Here is an article from an expert in asset recovery. Mr. Adams wrote, and owns copyright to the article.
The building your money built?
High Dollar Cash Depositors Can Bring Risks Along With Earnings
By Colby Adams
A small bodega in a Texas border town dealing solely in cash and depositing modest profits into its local community bank suddenly triples its monthly revenue. A high net worth client at a large commercial bank in Miami begins making $9,000 cash deposits into his business account. A potential customer wants to open an account with a small community bank in which she will deposit $1 million in cash every month.
Under U.S. regulations, all three scenarios would merit compliance scrutiny, as well as raise questions of whether banks should accept the deposits at all. But while high-dollar cash transactions can be at risk for money laundering, placing limits on cash deposits or prohibiting them altogether isn’t financially feasible for many institutions.
“Cash can, counterintuitively, be very expensive for a bank, so the first thing to ask is, can you handle the business?” said Lisandro Quintana, a Bank Secrecy Act (BSA) and Office of Foreign Assets Control compliance officer at San Diego National Bank who monitors several accounts for cash-intensive businesses.
In addition to requiring investments in armored transport and cash vault services, high-volume cash deposits also require financial institutions to account for additional teller time, as well as file currency transaction reports and conduct time-consuming onsite visits of the clients.
To go above and beyond the normal checks, compliance officers should ask a client to show two years of past tax returns to establish the value of the business in relation to account activity, aid [sic] Quintana.
In some cases, compliance officers should also “think outside of the BSA manual” by taking advantage of the skills of other bank officials, said Quintana.
“I had our bank’s commercial lending officer do a financial analysis of an auto dealer because they have expertise to analyze financial statements and tax returns to a depth that most compliance departments can’t,” said Quintana. “It turns out he was selling his cars at $200 a pop.”
Placing alerts on cash deposits over a certain threshold, as well as requiring preapproval from a compliance officer or bank supervisor for wire transfers over a specific amount, may also be helpful, according to Aaron Kahler, a former bank compliance officer and founder of Kahler Forensic Solutions, a New York City-based consultancy.
These steps are necessitated by the fact criminals and narco-traffickers to launder money domestically often form a silent partnership with a cash-intensive business, and mingle dirty money with legitimate profits, according to Kenneth Rijock, a financial crime consultant for London-based consultancy World Check and a convicted money launderer.
Launderers are further shielded by the fact that many businesses-including restaurants, laundry mats and grocers-are exempt from currency transaction reporting requirements if they’ve maintained a bank account for at least a year and frequently transact more than $10,000, including for purposes of payroll.
Compliance departments should also determine if a cash-intensive business is located in one [sic] the seven High Intensity Financial Crimes Areas or 25 High Intensity Drug Trafficking Areas identified by U.S. agencies, said Kahler. The high crime areas include South Florida, New York, New Jersey and Texas counties bordering Mexico, among other regions.
The temptation for small, cash-intensive businesses to aid money launderers increases during economic downturns, said Rijock. A sudden upswing in profits by 50 percent or more in one month from a laundry mat, auto dealer, jeweler or restaurant, for example, may indicate comingling of criminal proceeds with business earnings, he said.
Regardless of the checks, at some point, compliance officers should expect push back from account managers hoping to net lucrative accounts, said Rijock. “Account management versus compliance is as old as the hills, and nine times out of 10 the need for additional revenue streams trumps compliance concerns,” he said.
But when account managers win out with bank management, compliance officers shouldn’t simply give up on imposing anti-money laundering checks on the risky accounts, according to Kahler.
“If compliance has to budge, they should push for site visits and extra monitoring from an initial site visit to five or six site visits per year, all of which entail extra labor costs,” said Kahler.
Moreover, compliance officers can further clarify the financial picture by comparing any accounts that their financial institution maintains for a competitor of the client, said Quintana. Should the bank not maintain accounts of competitors, compliance staff might visit other competitors in “drive by” reviews that allow them to compare business volume, advertizing and marquees.
A nondescript business boasting returns significantly higher than a competitor with heavy foot traffic and seemingly more effective advertising could indicate money laundering, said Quintana.
NOTE: This was published about the same time as I published my last blog post. The article is from a publication of the International Association for Asset Recovery, of which I am a member.