The Bank Secrecy Act vs. the MLM underbelly
To be honest I’m not really sure why they’ve done so, but today the Financial Crimes Enforcement Network (FinCEN) shed some light on the finer details of their Liberty Reserve investigation.
In the update, FinCEN revealed the Bank Secrecy Act played a major role in their investigation into the payment processor.
Why is that significant?
Because it’s never been done before… and upon closer inspection of the Act, one can only wonder what this will mean for the MLM underbelly going forward.
For those unfamiliar with Liberty Reserve, FinCEN claim it
facilitated international crime by providing anonymity to individuals involved in illicit financial transactions.
It allowed criminals to use its currency to make and receive payments for illicit material or activity including child pornography, Ponzi schemes, stolen identity, credit information, narcotics, and other contraband.
Indeed, while Liberty Reserve was operational, if I was reviewing a scheme newly launched from the depths of the MLM underbelly, you can be sure they were utilizing them as a payment processor.
Liberty Reserve was specifically designed and frequently used to facilitate money laundering in cyber space.
It is estimated that $6 billion Liberty Reserve dollars were processed within this platform from 2009 thru 2013.
This particular update from FinCen isn’t so much about the shutdown of Liberty Reserve (read BehindMLM’s coverage of that here), but rather the role of the Bank Secrecy Act within the framework of prior investigation.
The trouble with investigating Liberty Reserve is that within the network everything was pretty much anonymous, with accounts tied only to email addresses. These addresses could of course be temporary and/or anonymous, posing an investigative dilemma.
Enter the Bank Secrecy Act.
The Bank Secrecy Act of 1970 requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering.
As you can see, the Bank Secrecy Act is of course nothing new… but its role in taking down Liberty Reserve certainly was.
In May 2013, FinCEN identified Liberty Reserve as a financial institution of primary money laundering concern.
Dozens of BSA records filed by more than 20 financial institutions described staggering amounts of funds transfers, helping complete the puzzle for investigators.
This was the first use of such authorities by FinCEN against a virtual currency provider.
Liberty Reserve itself is done and dusted, with its founder likely going to jail for a long time. What I’m interested in though is FinCEN’s use of US regulators using the Bank Secrecy Act, and what the means for the MLM underbelly.
The BSA regulations require all financial institutions to submit five types of reports to the government.
One of which is a “Currency Transaction Report”:
A CTR must be filed for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial institution, which involves a transaction in currency of more than $10,000.
And the other of interest, a “Suspicious Activity Report”:
Banks must file a SAR for any suspicious transaction relevant to a possible violation of law or regulation.
The second report is as broad as broad can be, but the first is pretty locked down. In that, if you transfer $10,000 or more into or out of the US, it’s going to be recorded and made readily available to US regulators.
Oh and forget about “flying under the radar” with multiple transactions under $10,000:
The CTR must report cash transactions in excess of $10,000 during the same business day.
The amount over $10,000 can be either in one transaction or a combination of cash transactions.
It is filed electronically with the Financial Crimes Enforcement Network (“FinCEN”).
And as mentioned, beyond a CTR report, qualifications for a SAR are even broader:
The SAR must report any cash transaction where the customer seems to be trying to avoid BSA reporting requirements.
A SAR must also be filed if the customer’s actions suggest that he is laundering money or otherwise violating federal criminal laws and committing wire transfer fraud, check fraud or mysterious disappearances.
“Oh but they won’t bother with me Oz, I’m a nobody…”
There are heavy penalties for individuals and institutions that fail to file CTRs or SARs.
So with that in mind, what exactly is included in these reports?
CTRs include the individual’s bank account number, name, address, and social security number.
SAR reports, required when transactions indicate behavior designed to elude CTRs (or many other types of suspicious activities), include somewhat more detailed information and usually include investigation efforts on the part of the financial institution to assess the validity or nature of the transactions.
The CTR is of primay concern, with reporting being automated and mandatory.
A single CTR filed for a client’s account is usually of no concern to the authorities, while multiple CTRs from varying institutions or a SAR suggest that activity may be suspicious.
An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions called structuring, which requires SAR filing.
Financial institutions are subject to penalties for failing to properly file CTRs and SARs, such as heavy fines and regulatory restrictions, including charter revocation.
These software applications effectively monitor customer transactions on a daily basis, and using a customer’s past transactions and account profile, provide a “whole picture” of the customer to the bank management.
Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity.
In the banking industry, these applications are known as “BSA software” or “anti-money laundering software”.
And that brings us to the MLM underbelly.
First and foremost are the schemes that operate within the US and use US banking channels. Sure they might ultimately store funds outside of the country, but funds deposited within the US have to be transferred offshore at some point – and reports of those transactions are automatically recorded and sent to FinCEN.
Complete with information that personally identifies the individual or entity making the transaction.
So now you’re thinking, “well I’ll just use non-US banking channels then”.
For schemes operating within the US, that won’t matter – you have to send money to them and they to you. How long before regular daily transactions in excess $10,000 are being reported to FinCen?
Remember, your scheme of choice isn’t just receiving funds and sending out payments to you alone…
Outside of the US things get murkier, with money transferred and stored outside of US jurisdiction.
The limits of the Banking Secrecy Act as I see it would be someone (either a US or non-US citizen) using a bank account outside of the US, to fund an account with a scheme also operating outside of the US.
Under those circumstances different regulatory monitoring procedures come into play, but the Banking Secrecy Act is irrelevant.
Short of course of a US citizen at some point transferring their “winnings” back into the US. If authorities are already monitoring accounts abroad, transfers to US bank accounts (trackable, no matter how clever you might think you’re being) are sure to gain attention.
Not to mention said citizens, if they accumulate over $10,000 in an offshore account are, legally, themselves required to self-report:
U.S. citizens must file (a) Report of Foreign Bank and Financial Accounts if they have a financial interest in, or authority over, foreign bank accounts or “foreign financial account” that have an aggregate value of $10,000 at any point in a year.
Basically if you make it into the big scam money and steal $10,000 or more in a year, if your scam of choice is shut down, there’s a chance you might pop up on someone’s radar.
And the best part about the Bank Secrecy Act?
The criminals being monitored have no idea they’re being watched:
The bank should not let the customer know that a SAR is being filed, (and) all reports mandated by the BSA are exempt from disclosure under the Freedom of Information Act.
There are also penalties for a bank which discloses to its client that it has filed a SAR about the client.
Penalties include heavy fines and prison sentences.
Just shy of a fortnight, Liberty Reserve was taken down two years ago this month.
Given the success FinCEN had with tracking transactions via use of the Banking Secrecy Act, you’d have to be pretty naive to think they haven’t tapped into records produced by the Act since.
Due to the secretive nature of the Act however, we of course will never know the extent the BSA has been used to regulate the MLM underbelly. Ditto the recovery of funds from bank accounts, insiders and top investors.
In the two years since Liberty Reserve was shut down, one can only wonder how many reports FinCEN might have put together to aid the regulatory agencies we see front the public side of scam investigations.
Even as you’re sitting there reading this, who’s being watched right now?
And perhaps more importantly, how will those reports and investigations rock the MLM underbelly in the years to come?
The $6 billion that passed through Liberty Reserve was just the tip of the iceberg…