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FEDERAL RESERVE BANK OF NEW YORK f f T - i D S nf % ^ M a y 1, 1996 FinCEN Advisories To the Chief Executive Officer of Each State Member Bank, Bank Holding Company, Edge and Agreement Corporation, and State Chartered Branch and Agency of a Foreign Bank, in the Second Federal Reserve District: The U .S. Departm ent o f the T reasury’s Financial C rim es Enforcem ent N etw ork (FinC E N ) is authorized by law to issue advisories to the banking industry and others regarding m oney laundering and financial crim es. FinC E N ’s advisories describe trends and developm ents in these areas. They are designed to inform your banking organization about potential crim inal m isconduct and suspicious activities so that you can better detect them and then alert law enforcem ent authorities, as well as to help your organization take preventive m easures to protect itself from losses. Recently, FinCEN issued its first tw o advisories, copies o f w hich are enclosed. The first advisory describes the nature and purposes o f the agency’s alerts. The second, w hich is entitled "Enhanced Scrutiny for Transactions Involving the Seychelles," provides inform ation about a new Seychelles’ law that grants im m unity from prosecution in the Seychelles to individuals w ho invest at least $10 m illion in approved Seychelles investm ents. The Seychelles’ law has been universally criticized, and F inC E N ’s advisory w arns you about transactions that m ay involve an individual or entity doing business in, or through, the country. Future advisories issued by FinC EN will be m ade available to you through the Federal R eserve B o ard ’s web site on the W orld W ide W eb. The Federal Reserve B oard’s w eb site can be accessed at "http://w w w .bog.ffb.fed.us". In the event you have any questions about F inC E N ’s advisories, you can contact that agency at (703) 905-3520. Joseph L. G alati Examining Officer ii United States Department of the Treasury Financial Crimes Enforcement Network RnCEN Advisory Subject: Enhanced Scrutiny fo r Transactions Involving the Seychelles Date: March 1996 Advisory: Voi. 1, Issue 2 Thisadvisory is provided to alert recipients to the following information: Banks and other financial institutions are advised to give enhanced scrutiny to all financial transactions routed into orout o f the Seychelles, or involving persons domiciled in the Seychelles. Publication of this Advisory follows the February 1, 1996 condemnation o f the Seychelles Economic Development Act (EDA) by the Financial Action Task Force (FATF), an independent group o f 26 countries set up by the G-7 nations in 1989 to combat money laundering. The Seychelles is a small island nation in the Indian Ocean and is a member of the British Commonwealth. The Seychelles’ government has recently enacted the E D A -a law that authorizes it to grant concessions or incentives to persons who invest at least $ 10 million in approved Seychelles investments. Among the concessions specifically permitted under the law are immunity from criminal prosecution and from forfeiture of assets. An exception to the immunity created by the EDA exists only for acts of violence or drug trafficking in the Seychelles. The EDA undermines international efforts o f the United States and other nations to counter money laundering. For example, the law would apparently create a safe haven, in the Seychelles, for the proceeds o f drug trafficking in other nations. After studying the EDA and the situation in the Seychelles, the FATF found that the EDA constituted “a serious threat to the integrity o f the world’s financial system.” A copy o f the FATF’s statement is attached. Enactment o f the EDA necessarily raises questions about the purposes of any significant or unusual financial transactions that are routed into or out of the Seychelles or that involve persons domiciled there. Banks and other institu tions subject to the United States Bank Secrecy Act should examine available facts relating to any such transaction. Unless such examination reveals that the transaction possesses an independent lawful business purpose and is the sort in which the customer involved would be expected to engage, institutions subject to the suspicious activity reporting rules contained in 31 CFR 103.21 (effective April 1,1996) should report such a transaction as provided in that rule. Institu tions subject to the Bank Secrecy Act, but not yet subject to specific suspicious activity reporting rules, should consider their obligations to report such a transaction either under other applicable law or on a voluntary basis. 1 United States Department of the Treasury Financial Crimes Enforcement Network FinCEN Advisory Subject: Introducing The FinCEN Advisory Date: March 1996 Advisory: Vol. 1, Issue 1 From Fin CEN’s Director This advisory is the first in a recurring series designed for the financial, regula tory and law enforcement communities. Subsequent advisories will describe trends and developments related to money laundering and financial crime. FinCEN's goal is to serve the interests o f all its customers—providing intelli gence and analysis for case support to federal, state, local and international law enforcement and regulators while also providing the financial communities with the information they need to help us prevent and detect financial crime. The advisories are founded bn two basic points that are central to Treasury's counter-money laundering programs. First, criminals need to use financial institu tions to launder money and often deliberately structure their transactions to appear legitimate in order to avoid detection. Therefore, financial institutions are in a unique position to assess transactions which lack commercial justification or cannot be explained by normal commerce. It would be nearly impossible to do our job without the help o f businesses who see money launderers first and up close— that is, banks and other financial institutions. FinCEN relies on financial institutions to collect meaningful information— an effective program for detection and prevention of money laundering cannot suc ceed unless we enlist their cooperation and support. Recently, FinCEN took a number o f steps to reduce unnecessary regulatory burdens on the financial commu nity while, at the same time, improve the quality of information available to law enforcement. Some regulations or proposed regulations were eliminated alto gether; the Currency Transaction Report (CTR) was redesigned, eliminating 30 percent o f the information previously collected; and we are working to substantially reduce the number o f CTRs which have to be filed. As a result o f a cooperative effort with the regulatory community, the process by which banks report suspicious activity has also been drastically simplified. Second, working in partnership with the financial community requires that we provide it with the information it needs to help us prevent and detect financial crime— information which describes the trends and patterns revealed through the investigatory and regulatory process. What should bankers look for when they review transactions? What warning signs of money laundering should regulators look for when examining a financial institution? What are the clues that may indicate money laundering? What mea sures can be taken to disrupt criminal activity— using banks and other financial 1 \ institutions to launder their illegally-gained profits? These are the difficult questions we will strive to answer. The advisories, as well as other FinCEN publications, are designed to attempt ' to describe those clues and developments which may indicate criminal financial * activity. We will need your advice. What situations are you seeing which should be i made known to our readers? What topic is o f particular interest to your organiza tion? How can we best reach our goal o f information exchange? Advisories will convey different types o f information. 'Some advisories will focus on general trends and developments that you, in the financial, regulatory and law enforcement communities should know. Other advisories will focus on the effect of those developments on specific obligations under the Bank Secrecy Act (BS A). This first advisory lays out our plan and offers an overview of financial crime, financial investigation, and the Treasury’s approach to those subjects. In future advisories, FinCEN will tell you what we are learning from our work with law enforcement and financial institution regulators. At the same time, we encourage you to make suggestions and share information Stanley E. Morris Director > J *j Basic Facts about Money Laundering and FinCEN Why is i t important? With few exceptions, criminals are motivated by one thing—profit Greed drives the criminal, and the end result is that illegally-gained money must be intro duced into a nation's legitimate financial systems. In just the United States alone, estimates of the amount o f drug profits moving through the financial systems have been as high as S100 billion. Money laundering involves disguising assets so they can be used without detection of the illegal activity that produced them. This process has devastating social and economic consequences. For one thing, money laundering provides the fuel for drug dealers, terrorists, arms dealers, and other criminals to operate and expand their operations. Criminals manipulate financial systems in the United States and abroad to further a wide range o f illicit activities. Left unchecked, money laundering can erode the integrity o f our nation's and the world's financial institutions. * > Why do we need financial investigations? Financial investigations are essential if we are to beat criminals at their trade. Following the money leads to the top leadership of criminal organizations. But financial investigations are extremely complex and often difficult to carry out. First, 2 ^ *- i. V * V 4V * it takes many years of working in the financial industry to understand all its intrica cies. Second, no single agency possesses a sufficiently broad or cross-jurisdic tional focus and information base to track financial movements. Finally, the sheer size, variety, and pace of change of the financial sector make financial investigationseven more difficult The tools o f the money launderer range from complex financial transactions, carried out through webs o f wire transfers and networks o f shell companies, to old-fashioned, if increasingly inventive, currency smuggling. As soon as law enforcement learns the intricacies o f a new laundering technique and takes action to disrupt the activity, the launderers replace the scheme with yet another, more sophisticated method. #*■ «r How has Treasury addressed the problem? < * « 4 r ♦ t v ► y> r > k' The Treasury has designated FinCEN as one o f the primary agencies to formulate, oversee and implement policies to prevent and detect money laundering. It serves as the link among law enforcement, financial and regulatory communities. FinCEN accomplishes these objectives in several ways. It uses the Bank Secrecy Act (BS A) to implement comprehensive programs that go beyond currency to all financial activity and requires reporting and recordkeeping by banks and other financial institutions to preserve a financial trail for investigators to follow as they track criminals and their assets. The BS A also requires reporting o f large and/or suspicious transactions that could trigger investigations. FinCEN provides case support to its law enforcement customers— federal, state, local and international investigators— in the form of information and intelli gence analyses. This information assists law enforcement in building investigations and developing new strategies to combat money laundering. Just as importantly, these reports form the core of information which is provided to FinCEN’s other customers— the financial and regulatory communities— who can integrate this information into their compliance and regulatory programs. From these and other intelligence sources, FinCEN will produce advisories and other publications. FinCEN S ta ff FinCEN’s unique staffing both reflects and sustains its mission. The majority o f its 200 employees are permanent FinCEN personnel, including intelligence analysts, as well as specialists in the financial industry and computer field. In addition, about 40 long-term detailees are assigned to FinCEN from 21 different regulatory and law enforcement agencies. * * 3 J Statutory Provisions The Bank Secrecy A ct (B SA ), Pub. L. 9 1 -5 0 8 , as am ended, codified at 12 U .S.C . 1829b, 12 U .S.C . 1951-1959, and31 U .S .C . 5311-5330, authorizes the Secretary o f the Treasury, inter alia, to issue regulations requiring financial institutions to keep records and file reports that are determ ined to have a high degree o f usefulness in criminal, tax, and regulatory matters, and to im plem ent counter-money laundering programs and com pliance procedures. Regulations im plem enting Title II o f the B SA (cod ified at31 U .S.C . 5311-5330), appearat31 C FR Part 103. The authority o f the Secretary to administer the BSA has been delegated to the Director ofFinC E N . + FinCEN Advisory is a product o f the Financial Crimes Enforcement Network, > U.S. Department o f the Treasury, 2070 Chain Bridge Road, Vienna VA 22182, (703) 905-3520. Questions or comments regarding the contents o f the FinCEN Advisory should be addressed to the Office o f Communications, FinCEN. Information may also be faxed to (703) 905-3885. 4
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