A Tell by any Other Name—What a Poker Player can Teach You About Recognizing Suspicious Activity

© Grant Brownrigg of Grantland.net

Gambling is inherently a risky business and one where the odds of success run from slim to practically none. Yet the game of poker injects both a skill element born of study and experience and the element of psychology that can significantly mitigate the risks for a skilled and dedicated player. While there is still the element of randomness that can defeat even the most highly rated player, playing against humans provides what a roulette wheel and rolled dice cannot. That is a clue to what your opponent is doing and planning — which in poker parlance is called a “tell.”

There is a similarity in poker tells and money laundering red flags in that some are very easy to spot and others take a significant amount of skill, intuition and perseverance to recognize. Whether you are a seasoned anti-money laundering (AML) professional or a rank beginner, a primer on recognizing money laundering red flags is a useful tool. Certain aspects of a poker game and the actions of poker players have remarkable similarities to the classic three stages of money laundering.

For example, the stakes of the game and preference of opponents equates to placement, as it involves selecting the best means of entering money into the “game.” The ways bets are placed are physical clues depending on holding a winning, marginal or bluffing hand equates to layering. This is how your opponent is manipulating the way the money is either placed at risk for greater profit or shielded from those who seek it. The final bet to lure you into a losing call or fold equates to integration. When the poker player leaves the tables with his or her winnings, the money has been removed from the “game.”

Collecting enough useful knowledge about a poker player or a money launderer is not always an easy task. The movies may depict a poker tell as a nervous cough, sitting forward or blinking the eyes rapidly. If only it were that easy. Professional players collect data over a period of time and are constantly noting aspects of an opponent’s personality, tendencies and style of play. In addition, they are constantly seeking updated information as their opponents will often change their style to throw others off. However, there are still patterns that can be discerned and profiles that can be created if one is observant and dedicated enough to spot them. So it is with spotting the indications of money laundering. Knowing what tells or red flags to look for can go a long way in the risk mitigation function of your AML efforts. What follows is a condensed view of sample red flags at each of the three stages of money laundering. These samples come primarily from the banking and financial account industries, though there are some useful insights for money services businesses as well.

The following examples are meant to help compliance officers identify certain types of transactional activity during review of their everyday reports. These are only a few examples of many and this will hopefully help to develop a reporting structure to make a more efficient and well documented AML program. These examples are simple and brief, but as we all know, good launderers often have very complex and intricate laundering schemes.

There are a number of sources for discovering and detailing the various red flags. Many of them are the same for most of the examples that follow. Instead of listing them repeatedly for each scenario, here is a list of excellent sources of data that will enable you to spot those trends and patterns that lead you to catching a money launderer.

Red flag source materials:

  • CIP/CDD reports
  • Web searches on customers and signers
  • Bank documentation
  • Cash reports
  • ACH reports
  • Wire reports
  • Internal transfer reports
  • Monetary instrument purchases
  • Reports on associated accounts
  • Velocity reports
  • Information from tellers and other frontline staff

Placement

When you first join a poker game you want to be knowledgeable about your opponents or be able to size them up pretty quickly. This gives you an advantage from the start. The same is true of spotting money launderers.

Classically, the first and most vulnerable stage of laundering money is placement. Your opponents are working hard to put their illegal proceeds into the financial system/game without attracting attention. Placement techniques include structuring currency deposits in amounts to evade reporting requirements or commingling currency deposits of legal and illegal enterprises. Therefore, the initial place to focus on finding flags for AML professionals is cash transactions.

Placement red flags:

  • Exact dollar amounts
  • Large amounts of cash-ins that are not in line with a type of business.
  • Cash-intensive businesses that split their deposits to avoid reporting requirements
  • For high cash volume businesses, none of the cash-ins are over $10,000.00
  • Cash-ins in some cases are performed on the same business day, however, different branches are used

Information derived from the backroom review:

  • Exact amount cash-in
  • Any linkage between customers noted in CIP/CDD information
  • Look for where the funds go, review the destination of funds

When sizing a potential money launderer or a poker opponent there is nothing like firsthand information. What your frontline staff can tell you is invaluable. Make sure they are well trained to pick up on certain behaviors.

For example:

  • Exact amount cash-ins
  • Any comments the customer makes concerning the transactions or their business
  • Any mention of the reporting thresholds when deposits made

Supporting documentation (your little black book on your opponents):

  • Document any notes from the frontline on comments the customer may have made
  • Document the source and destination of funds
  • Document all web searches for information on the customer and customer’s business

Here’s an example of a placement scenario relating to real estate. Smart 1 is a real estate business. In reviewing cash reports it is noticed there are numerous high dollar cash-ins, the cash-ins are exact amounts and are all under the reporting threshold. The cash-ins are made at different branches on the same business day in some cases. In order to spot this type of placement, perform red flag reviews of your reports. Sort the reports by branch and date to find customers performing cash-ins around the same time every day. Also, look for customer associations.

Your backroom staff should take a close look at customers via CIP reports and business signers. Create transparency with the customer to know who benefits from the funds. This aspect is becoming more and more important as the regulations are requiring you to dig even deeper into the beneficial ownership of an account. In addition, look at the destination of the funds deposited. See if the deposits are transferred or put into a shared or associated business account.

Let us look at how this scenario plays out on a spreadsheet. In Table 1 below see how the exact dollar amounts of cash-in are structured over multiple days, as well as some deposits made on the same day at different branches. Note the business type and research to see why a real estate business may have large cash-ins. Remember to document any findings. If it is not documented it might as well have never happened.

Here is another placement scenario that should instantly alert you to deposit activity that is out of the ordinary. A customer that you know works for a construction company that makes large cash deposits containing many larger denomination bills, such as the 500 euro note or US$100 bills. This customer will frequently deposit large sums of cash wrapped in currency straps stamped by other banks or currency wrapped in rubber bands that is disorganized and does not balance when counted. This kind of red flag is one of the easier ones to spot. It is like the “nervous cough” tell of a poker player with a great hand.

Note from the transactions in Table 2 below the exact amount of cash-in under the reporting threshold ($10,000.00) on consecutive days. Remember to document any information from the teller as to how the cash is deposited, for example denominations strapped or unstrapped.

Sometimes you will come upon a poker game where it quickly becomes obvious that certain players are working together or have established a pattern that would indicate some sort of collaboration. This is the same as structuring through “smurfing.” An alert frontline staff will pick up on the consistency and frequency of some depositors. It can also be spotted by a review of cash-in reports.

In Table 3, Joe Smith is noticed purchasing several cashier’s checks for cash in amounts that would not be recorded. Note the cash-in for cashier’s check purchases under the $3,000 amount as some people see the $3,000 cash-in for cashier’s checks as a reporting threshold. Look at the payees on the checks and note if they are the same or different, to a business or to a person and what the relationship may be.

Layering

Layering is the midgame of the money laundering process. It is often the most complex and convoluted, therefore making it the hardest to trace The shell game of moving funds around the financial system in a complex series of transactions to create confusion and complicate the paper trail makes finding the red flags that much more difficult. It is the same with trying to figure out a world-class poker player. Players at the top level know you are trying to find their tells, so they work hard to hide them. Common examples of layering include exchanging monetary instruments for larger or smaller amounts, wiring or transferring funds to and through numerous accounts in one or more financial institutions. The trick is knowing what to look for and anticipating the money launderer’s next move based on previously created, well-researched profiles.

Layering Red Flags:

  • Many transactions with exact dollar amounts, but not all the time
  • Velocity of funds into and out of accounts
  • Internal transfers between accounts
  • High volume of wires and ACH transactions in and out

What to look for in the reports:

  • Transactions with exact dollar amounts, any linkage between customers noted in CIP/CDD information
  • Destination and source of funds

Important information from frontline staff:

  • Transactions with exact dollar amounts
  • Any comments the customer makes concerning the transactions or their business
  • Any mention of the reporting thresholds when the deposits were made

What to have in your little black book:

  • Document any notes from the frontline on comments the customer may have made
  • Document the source and destination of funds
  • Document who the funds go to or come from and any linkages found in the review
  • Document all web searches for information on the customer and customer’s business

The examples of layering could fill volumes so here’s a common one:

The customer withdraws cash, in $100 bills, in amounts under the reporting threshold, from accounts where funds derived from fraud schemes were deposited. Those funds are then wired to an offshore account where they are consolidated and used to buy goods.

By some standards that is a relatively simple trail. To latch onto the layering scheme one needs to be able to see the big picture and assemble a collection of transactions into a cohesive story. Often the first steps in this process show up in some of the reports that were mentioned earlier. For example:

  • From review of backroom reports look for large exact dollar withdraws
  • Look for source of funds for the withdrawal look for possible fraud red flags
  • Train frontline staff to note denominations

Here’s what the extraction of funds to start the layering process might look like. From the Table 4 below you can see exact amount of funds-in from PayPal also look for other money transfer vendors. Look at the velocity of funds in and funds out and source and destination of funds. Don’t forget to document any findings.

Integration

A poker player wants to leave the table with a large stack of chips, especially those chips that used to belong to someone else. Often his opponents know they have been beaten, but are often not sure how. That in a way is the same goal as a money launderer. They want to integrate the money back into the world in legal funds even though they started the journey with a criminal origin. The integration stage is used to create the appearance of legality through additional transactions. These transactions further shield the criminal from a recorded connection to the funds by providing a plausible explanation for the A poker player wants to leave the table with a large stack of chips, especially those chips that used to belong to someone else. Often his opponents know they have been beaten, but are often not sure how. That in a way is the same goal as a money launderer. They want to integrate the money back into the world in legal funds even though they started the journey with a criminal origin. The integration stage is used to create the appearance of legality through additional transactions. These transactions further shield the criminal from a recorded connection to the funds by providing a plausible explanation for the source of the funds. Examples include the purchase and resale of real estate, investment securities, foreign trusts or other assets.

Integration red flags:

  • Transactions with exact dollar amounts
  • Look for large dollar purchases that are unexplainable
  • Review large payments off to loans or credit cards

What to look for in the reports:

  • Transactions with exact dollar amounts
  • Any linkage between customers noted in

CIP/CDD information

  • Look for where the funds come from and go to, review destination and source of funds

Important information from frontline staff:

  • Transactions with exact dollar amounts
  • Any comments the customer makes concerning the transactions or their business
  • Any mention of the reporting thresholds when performing transactions (not just cash)

What to have in your Little Black Book:

  • Document any notes from the frontline on comments the customer may have made
  • Document the source and destination of funds
  • Document all web searches for information on the customer and customer’s business

A typical integration scenario involves the purchase and resale of real estate. In it a customer makes frequent loan payments for large exact amounts, you may notice a short time period in the loan disbursement and the payoff of the loan.

Some of the ways to spot this are:

  • Look for large exact dollar payments from reviewing backroom reports
  • Review type of business or customer’s occupation
  • Review loan documents to see purpose of loan
  • Research related documents that can be helpful for further due diligence (financial statements, tax returns, etc.)
  • Conduct web searches on business and / or customer to find more information on the customer
  • Document source of funds for the payments and destination of funds for the loan disbursement look for possible red flags

From Table 5 below you can see exact amount of funds going to make loan payments either directly to the loan or from a checking account the funds went into. Be sure to adjust your thresholds and look periodically at all transactions-in and out to see if there are holes in the report that need to be fixed and thresholds need to be updated. Depending on your organization’s risk appetite, you may need to assess the thresholds at least quarterly. Also, look at the velocity of funds in and funds out and source and destination of funds, document any findings.

Seeing the Big Picture

As stated previously, few poker players have simple tells. Indentifying the tells and red flags of your opponents takes detailed, integrated study, and sometimes a little luck, to uncover. Money laundering schemes are difficult to uncover especially in the later stages. It is through research and good documentation — the little black book — that you can eventually put pieces of the puzzle together as you go. Looking at all the stages together may help to see a possible case and work to help uncover crimes that may be occurring. Graphics often make it much easier to spot telltale trends as they can illuminate data that could get lost in endless spreadsheets, even with computerized programs to help pull data. For example using pivot tables to visualize transactional activity either through graphs or through flow charts may help to paint a picture not seen in normal reports. Visualizing where the funds go and how they go into and out of accounts is a great tool in investigating activity.

Whether you are planning on entering an international poker tournament or breaking a worldwide money laundering ring, looking for tells and red flags as part of a bigger picture and documenting them effectively is the best formula for success. Stay alert, stay focused and pay attention to details. That’s the best bet for coming away with a winning hand.

Robert Joe Soniat, CFE, CAMS, BSA/AML officer, Union First Market Bankshares, Richmond, VA, USA. The presentation that is the basis of this article can be found at www.ACAMSToday.org or by emailing robert.soniat@bankatunion.com

Ed Beemer APR, CAMS, principal, ComplianceComm®, a BSA/AML compliance communications firm in Arlington, VA, USA, efb@compliancecomm.com

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