Page 150 - DMGT303_BANKING_AND_INSURANCE

Unit 7: KYC Norms and Anti Money Laundering

Notes

Caselet Shell companies and Corporate Service Providers
uring a two-year period, financial institutions in a European country made
suspicious transaction reports to the relevant financial intelligence unit. The reports
Didentified large cash deposits made to the banks, which were exchanged for bank
drafts made payable to a shell corporation based and operated from an Asian jurisdiction.
The reports identified transfers totally approximately US$1.6mn to an account held by the
shell corporation at a financial institution in the Asian jurisdiction.

At the same time, police had been investigating a group in that country which was involved
in importing drugs. The following year, police arrested several persons in the group,
including the principal, who controlled the company within the Asian jurisdiction. They
were charged with conspiring to import a large amount of cannabis. A financial
investigation showed that the principal had made sizeable profits, and a large percentage
of this was traced and restrained. A total of approximately US$2mn was sent from the
European country to the Asian jurisdiction, and subsequently transferred back to bank
accounts in Europe where it was restrained.
Two methods were used to launder the money. The principal purchased a shell company
in the Asian jurisdiction which was operated there by a secretarial company on his
instruction. The shell company opened a bank account, which was used to receive the
cashier's orders and bank drafts which had been purchased for cash in the country of
origin. The principal was also assisted by another person who controlled (through the
same secretarial company) several companies, which were operated for both legitimate
reasons and otherwise. This person laundered part of the proceeds by selling the funds on
to several other jurisdiction, and used non face to face banking (computer instructions
from the original country) to do so.

Seven persons including the principal were put on trial in the European country on charges
of drug trafficking, and the principal and the three other persons faced money laundering
charges.
Key Learning
This example shows how attractive and easy it is for criminals (even if not part of
international organized crime) to use corporate entities in other jurisdictions, and to
transfer illegal proceeds through several other jurisdictions in the hope of disguising the
origin of the money.
It demonstrates the ease with which company incorporation services can be obtained, and
shows that many of the companies which sell shell companies, as well as the secretarial
companies which operate them, are not likely to be concerned about the purpose for
which the shell company is used.

It highlights the need for the financial institutions to have a system which identifies
suspicious transactions not just at the front counter, but also for non face to face transactions,
such as occurred in this case.
It can take some time to conduct international financial investigations and to trace the
proceeds of crime transferred through several jurisdictions, and there is a consequent risk
that, during the investigations, funds will be dissipated.

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