Anti-money laundering: How to protect your small business
August 15, 2019
Pop culture quiz – What do The Ozarks, Shawshank Redemption and Breaking Bad all have in common?
A huge driving force in their plot? A way for the characters to make a little extra cash under the table?
The answer: Money laundering.
Money laundering isn’t just for the big screen. According to a 2018 survey from PwC, global money laundering transactions account for roughly $1 trillion to $2 trillion annually, or some 2% to 5% of global GDP.
What is money laundering?
According to Investopedia, money laundering is the process of making large amounts of money generated by criminal activity appear to have come from a legitimate source. In other words, it’s the process of taking “dirty” money and cleaning it.
Money laundering is achieved typically in three steps: placement, layering, and integration.
- Placement puts the “dirty money” into the legitimate financial system like a bank.
- Layering conceals the source of the money through a series of transactions and bookkeeping tricks.
- Integration means the now-laundered money is withdrawn from the legitimate account to be utilized.
The money laundering process can be accomplished through currency exchanges, wire transfers, smurfing (breaking large amounts of money into multiple small deposits over different accounts), or using shell companies (companies that exist on paper).
Internet sources have exponentially expanded the capabilities of money launderers, making it even more difficult to detect the illegal transfer of money through online banking, anonymous payment services, P2P transfers and finally, cryptocurrency.
Money laundering is a risky practice that could lead to hefty fines up to $500,000 or double the property involved, or imprisonment up to 20 years according to the International Comparative Legal Guide.
Who is at risk?
Small businesses are often the targets of organized money laundering schemes. This is due to the assumption that small business owners don’t have the time or resources to understand and enforce compliance knowledge.
It’s important to note that money laundering can occur both internally and externally.
Who are you hiring and what tone are you setting within your company?
Who are you working with and how are you monitoring their transactions?
What does this risky business look like?
(Not the kind that includes Tom Cruise)
- Transactions which do not seem related to the business or are an unusual size
- Customers who only want to do one large transaction with no other business needs
- Settlements to a third party which is different from the customer represented
- Clients who are reluctant to provide complete information about their business, purpose of business, expected activity names of beneficial owners
- Regarding nonprofit or charitable organizations, financial transactions occur for which there appears to be no logical economic purpose or in which there appears to be no link between the stated activity of the organization and the other parties in the transaction
- Multiple personal and business accounts or the accounts of nonprofit organizations or charities are used to collect and funnel funds to a small number of foreign beneficiaries
By learning how to identify potential money laundering practices, you can protect yourself and your small business.
How can your small business protect itself?
What is anti-money laundering
Anti-money laundering (AML) is an important term to start learning how to protect your small business. It is a set of laws, regulations, and procedures created to prevent and deter people from disguising illegal money as legitimate income.
It is up to financial institutions to monitor their customers’ deposits and transactions to ensure they aren’t part of a money laundering scheme. This is accomplished by verifying where large sums of money originated, monitoring suspicious activity, and reporting transactions that exceed $10,000.
AML initiatives rose to global prominence in 1989, when a group of countries and organizations around the world formed the Financial Action Task Force (FATF). Its mission, to devise international standards to prevent money laundering and promote the implementation of those standards.
Unfortunately, AML laws have been slow to catch up to cybercrimes, since most of the laws are still based on detecting dirty money as it passes through traditional banking institutions.
Establishing a formal AML culture is a great place to start. However, it doesn’t immediately mean you’re protected. Here are a few more important tools to help ensure your small business and employees are doing the most to thwart money launderers.
Culture of compliance
It’s a tone from the top that helps to ensure your business is practicing legal and lawful practices. As the owner, even if your business and force are small, it is important to emphasize and educate yourself and your team on money laundering schemes.
Another great resource to use is the website for the US Treasury’s Financial Crimes Enforcement Network (FinCEN). This website provides you with the latest information about money laundering. Review the website periodically to stay up-to-date, and encourage your team to review it as well.
Know your customers
This is true for most small businesses in general. But for larger purchases, it is your job to document the source of cash, where it may be coming from (watch out for prepaid credit cards), and finally where it’s going.
Trust your gut, and investigate any transactions or practices that you find suspicious. There is no such thing as being too safe. Remember to be aware of cybersecurity risks.
Identify our customers (KYC): Customer information is collected during registration and during transactions. Based on the risk, Veem will ensure that it has a reasonable belief of the true identity of our customers. In verifying customers, Veem will perform enhanced due diligence for those customers presenting higher risk and may require additional information such as photo identification.
Monitoring transactions and activity: Veem has a risk-based system and procedures to monitor ongoing customer activity to detect fraud as well as money laundering activities including but not limited to placement, layering, and integration of funds.
Reporting: Procedures for reporting suspicious activity internally and to the relevant law enforcement authorities as appropriate.
Veem is prohibited from transacting with individuals, companies, and countries that are on prescribed sanctions lists. Veem will screen against the US Office of Foreign Assets Control (OFAC), and other global sanctions lists in all jurisdictions in which we operate.
Once again, money laundering is a serious risk for small businesses today. In addition to facing criminal charges and fines, your business’s reputation may be damaged if caught in a scheme, and your insurance could also skyrocket. These penalties may be in place regardless of whether your involvement was accidental or intentional. With this in mind, it is on you, the small business owner, to protect yourself against money laundering.