Section 2
National Trends and Analyses

This section of the SAR Activity Review outlines examples and patterns of suspi-cious activity reported in the national database. Some of the information has been published previously, but it is included here for ease of reference.

1. Highlighted Trend

Shell Company Activity

SARs filed during the first half of 2000 reflect several complexes of activity involving suspicious wire transfer patterns. As reported in the SAR narratives, many of these suspicious wire transfer patterns involve shell companies—i.e., corporations that engage in no apparent business activity and that only serve as a conduit for funds or securities. Often the activities also involve foreign transac-tors located in jurisdictions considered non-compliant or problematic, as reported in FinCEN Advisories.

Several complexes of suspicious wire transfer transactions have been observed, each involving geographically complicated wire transfer routing (originator, beneficiary, or transit/intermediary banks) and/or geographically complex origina-tor and beneficiary activity. More than $500 million in suspicious wire transfers have been reported in connection with this type of activity.

These complexes display common patterns of underlying suspicious activity:

• A lack of evidence of legitimate business activity, or any business operations at all, undertaken by many of the companies;
• Unusually large numbers of wire transfers (several thousand wires totaling more than $500 million);
• Transactions conducted in bursts of activities within a short period of time;
• Beneficiaries maintaining accounts at foreign banks that have been the subject of previous SAR reporting due to suspicious wire transfer activity;
• Reappearing beneficiary banks based in offshore locations, the account of at least one of which has been closed by the reporting financial institution due to overall suspect activity.

Financial institutions should carefully review transactions involving companies registered in the United States when those companies are unknown to the finan-cial institution, and:

• represent themselves as financial institutions, or
• appear as groupings of companies tied to the same set of transactors, or
• are co-located at the same address or have a common resident agent, or
• are involved in unduly complex patterns of transactions, especially multiple transactors and large volume wire transfers, or
• are involved in patterns of circular transactions, or
• are involved in transactions originating in or destined for non-compliant or other problematic jurisdictions identified in FinCEN Advisories, or
• appear in association with transactions conducted in bursts and even currency amounts, or
• engage in transactions inconsistent with the stated business purpose, or
• are bearer share corporations, or
• cannot be identified as legitimate companies through normal business verifi-cation checks, or
• cannot or will not provide adequate information about business activities when asked.

2. Other Notable Trends

Possible Reflections of Russian Criminal Activity

Law enforcement information indicates a steady increase in Russian organized criminal activity in the U.S. since the early 1990s. Senior law enforcement officials requested assistance in understanding the scope of financial activity that may be linked to Russian Organized Crime groups in the U.S. An analysis of Bank Secrecy Act (BSA) data indicates that SARs filed by U.S. financial institu-tions for suspected structuring/money laundering activity involving Russian transactors, owners or citizenship averages approximately $200 million per year. A correlation of SARs, Currency Transaction Reports (CTRs) and Currency and Monetary Instrument Reports (CMIRs) for Russian transactions indicates some level of financial activity in 45 states, with heavier concentrations in the metro-politan areas of New York, Boston, Washington D.C., Chicago, Miami, Los Angeles, San Francisco, and Seattle. There are also indications of unusual pat-terns of suspicious financial activity in Texas (i.e., San Antonio, Houston, Dallas/ Ft. Worth, El Paso, and along the U.S.-Mexico border).

Increased SAR Reporting Involving Mexico

Law enforcement information and SARs filed by U.S. financial institutions confirm a shift in suspected money laundering activity involving Mexico. Rather than transiting through Mexico en route to Colombia or other Central and South American destinations, a shift has been made toward using techniques and schemes in which drug proceeds are cycled through Mexico directly back into the U.S. As reported in SARs, for example, patterns of large wire transactions ($1.5 million or more per transaction) moving funds to U.S. payees from Mexi-can money exchange houses and other financial institutions have been observed that may at least, in part, be attributable to changes in the laundering cycle. Generally speaking, such changes in patterns are believed to stem from the heightened profile of Mexico-based criminal groups in drug trafficking in the U.S. which, in turn, creates a corresponding increased threat of money launder-ing activity linked to Mexico.

Suspicious Activity Reported by Casinos

A review of SARs filed voluntarily with FinCEN by gaming establishments reveals patterns of suspicious activity in which casino accounts are used to transfer sig-nificant amounts of funds through non-bank financial transaction channels. The funds are cashed out by the client or moved to other accounts with minimal or no gaming activity. SAR filings by casinos located in Connecticut, Illinois, Missis-sippi, Nevada, and New Jersey during 1998-1999 indicate that wire transfers and cashiers checks are used to put funds on deposit as credits, or “front money,” for use by the client for subsequent gambling activity at the casino. All of the SARs indicate that the client gambles minimally or not at all, and in the majority of the cases, takes the balance out in cash on the same day or within a matter of days. (Refer to FinCEN SAR Bulletin Vol. 2, No. 1, August 2000, for additional infor-mation).

Regional Money Remitter Activity

An analysis of SARs reflects suspicious activity involving money remitters strongly reminiscent of the money laundering activity that resulted in the issuance of a Geographic Targeting Order (GTO) for the New York metropolitan area during the 1990s. The activity reported in the SARs includes structuring, unusually large and frequent deposits (i.e., cash, checks, third party checks, or money orders) and unusual wire transfer activity which is atypical for the businesses involved.

Update on Suspicious Automated Teller Machine (ATM) Activity

Follow-up analysis of SAR reporting on ATM transactions (see FinCEN SAR Bulletin Vol. 1, No.1, June 1999) confirms a continuing trend in suspicious trans-actions in which funds are wired to/through a U.S. financial institution from a foreign source and then withdrawn in cash in a third country using ATMs. SARs indicate such ATM withdrawals in at least 57 nations, with the highest incidence in Colombia (408 occurrences), followed by Venezuela (145), Mexico (119), and Argentina (31). The wire transfers that start the cycle originate primarily in Switzerland, Italy, Germany, and England. Amounts up to several hundred thou-sand dollars have been withdrawn over several months using this method.

3. Other SAR Analysis Issues

Role of SARS in High-Risk Money Laundering & Related Financial Crime Areas

The National Money Laundering Strategy for 2000¹⁴ established a requirement to focus anti-money laundering law enforcement resources in “High-Risk Money Laundering and Related Financial Crime Areas,” or HIFCAs. A HIFCA should be understood as a geographic area, industry, sector or institution, or group of finan-cial institutions which is being victimized by, or is particularly vulnerable to, money laundering and related financial crimes and, therefore, warrants concen-trated law enforcement efforts at the federal, state and local levels. During 2000, three metropolitan HIFCAs have been designated: Los Angeles, New York/New Jersey, and San Juan, Puerto Rico. A fourth HIFCA, reflecting the systemic problem of cross-border currency movements, was created for the southwest border areas of Arizona and Texas. Additional designations are expected.

SARs are important to the HIFCA process in two key ways. First, the number of SARs filed in a geographic area is used as a factor in identifying the overall scope of potential financial crime in the area, and in ranking the area for possible HIFCA designation in comparison to other geographic areas. Second, and even more importantly, the number of SARs filed provides HIFCA action teams with a road map to assist in identifying potential criminal financial activity for the coordinated federal, state and local law enforcement initiatives envisioned by The National Money Laundering Strategy for 2000.

Real advancements have been made over the past year in building the tools needed to create such SAR “road maps.” Each HIFCA will have access, through an on-site FinCEN analyst, to a prototype SAR data-mining capability that significantly enhances law enforcement’s ability to identify organized criminal financial activity over large geographic areas. HIFCAs will use this new tool to help guide their anti-money laundering initiatives and to beta test it for wider distribution to law enforcement.

Non-Compliant Countries—Post Advisory SAR Analysis

In July 2000, FinCEN issued 15 Advisories concerning deficiencies in the anti-money laundering controls of the following nations—Bahamas, Cayman Islands, Cook Islands, Dominica, Israel, Lebanon, Liechtenstein, Marshall Islands, Nauru, Niue, Panama, Philippines, Russian Federation, St. Kitts & Nevis, and St. Vincent & the Grenadines. Financial institutions were instructed to consider such defi-ciencies in determining whether transactions involving each of the 15 nations required the filing of a SAR.

FinCEN is in the process of analyzing SAR filings for each of the designated nations to determine if the overall volume of SARs and the nature of the suspi-cious activity have changed as a result of the Advisory process. Feedback on the results of the post-Advisory analysis will be provided at a subsequent date once sufficient data has been accumulated to allow a meaningful comparison with the pre-Advisory baseline information for each of the affected nations.

For questions or comments on Section 2, National Trends and Analyses, please contact the Office of Strategic Analysis at FinCEN by Email: ora@fincen.treas.gov

¹⁴ The National Money Laundering Strategies of 1999 and 2000 were jointly developed by the Departments of Justice and Treasury to describe detailed plans to combat money laundering as required by The Money Laundering and Financial Crimes Strategy Act of 1998, P.L. 105-310 (October 30, 1998). See 31 U.S. Code 5341(b) and 5342(b).