Anatomy of a laundry and red flags for remittance accounts

A detailed report in the Australian press depicts perfectly the anatomy of a laundry that cleaned A$34m (US$ 33.2m). During a three month period, launderers used the remittance service at the back of a grocery shop in Sydney as a front to send money to Iran and the United Arab Emirates.

The Iranian run Little Persia grocery in the Sydney suburbs operated a smalltime remittance service, catering mainly to the local migrant workers legitimately sending their paychecks back home to the family. Remittance services are widely held to be highly vulnerable to exploitation by criminals seeking to launder the proceeds of crime and the Little Persia grocery fell into this trap.

The courier and the launderer

The Australian courts jailed two men in August 2011 for their part in the laundry. One, Mr R, was the co-owner of Little Persia, the second, Mr H, ran the FreshCo Food grocery wholesalers in Sydney. This is the story Mr H and Mr R told the police.

Mr H – the courier. Under questioning, Mr H told the police that he had been approached by a man known only as John who asked him to help transfer money to Iran in return for a commission. Mr H agreed and met John regularly to receive the cash at locations around the city. Mr H would then drive to meet Mr R.

Mr R – the launderer. Post rendezvous with John, Mr H would meet his contact Mr R in a car park outside a Commonwealth Bank branch in the Sydney suburbs. Mr H would hand over a sports bag containing up to A$1m (US$974,000) to Mr R. Mr R would then walk into the bank and deposit the cash into Little Persia remittance service’s business account. For reasons of confidentiality, the bank was unable to comment on the matter specifically.

Red flags

Police monitored the Little Persia account for at least 10 months – during which the account balance grew to A$95m (US$95.2m). The report does not mention how the police came to know about the laundry, but there’s a good chance the Commonwealth Bank compliance team spotted the increase in the account balance and reported this to Austrac. The FIU reportedly started to look in earnest at the account when it spotted a red flag.

There are a series of indicators around remittance service business accounts which should be applied as a minimum to any relevant accounts. The Financial Action Task Force’s July 2010 report contains nine pages of money laundering indicators which have been identified in electronic and cash transactions and customer behaviour. Some examples relevant to this case:

  • Money transfers to high-risk jurisdictions without reasonable explanation, which are not consistent with the customers usual foreign business dealing. The cash was reportedly transferred to a an account held by a ‘gold corporation’ in Iran.
  • The customer shows no interest in the transfer costs
  • The customer has a note with information about payee but is hesitating if asked whether to mention the purpose of payment.
  • Large or repeated transfers between the account of a legal person and a private account, especially if the legal person is not a resident. Mr H regularly gave Mr R bags containing up to A$1m to deposit and remit.
  • The customer has no relation to  the  country where he/she sends/receives the money and cannot sufficiently explain why money is sent there/received from there. Austrac’s interest picqued when the recipient country changed from Iran to the United Arab Emirates.

Austrac’s most recent report on money laundering analyses three methods of sluicing cash through remittance accounts.

Structuring. As in the banking sector, the technique of breaking down transactions into smaller amounts is widely used to try to avoid detection.

Cuckoo smurfing. This has emerged as an important money laundering methodology. It involves complicit remittance dealers operating as ‘go-betweens’, depositing illicit funds (for instance, the proceeds from drug deals) into accounts of innocent parties who are expecting transfers from legitimate transactions made overseas. In exchange, criminals receive matched payments overseas without leaving a money trail back to them.

Offsetting. The common alternative remittance practice of offsetting — hawala or hundi — enables the international transfer of value without actually transferring money. This is possible because the arrangement involves a financial credit and debit (offsetting) relationship between two or more dealers operating in different countries. Criminals can exploit offsetting to conceal the amount of illicit funds transferred, obscure the identity of those involved and avoid reporting to AUSTRAC.

Sanctions

Increased sanctions placed upon the Iranian banking sector will strand funds owed to Iranian companies for legitimate commercial transactions. Payers will find it difficult, if not impossible, to pay funds legally. This is the crunch for the Iranian government. If it continues to ignore requests to cease its nuclear program, pressure upon the Iranian people will increase with serious ramifications.

First published on Compliance Knowledge Platform

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