Identifying money laundering. Analyzing suspect financial conduct against the speed, cost, and security of legitimate transactions
| Published date | 06 July 2015 |
| Date | 06 July 2015 |
| Pages | 266-292 |
| DOI | https://doi.org/10.1108/JMLC-08-2014-0025 |
| Author | Stephen Sterling |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Identifying money laundering
Analyzing suspect nancial conduct against
the speed, cost, and security of legitimate
transactions
Stephen Sterling
Ministry of the Attorney General for Ontario, Criminal Law Division,
Toronto, Canada
Abstract
Purpose – This study aims to develop a newer, revised model of money laundering of general
application, and to apply that updated laundering model to the use of cash in Canada. A wide-ranging
analytical tool for identifying money laundering is described, which demands a comparative evaluation
of available nancial choices against choices made, concentrating on factors which matter most to
economic enterprises: speed, cost and security. The model is applied to bulk cash money laundering and
the use of cash in the Canadian context, a mature economy where cash is predominantly used for
micro-payments. The inference of criminality to be drawn from bulk use of cash is explored, as is any
need for continued circulation of large denomination banknotes.
Design/methodology/approach – Extensive criminal investigative experience is juxtaposed with
practices of legitimate commerce. As to patterns of transactional conduct, a review is undertaken of
publications from nancial institutions including the Bank of Canada.
Findings – The model may be applied generally. In light of modern banking realities, strong
inferences of criminality arise from the bulk use of cash.
Research limitations/implications – Documented standards of legitimate commerce and proven
laundering behaviours provide more reliable evidence than voluntary disclosures from surveys.
Practical implications – The model promotes an objective analysis of nancial conduct either in
conjunction with, or independent of extrinsic evidence, and can augment historic lists of laundering
indicators and identify new laundering typologies.
Originality/value – The speed, cost and security model moves towards a renewed paradigm for
understanding laundering, beyond traditional cash-based models. This instructive model applies to the
full spectrum of laundering, from frauds to cash-based street crimes. By examining the inherent
characteristics of nancial choices, investigations may proceed without tipping off targets. The model
maximizes the investigative value of know-your-customer information.
Keywords Bulk cash, Frauds, Identifying money laundering, Modern banking and KYC,
Money laundering indicators, Patterns of legitimate commerce
Paper type Viewpoint
Any opinions expressed herein are not necessarily the views of my employer, the Ministry of the
Attorney General for Ontario – Criminal Law Division; the author’s past employer, the federal Public
Prosecution Service of Canada; or of any other prosecution group or investigative body. The author
wishes to thank Jeffrey Simser, Ministry of the Attorney General for Ontario, for his considered review
of earlier drafts of this paper. Any errors are of the author’s. The author has had the benet of
professional collaboration with many other exceptional colleagues. To one, Staff Sergeant Gene Hann
of the Royal Canadian Mounted Police (IPOC and Expert Witness Program), the author owes a special
debt of gratitude. For more than a decade of valued collaboration, he has the authorᏺs sincere thanks.
An earlier, abbreviated expression of the SCS model appears in S/Sgt. Hann’s “Principals of Legitimate
Funds Transfers” (2005), published by the Ofce of the Superintendent of Financial Institutions
Canada: www.os-bsif.gc.ca/app/DocRepository/1/eng/speeches/ghann_e.ppt
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
JMLC
18,3
266
Journalof Money Laundering
Control
Vol.18 No. 3, 2015
pp.266-292
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-08-2014-0025
Everyone, it seems, loves banking – until the costs appear prohibitive. The transaction
speed, relatively inexpensive efciencies, global reach and security of funds generally
available within nancial institutions have contributed to make banking in all its forms
universally popular. Conspicuously, the accessibility, safety and immediacy of banking
all exist without the need to transact in cash. Criminals seeking to launder the proceeds
of crime would love to avail themselves of the conveniences and relative safety of banks,
but not at any cost. In a world of anti-money laundering (AML) reporting requirements,
the kinds of costs which dictate banking decisions for criminals and drive them away
from nancial institutions include the risk of being associated to their felonious exploits
and ill-gotten proceeds.
Bankers, regulators and law enforcement confronting the challenge of discerning
sophisticated laundering behaviours amidst a ood of legitimate nancial activity are
presented with a conundrum. One way forward is to search for the added costs, delays
and risks taken in the course of money laundering. The illusion of legitimacy can be
unveiled by recognizing and highlighting laundering choices, which are inconsistent
with legitimate commerce. By leveraging the added burdens of money launderers back
against these would-be deceivers, investigators of all sorts can reveal the substance of
laundering activity, despite its many disguised forms.
Where the decision is made to launder money by ying under the radar – seeking to
largely or entirely avoid AML surveillance – the choice to assume the vulnerabilities of
cash can prove a strong identier of criminality when contrasted with the norms of
lawful commerce.
1. Speed, cost and security as comparators for assessing the legitimacy
of nancial conduct
If the rst rule of business is to make money, the immediate corollary is not to needlessly
lose money made. These truisms apply with as much force in the netherworld of crime
for prot as they do in the realm of legitimate business. Indeed, the corollary of not
losing money made applies with even greater force to criminals as they face additional
prospects of asset forfeiture and nes[1], and, by virtue of the company they keep, an
accentuated risk of loss by theft, fraud, extortion and violent robbery.
Criminal entrepreneurs as a general rule would prefer, just like their legitimate
counterparts, to place the proceeds of their endeavours into a bank or other nancial
institution where their funds could be moved quickly, cheaply and securely – at any time
and to any place – throughout the virtual world of banking.
A highly perceptive approach to apprehending money laundering activity focuses on
identifying the added burden of laundering as a hallmark of enterprises which
encompass criminal activity. Contrasting laundering activity (or inactivity) with the
predominant sensibilities and more streamlined practices of lawful commerce produces
a telling perspective. Financial behaviour under scrutiny is measured against the speed,
cost and security associated with legitimate transactions. Local knowledge of
behaviours denoting legitimate and illegitimate nancial conduct understandably
serves as the reference standard for comparison against suspect business choices. The
emphasis for investigators[2] is placed on examining those factors which have the
greatest predictive capacity, the characteristics most pointedly connected to nancial
loss and gain.
267
Suspect
nancial
conduct
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