Over the past several years the banking industry, financial institutions, and the financial services industry have made significant strides in money laundering detection and prevention. However, they continue to be vulnerable to misuse by criminal elements for laundering illegally obtained profits and funds intended to finance terrorist activities.

Money-laundering methods have become more creative since the 1989 and 1993 versions of this booklet were published. This is due to the expansion of products and services offered, more complicated financial relationships, advances in technology, and the increased velocity of money flows worldwide.

Terrorist financing, although only one aspect of money laundering, has become a critical concern following the events of September 11, 2001. The Office of the Comptroller of the Currency requires regulated institutions to develop and implement effective anti-money laundering programs that encompass terrorist financing. This has included record searches against U.S. government lists of suspected terrorists and terrorist organizations. The USA PATRIOT Act1 contains provisions to combat international terrorism and block terrorist access to the U.S. financial system.

Several international organizations have also issued measures to curb money laundering and terrorist financing.

Download Money Laundering: A Banker’s Guide to Avoiding Problems

PDF format, 838KB, 35Pages.

Office of the Comptroller of the Currency
Washington, DC. December 2002

This booklet updates and expands upon the Office of the Comptroller of the Currency’s (OCC’s) prior publication, Money Laundering: A Banker’s Guide to Avoiding Problems (second edition June 1993). This revision was prompted by the growing sophistication of money launderers, a growing international response to money laundering, changes to anti-money laundering laws, and recent anti-terrorist financing legislation.

This booklet presents basic background information on U.S. money-laundering laws and international anti-money laundering efforts. It also discusses actions bankers can take to better identify and manage risks associated with money laundering and terrorist financing. It is intended to provide a high-level discussion of concepts and issues. More detail on the subjects discussed may be obtained by using the listing of materials and organizations in the “Where to Get More Information” section.

Background:

Money laundering is the criminal practice of filtering ill-gotten gains or “dirty” money through a series of transactions, so that the funds are “cleaned” to look like proceeds from legal activities. Money laundering is driven by criminal activities and conceals the true source, ownership, or use of funds. The International Monetary Fund has stated that the aggregate size of money laundering in the world could be somewhere between 2 and 5 percent of the world’s gross domestic product.

Money laundering is a diverse and often complex process that need not involve cash transactions. Money laundering basically involves three independent steps that can occur simultaneously:

• Placement - placing, through deposits or other means, unlawful proceeds into the financial system.
• Layering - separating proceeds of criminal activity from their origin through the use of layers of complex financial transactions.
• Integration - using additional transactions to create the appearance of legality through the purchase of assets.

An effective anti-money laundering program will help minimize exposure to transaction, compliance, and reputation risks. Such a program should include account opening controls and the monitoring and reporting of suspicious activity. Identifying possible terrorist financing may be a more difficult endeavor, since transactions may originate from legitimate sources and involve relatively small amounts of money.

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