The Wild Frontier

Money laundering along the U.S. Southwest border has always been a problem. However, new regulations in Mexico, an explosion of human trafficking and human smuggling crimes, and new channels through which "dirty" money is smuggled into the United States are changing the nature of cross-border money laundering. This dynamic environment presents new challenges for even the most savvy of AML professionals. To get a clearer picture of the situation, we turn to three senior AML specialists for their insights on money laundering along the border. They also have a few useful tips to help those faced with fighting cross-border money laundering.

New Routes

"The methods money launders are using to bring money across the border are increasing because of laws in Mexico," said Dennis Lormel, president of DML Associates, LLC and retired chief of the Federal Bureau of Investigation's (FBI) Financial Crimes Program. "Money that used to flow across our border from Mexico is now flowing into other countries, like Ecuador and Panama, and then into the United States."

In an effort to combat the illegal drug trade and to help mitigate the risk of drug-related money laundering, Mexico enacted new regulations in September 2010. These regulations limit the amount of U.S. dollars a customer can deposit into a financial institution to $4,000 per month. In a June 2010 Advisory, the Financial Crimes Enforcement Network (FinCEN) warned, at the time proposed, that the regulation could have a "significant impact" in the United States "both directly with respect to the nature of activity and relationships with Mexican customers and financial institutions, and indirectly with respect to possible changes in activity both within the United States and through intermediary countries." A little more than a year after the implementation of the regulations, this warning has proven true.

"The legislation has caused a displacement of an enormous amount of money," said Michael Braun, managing partner, Spectre Group International, LLC and retired chief of operations, U.S. Drug Enforcement Administration (DEA). "I'd say that one-third to one half of (U.S. dollars) have moved out of Mexico. Money is now moving through Central America into the United States and from the U.S. back into Mexico." As much as 30 percent of the drug money that used to move directly from Mexico into U.S. financial institutions now moves through Colombia, according to Braun.

This movement of money through intermediary countries makes it harder for AML professionals to detect. Standard detection practices may miss money moving through this new route. "This adds another thick layer to the whole scheme," Braun said.

New Crimes

Money laundering from drug-related activities remains a constant problem. Yet in recent years, human trafficking and human smuggling, and the laundering of proceeds from these crimes, have exploded and offer new challenges for law enforcement agents and AML professionals alike.

"Drugs will always be a problem," Lormel said. "But, I think the amount of money laundering due to drug trafficking is on par with the past. Human trafficking and human smuggling are quickly becoming the largest problems we face. And they pose new challenges for the AML community."

While drug cartels have established pipelines and methods for moving money, human traffickers are often not part of this criminal enterprise and the smugglers must work outside of these channels. Detecting the new channels through which the money is moving into U.S. financial institutions can be difficult. "Money launderers are using new methodologies and new funding streams," Lormel said. "We need to be more careful and look outside of government channels that we have relied upon in the past for information. It is a challenge because we in the AML community are still lacking in our capacity to monitor this flow. We just don't have the resources that money launderers do. That's part of the equation."

These channels include a resurgence of "smurfing" with a large number of individuals depositing less than $10,000 into financial institutions, using ethnic businesses to hide criminal proceeds, a growth of black market peso exchanges, and an effort to reverse engineer the system to find ways to move the money through various countries or third parties.

As the criminals develop new techniques, compliance professionals must work to stay up on the latest technologies, to keep an eye on developing trends, and to keep asking themselves "what if" and "what will the future bring?" "You can never rest on your laurels," said Al Gillum, CAMS, president of Advanced Compliance Technologies, LLC, and a retired postal inspector. "You need to keep thinking about what else? What are the ways the criminal element can use my product? You must continue to think, to research, to search out ways to enhance your ability to mitigate your risk. Don't just look at what is going on today; try to predict how it will look in five to ten years. Then look at your products and service and see how you can we plug those gaps."

New Ways to Meet the Cross-Border Challenge

The three experts offer the following suggestions for AML professionals confronted by the cross-border money laundering.

  • Don't get complacent and don't develop a false sense of security. While financial institutions and money services business along the Southwest border are at the most risk, proceeds from these crimes flow throughout the United States. "Clearly, you must have your eyes wide open to the magnitude of the problem," Lormel said. "Just because you have a good system in place doesn't mean you are protected from these new risks. As with all AML compliance programs, make sure you understand your particular business, evaluate the risks associated with your products and services in light of these new threats, prioritize the risks and then take reasonable steps to mitigate the risks."
  • Think outside the traditional classroom. "Training is critical, but it needs to be more than just the routine training we do every year," Gillum said. "We must continue our annual training, but we also must offer enhanced training throughout the year that helps our staff meet the challenges of these emerging risks. Training must take place in more than the normal way during the normal annual course."
  • Find ways to become even more vigilant. While watching out for new money laundering schemes, don't let old techniques like bulk cash smuggling catch you unaware. "There are still a lot of bulk shipments going across," Gillum said. "Criminals are very sophisticated about how they secrete the drugs they are smuggling in to the country and the cash they are smuggling out. I've seen amazing photos and footage how they find places in a car to stash $100,000 dollars or more." This includes re-engineering cars to build fake walls or building storage areas inside a vehicle's gas tank for drugs or money.
  • No matter where you live or work in the world, join organizations that lobby for and help build compliance-friendly environments. "All countries need to provide law enforcement with the tools they need to do their job," Braun said. "Most countries and their judicial processes do not provide for the type of investigative tools, like judicially approved wire taps and undercover operations that we have in the United States. The amount of intelligence and evidence that is gleaned from these complex investigative techniques is unbelievable. As drugs move in one direction and cash moves in the other, the operations are guided every step of the way by the cartels at the corporate level. The only way they can do that is by communicating with their operatives. If we can't access those communications, we will not be effective."

The U.S. Southwest will continue to be a hot spot for money laundering activity and crime for the foreseeable future. As the experts illustrate, as long as regulations continue to change, new technologies emerge, and criminals develop innovative ways to launder money, AML professionals will face increasingly sophisticated challenges. The key to success is to not fall behind the curve. It is only through constant monitoring of the environment and creating a flexible, proactive program can AML professional stem the flow of money laundering in this high-risk region.

Debbie Hitzeroth, CAMS, BSA/OFAC compliance officer, United States Postal Service, Washington, D.C., USA,

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