Risks Associated with Money Laundering and Terrorist Financing
Objective. Assess the adequacy of the bank’s systems to manage the risks associated with monetary instruments, and management’s ability to implement effective monitoring and reporting systems. This section expands the core review of statutory and regulatory requirements for purchase and sale of monetary instruments in order to provide a broader assessment of the money laundering risks associated with this activity.
Monetary instruments are products provided by banks and include cashier’s checks, traveler’s checks, and money orders. Monetary instruments are typically purchased to pay for commercial or personal transactions and, in the case of traveler’s checks, as a form of stored value for future purchases.
The purchase or exchange of monetary instruments at the placement and layering stages of money laundering can conceal the source of illicit proceeds. As a result, banks have been major targets in laundering operations because they provide and process monetary instruments through deposits. For example, customers or noncustomers have been known to purchase monetary instruments in amounts below the $3,000 threshold to avoid having to provide adequate identification. Subsequently, monetary instruments are then placed into deposit accounts to circumvent the CTR filing threshold.
Banks selling monetary instruments should have appropriate policies, procedures, and processes in place to mitigate risk. Policies should define:
- Acceptable and unacceptable monetary instrument transactions (e.g., noncustomer transactions, monetary instruments with blank payees, unsigned monetary instruments, identification requirements for structured transactions, or the purchase of multiple sequentially numbered monetary instruments for the same payee).
- Procedures for reviewing for unusual or suspicious activity, including elevating concerns to management.
- Criteria for closing relationships or refusing to do business with noncustomers who have consistently or egregiously been involved in suspicious activity.
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