Money Laundering - a Threat for Banks Big and Small

Money laundering is a major threat for banks of all sizes, although smaller, regional banks often have the most to lose when they are subject to this crime.

Wed Mar 09 14:54:58 EST 2016
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Money laundering is by no means a new crime. Just as the ways in which customers conduct legitimate banking have grown more complex over time, so too have the methods for duping financial institutions into essentially “washing” money made through "dirty" transactions.

From the notorious Bank of Credit and Commerce International (BCCI) scandal of the late 1980s – which saw the seventh largest financial institution in the world get caught up in illegal dealings with the likes of Saddam Hussein and Manuel Noriega – to the more recent $6 billion Liberty Reserve fiasco in 2013, it would appear that no banks, no matter how prestigious, are completely impervious to laundering crimes.

The legal complexities of these crimes, along with their prevalence, makes it hard for institutions that may not have the resources – or diplomatic sway – that massive banks like BCCI or state-owned institutions have to recoup. More often than not, it’s smaller, regional banks that are the most vulnerable to getting ravaged by such schemes. Criminals target these businesses with the belief that they don’t have the millions to invest in the processes and technology needed to effectively resolve problems – and in many cases, they’re right.

Usually, Launderers Fly Under the Radar

Take for instance a recent incident out of Humboldt, Oregon, where local businessman Jonathan Robert Quaccia received a two-year sentence in federal prison for laundering more than $2 million in cash earned through an illegal marijuana distribution scheme.

In an attempt to avoid federal oversight, Quaccia used several different front-people across numerous states to deposit funds amounting to less than $10,000 per transaction into locally-owned banks. By keeping transactions relatively small, the activity wasn’t subject to federal oversight, helping Quaccia remain below the fed’s radar from 2012 through 2014.

While Quaccia will serve time in prison for his crimes, the long-term effects his actions will have on the smaller banks he used to launder funds remains to be seen.

Smaller Banks Often Have the Most at Stake

The Financial Industry Regulatory Authority (FINRA), an independent organization authorized by Congress to protect American investors, is constantly implementing anti-money laundering (AML) standards to help keep protection and prevention against these crimes up to speed with their perpetrators’ voracity. While adhering to these standards is an obvious necessity, they place a lot of strain on smaller banks who constantly need to scrutinize and reassess their AML strategies using resources they can’t easily come up with.

This poses a catch-22 for regional banks, because without putting resources into AML plans, they are leaving themselves potentially liable for laundered funds.

To stop these activities and comply with the ongoing barrage of AML regulations, banks need to improve their entity resolution by finding, linking and visualizing complex relationships across parties, accounts and transactions.

Download this white paper, "Follow the Money."  to find out more