Emerging: Crime exposed in the currency exchange industry

by Michael Diaz Jr. - Diaz Reus International Law Firm

U.S. prosecutors have recently filed an indictment against the operators of the Costa Rica-based currency exchange, Liberty Reserve, accusing it of helping criminals around the world to launder more than US$ 6 billion. The laundered funds have been linked to everything from child pornography to software for hacking into banks. Any currency exchange business risks the possibility of being used to assist with money laundering and terrorist financing with consequences ranging from (a) imprisonment for failing to disclose money laundering suspicions and (b) civil action against the business as a whole and individual stakeholders, to (c) damage to reputation leading to a loss of business.

Money laundering in the currency exchange industry is growing at shocking speed around the globe. The emerging crime trend in this industry is testing the limits of compliance professionals, law enforcement and regulators. The emerging payment systems are very attractive to criminals who seek to launder money, which makes it very vulnerable to money laundering.

For example, in Venezuela Exchange Controls and the lack of foreign currency and U.S. dollars in the market have created a black market rate that is approximately four times the official exchange rate. While it seems to be necessary in order to control inflation and grant companies in Venezuela access to foreign currency, the violation constitutes an exchange crime punishable with a substantial fine, and if the operations exceed US$ 20,000 in a calendar year, with imprisonment between 3 and 6 years.

The good news is that businesses can learn from the Liberty Reserve case and take steps to meet their Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) obligations. Robust AML/CTF practices for potential crime identification and reporting can allow currency exchange businesses and law enforcement agencies to effectively combat this financial crime.

Money Laundering Warning Signs

Although different currency exchange businesses are more vulnerable than others, these are some warning signs of potential money laundering schemes that should heighten risk awareness or raise suspicions:

1.    Unusual sources of funding. Large quantities of cash from unusual sources are obvious signs of potential money laundering.

2.    High-risk jurisdictions. Transactions involving high-risk jurisdictions that have strategic AML/CTF deficiencies should give a cause of concern.

3.    Secretive clients. Although high levels of client contact or in-depth understanding of their business activities may not always be necessary, unusually secretive clients should be considered suspicious. Clients who avoid key stages of a transaction, such as due diligence, may be attempting to engage in a criminal activity.

4.    Unusual business structure or transaction path. Any business structure or transaction path that seems unnecessarily complicated should be treated as suspicious. An unusual transaction value can also be an indication of money laundering.

Key Preventive Measures

The following key preventive measures should be implemented to mitigate money laundering and terrorist financing risks:

1.    Client due diligence.Businesses should undertake client due diligence measures, including identifying and verifying the identity of their clients. The client due diligence measures should also be consistent with any guidelines issued by competent authorities. For higher risk categories, businesses should perform enhanced due diligence. Additionally, special attention should be paid to any money laundering threats that may arise from new technologies that might favor non-face to face clients.

2.    Record Keeping. Businesses must keep records on the identification data obtained in order to enable them to comply swiftly with information requests from the competent authorities. Ideally, a business should maintain all necessary records on transactions, both domestic and international, for at least five years after the business relationship has ended.

3.    Suspicious Transaction Reporting. If a business suspects that funds are the proceeds of a criminal activity, it should report promptly to the relevant enforcement agency. For this reason, businesses should pay special attention to all complex and unusual transactions which appear to have no apparent lawful purpose.

4.    AML/CTF Programs. Businesses should develop programs against money laundering and terrorist financing. These programs should include the development of internal policies, procedures and controls, an ongoing employee training program, and an audit function to test the system.

If you require further assistance in conducting due diligence investigations, compliance and audit programs, or defense in responding to law enforcement the attorneys of Diaz Reus can help. Several of our attorneys hold certification as Anti-Money Laundering Specialists registered with ACAMS. We have 13 global offices and are fluent in 14 languages.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Diaz Jr. - Diaz Reus International Law Firm | Attorney Advertising

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Michael Diaz Jr. - Diaz Reus International Law Firm

Michael Diaz Jr. - Diaz Reus International Law Firm on:

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