‘holiday’, interest-only loans or low/high interest rates etc
What are some indicators of ML for an Investigators?
– The source of funds is offshore
– Where the collateral is abroad
– Use of non-traditional financial institutions
– Use of trusts or intermediaries
– Loans with overly beneficial terms
– Lack of transparency of collateral
– Any disguising/concealment of ownership
– Use of front men or associates of criminals
* Remember that SWIFT and credit card numbers can provide links to the financial institution
