A gentleman, who we will refer to as customer A, walks into a branch of a local community bank and opens a routine personal checking account with an initial $300 cash deposit. The customer is familiar to branch personnel having had several accounts—on and off—over the years. He is not a high-end customer. The branch employee performs customer identification (CIP), attempts to cross-sell some other products and then opens the account in the system. Customer A leaves, and like so many others becomes an obscure account number in a vast computerized customer base, possibly never to be heard from again. It is a scenario that takes place thousands of times per day at financial institutions around the world.
Several months elapse and customer A has not shown up on any anti-money laundering (AML) reports; nor has the account been overdrawn, continuing to act as obscure as the day it was opened. Then a currency transaction report (CTR) crosses your desk for review and you see a cash withdrawal not seen too often at any bank; one you may never see in your entire career. Customer A has made a $100,000 withdrawal.
The questions start piling up. What were the deposits? Why would customer A need $100,000 in cash? How come the branch failed to contact the Bank Secrecy Act (BSA) department: Do they believe the transaction is normal? Is the employee training working? Who is this guy? A call to the branch manager reveals that the manager did in fact question the customer, who advised he was using the cash to buy some rare coins—because customer A is a rare coin collector. The statement immediately strikes a chord since rare coins, artwork, stamp collections and antiques can be vehicles not only to launder and transport money, but also the motive for some other major crimes.
The gentleman, who had difficulty speaking English, did not elaborate about his hobby. Oh, by the way, the branch manager ends the conversation by telling you that the entire branch thought the withdrawal unusual and they were even thinking about calling you. The statement becomes even more disconcerting because the cash had to be ordered and the branch had an additional day to mull over the request.
Rare Coin Profiling
You put aside the job you are doing with BSA training for the moment and you of course begin your own investigation. On the surface customer A hardly fits the profile of someone who might engage in rare coin collecting. He is an assembly line worker at a local factory making a limited income, an income sufficient to pay the bills and take the family to an occasional movie. People, however, have other sources of income and their own hidden talents and interests. You are fully aware that to condemn customer A based on some initial observations is not only unfair but fails to provide the concrete evidence needed by law enforcement down the road. What is clear is that most likely someone, or some group of individuals, is receiving $100,000 in cash.
While simultaneously profiling customer A, you are engaged in something more substantial, reviewing the transactions on his account. A month after opening the account, customer A deposits three checks over a two-week period of $35,000 each. The checks are from three individuals (seemingly unrelated) in the general geographic area of your bank and of the same ethnicity as your customer. The account then remains inactive for several months until the cash withdrawal. Five days pass, with a weekend in between, and before you can even begin a suspicious activity report (SAR), customer A deposits two checks from two individuals (seemingly unrelated) living across the country—same ethnicity—for $52,500 each. It appears that customer A (and/or his accomplices) has just made a $5,000 profit in five days. The SAR is filed the next day.
If you have been in any profession long enough, your mind becomes computer like, quickly registering all the possibilities of what may be occurring in a given situation, along with (in this profession) a multitude of nefarious theories. Customer A appears to be acting as either a broker or a front man for the parties involved for any number or combination of possible reasons. Whether legitimate or not, the parties may not trust one another nor wish to be seen together. Maybe it is some type of Hawala transaction. Better yet, maybe they have found the perfect dupe in customer A. Whatever the case, while it could be rare coins, what exactly is being brokered is another matter. It is also safe to conclude that the likelihood of any tax ramifications being accounted for is slim to none, as is the potential that one or more economic or physical crimes are being perpetrated.
No one wants to lose an account because of a decision based on limited facts
Within a week of transmitting the SAR, the branch manager calls to advise you that customer A has requested another cash withdrawal, this time for $75,000. Two days later he has the cash and six days after that, with a weekend in between, he deposits one $80,000 check from a single individual in another part of the country—same ethnicity. This time the $5,000 profit took an extra day to earn.
Going on the Attack
After weighing all the factors you decide to send the customer a letter requesting he explain his actions in writing. Deciding under what circumstances warrant a letter is subjective, but suffice to say that if law enforcement is involved you should coordinate with them. Tipping-off is always a concern, but most BSA/AML professionals are savvy enough to know when a letter may be detrimental and SAR filings are still the order of the day. Conversely, closing an account is tantamount to tipping-off, so why not at the very least attempt to obtain an explanation. No one wants to lose an account because of a decision based on limited facts; nor do BSA departments want to file SARs in perpetuity.
A letter from the bank to a customer asking them to explain their activity will evoke a plethora of emotions and reactions ranging from understanding and cooperation to fear and anger. The response may be no response at all, analogous to a legal settlement with no admission of guilt. The customer fails to respond, but either closes their account or ceases their activity. How you structure the letter is up to you, but explaining the need for you as a financial institution to inquire, while not being accusatorial, generally strikes the right balance.
Roughly 10 days pass before you hear from customer A. Ten days is not unusual since the letter catches most people off-guard. Those with something to hide are most likely scrambling to concoct some kind of rational explanation, not realizing they may only be incriminating themselves further (another reason to consider a letter). As in many cases, customer A approaches his branch manager first. A branch manager is the face of the bank in a community and they are certainly more people oriented than those in the back office, often lending a sympathetic ear if nothing else. The manager directs customer A to the BSA department, giving a heads-up as the customer exits the branch.
When customer A does call, the BSA/AML professional assigned to the case explains the purpose of the letter and stresses that customer A needs to provide an explanation; since the bank has insufficient information to make anything other than a broad-based determination. The customer reiterates what he initially told the branch manager, but his tone underscores that he has no conviction in what he is saying. When pressed to put it in writing he asks a curious question, wanting to know if the government is involved; a question he repeats several times during the conversation. You calmly reply in each instance that it is the bank inquiring. The conversation ends with customer A deciding to close his account, which he does the next day.
So you file your supplemental SAR on the second transaction and rehash all the theories of what customer A may have been up to, waiting to see if it becomes customer A's self-fulfilling prophecy of the government becoming involved.
Too bad he did not put his explanation in writing.