This month, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, known as FinCEN proposed new regulation mandating additional due diligence obligations on the financial sector that would;

(i) codify, clarify, consolidate, and strengthen existing CDD regulatory requirements and supervisory expectations, and

(ii) establish a categorical requirement for financial institutions to identify beneficial ownership of their account holders.

To effectively combat the economic and criminal threat posed by money laundering, governments must pursue evolving technologies in order to seek new methods of detection that prevent criminals from circumventing the law. While not as far reaching as some proposals that would require the collection of beneficial owner information on all corporations and trusts across the full spectrum of the financial sector, the proposed rules, if enacted, would mark an important advance in financial transparency. 

In Latin America, where a particularly difficult problem with money laundering persists, the regulatory changes enacted by some nations has showed significant progress in tightening the financial net; yet the money launderers remain one step ahead. While the stereotypical forms of laundering continue (i.e. shrink wrapped bundles of cash buried in tubs of joint compound), the criminal underworld also continues to evolve their methodology and are increasingly turning to commerce and financial sector based activity to launder their illicit proceeds. These schemes involve operations that to the untrained eye appear legitimate, but are in fact vehicles for injecting criminal proceeds into the financial system.

Generally, methodologies will involve import/export of mispriced, legitimate goods, the import/export of obsolete/junk materials that are priced as legitimate goods or foreign owned real estate investment and stock transactions. The transactions which are often layered across multiple accounts and/or front and shell companies have the added benefit of allowing for favorable currency exchange rates and the cross border transfer of illicit funds without raising traditional red flags. 

This complex financial, geo-political situation is further exacerbated when collusion between governments is considered. Such as is apparently the case of the trade agreements involving the ALBA (Bolivarian Alliance for the Americas) countries and Iran. Iran is currently facing extreme economic sanctions that are crippling its economy and will lose SWIFT (Society for Worldwide Interbank Financial Telecommunication) access on March 17, 2012. Its’ alignment and trade pacts with the ALBA nations, which have their own regional electronic currency, the SUCRE (Sistema Único de Compensación Regional [Unified System of Regional Compensation]) – designed to reduce the use of the U.S. dollar among ALBA countries, provides an innovative vehicle for bypassing the economic sanctions and laundering money.

In addition, Ecuador’s dollarized monetary system guarantees that once the money enters its borders it automatically is ingested into the economy. Speaking about Iran, Director of National Intelligence, James Clapper, stated, “Consistent with their outreach elsewhere, they’re trying as well to penetrate and engage in this hemisphere” while appearing before the Senate Select Committee on Intelligence on January 31, 2012.

On February 02, 2012 U.S. Rep. Ileana Ros-Lehtinen, Chair of the House Foreign Affairs Committee, stated:

“Through a series of hearings and classified briefings, this committee has exercised due diligence and oversight to examine the threat to U.S. national security posed by Iranian and Iranian-sponsored activities in our own Western Hemisphere. …The Iranian regime has formed alliances with Chavez, Ortega, Castro, and Correa that many believe can destabilize the Hemisphere. These alliances can pose an immediate threat…”

The lines between criminality, terrorism and geo-political influence continue to cross, blend and blur with the matter further complicated by ever expanding globalization; the convoluted menagerie that comprises the issue of money laundering represents a destabilizing influence and a clear and present danger to the world economy and global security. 

Massive amounts of information is generated and very large volumes of data are collected, but without an effective and unified means to process and analyze the material. Analysts and decision makers alike must leverage collective expertise in deploying cutting-edge technology in order to integrate and manage disparate data sets and analyze complex problems. Being armed with powerful tools to drive the decision-making process will enable analysts to conduct investigations efficiently and manage AML compliance programs that continue the great work of preserving economic security, identifying threats and protecting business interests and cash flows.