Money laundering: what will criminal elements think of next?
| Pages | 122-126 |
| Date | 01 April 2005 |
| Published date | 01 April 2005 |
| DOI | https://doi.org/10.1108/13685200510621136 |
| Author | Mark McKenzie |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control Ð Vol. 8 No. 2
Money Laundering: What will Criminal Elements
think of Next?
Mark McKenzie
INTRODUCTION
The nature of the Food Stamp Program and the large
amount of money that it provides to recipients creates
the potential for money laundering. Bene®ts distribu-
ted through the Electronic Bene®ts Transfer (EBT)
system as well as those distributed as food stamp cou-
pons are highly vulnerable to money laundering and
other criminal activity. The misuse of the Food
Stamp Program by criminal elements is of concern
to public policymakers for two reasons. First, contin-
ued misuse of the Program can undermine its integ-
rity. Secondly, the Program was created to provide
a social safety net for the most vulnerable social class
in society, but continued misuse of it could unwit-
tingly divert its bene®ts to criminals. Any resulting
social and economic consequences would then be sub-
stantial. At the same time remedial actions to eliminate
or reduce the money laundering vulnerabilities of the
Program, if not properly formulated, could also create
layers of bureaucracy that result in the frustration of
low-income individuals seeking to access social wel-
fare. Financial institutions are in a unique position to
help the Food and Nutrition Service (FNS) and law
enforcement agencies by identifying suspicious activi-
ties relating to the misuse of the Food Stamp Program.
This paper highlights a number of cases relating to
food stamp tracking and how ®nancial institutions
know your customer/customer due diligence policies
and suspicious activity reports (SARs) can be used to
minimise the risk of food stamp tracking and thus
protect the social safety for low-income individuals
and families.
The threat to the ®nancial system posed by money
laundering and terrorist ®nancing remains very real.
Money laundering is an evolving activity even at a
time when the ®nancial community is still trying to
learn more about the concrete methods terrorists use
for getting funding. The August 2004 issue of the
SAR Activity Review, `Trends Tips and Issues by
FinCEN', identi®ed the possible misuse of the Food
Stamp Program for money laundering. In light of
the fact that in the USA the Food Stamp Program is
aimed at helping low-income individuals and families
to obtain nutritious food for healthy diets, it is very
alarming to know that this programme is being
targeted by criminals to launder dirty money. For
some time now, experts in the ®eld have noted the
threat money laundering and terrorist ®nancing
poses to ®nancial stability and general economic
well being. The targeting of the Food Stamp Program
to launder the proceeds of crime is testimony to this
fact. Public policymakers are therefore concerned as
the misuse of the Program, if left unchecked,
could adversely aect the health and nutrition of
low-income individuals resulting in serious social
consequences.
The FinCEN report noted that an estimated
$395m of food bene®ts are diverted each year
from their intended purpose through food stamp
tracking and associated money laundering activi-
ties to hide illegal proceeds. In a March 2000
Report the Food and Nutrition Service (FNS)
used data from their investigations of authorised
retailers and disclosed that stores tracked over
$650m each year during the period 1996± 1998.
This amounted to 3.5 cents of every food stamp
dollar issued.
1
In the USA the Food Stamp Program is the princi-
pal nutrition assistance programme. Households
apply for bene®ts at state or local welfare oces. Eligi-
bility is generally based on the household's level of
income and other resources of the applicant, including
bank accounts and real estate. In 2002 just over $18bn
in food stamps was issued to an average 8.2 million
households.
2
The programme provides monthly pro-
gramme allotments to households in the form of paper
coupons or in the form of electronic bene®ts transfer
cards.
EBT systems cards, which were introduced in 1984,
function much like bank debit cards. Food stamp ben-
e®ts provided via coupons and EBT cards can be
redeemed at authorised retailers. As of July 2003, 52
of 53 state agencies have operational systems with 48
being operational state or district-wide. It is now esti-
mated that about 91 per cent of participating house-
holds receive food stamp bene®ts through EBT
Page 122
Journalof Money Laundering Control
Vol.8, No. 2, 2004, pp. 122± 126
#HenryStewart Publications
ISSN1368-5201
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