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Vol. 8 #4, March 2009

Currency Swings Lead to Increased Money Laundering
Outline map and flag of IraqRapid and significant shifts in currency values over the last year are prompting criminals to shift their assets into U.S. dollars before their value in declining currencies deteriorates even further.  Since August, the euro, Russian ruble, British pound, Nigerian naira, and South Korean won have all fallen by double digits compared to the U.S. dollar.  As a result, U.S. banks and businesses could be seeing an influx of money from Russia, Europe, and other regions, and should go beyond standard due diligence practices to evaluate customers and transactions from these countries.  Even transactions that appear routine could involve front companies, money launderers, and tax evaders.

The tactics organized crime groups employ to move their tainted funds mirror many classic money laundering techniques, including trade mispricing and bulk cash smuggling. In some cases, Russian mafia members have set up “one day companies” to handle a specific set of transactions, said the report.

Russia has strengthened its AML laws since first penalizing money laundering in 1997, but has a host of regulatory deficiencies, including gaps in obtaining the identity of the beneficial owners of accounts, freezing the assets of terrorists and licensing money remitters, according to a June 2008 report by the Paris-based Financial Action Task Force, which sets global AML standards.

Capital flight in Russia’s 2008 third quarter, spurred by plunging energy prices and the depreciating ruble, rose to more than $130 billion, according to Russian Central Bank figures. As much as a third of that derives from criminal origins, according a 2001 United Nations Office for Drug Control and Crime Prevention report on Russian Capitalism and Money Laundering.

Businesses should be looking out for new customers hailing from regions they have “never had a relationship with before” and trying to perform “large or unusual transactions.”