Privacy Oriented

A person called “Obera” on the TalkGold forums wrote this. I highly recommend you get these reports if you want to know about banking secrecy in this day and age.

Obera: I know present to you, for free, the OECD’s latest “Tax Co-operation: Towards a Level Playing Field” annual report. You can download it here: Tax Co-operation 2008: Towards a Level Playing Field: Assessment by the Global Forum on Taxation [2008] (Complete Edition - ISBN 9264039198) [PDF Format]

Normally you would have to pay for it - $92 to the OECD, but since I would hate for that corrupt, socialist, globalist, bossy, misanthropic, elitist organized crime gang to have fuel added to their blazing inferno of dreadfulness, I’ve gotten it for you fine folks. Don’t worry, I didn’t pay for it either…

Here are the links again for anyone who has trouble downloading them, this time at Easy-Share.com:

2008 Tax Report

The Convention on Mutual Administrative Assistance in Tax Matters: Twentieth Anniversary Edition

Improving Access to Bank Information for Tax Purposes: 2007 Progress Report

First Digital International Bank (FDIB) was an offshore bank licensed in Montenegro in 2000 that ended up offering anonymous bank accounts to virtually anyone who wanted one. FDIB’s principals decribed the bank as a “private internet offshore banking solution offering the finest in high-interest paying offshore banking, also exchange provider for gold backed digital currencies, anonymous cash cards.” An excellent concept, I thought. Here I will explore what happened to this bank and its ties to Privacy.li and PrivateGoldTrader.com.

I opened many accounts with FDIB in 2005 and 2006, but I never funded the accounts. That is only because I did not have money to fund them at that time, or I would have. I was glad to see there was a bank with balls out there… They offered account funding by bank wire transfer or by e-currencies, such as e-gold, Pecunix and 1mdc - back in the good ol’ days, before e-gold and 1mdc were worthless. In mid-2005, PrivateGoldTrader started accepting “paper based instruments” on behalf of FDIB for easy account funding with cash, money orders or bank drafts (aka casheir’s cheques).

I never ran across a bad report about this bank from anyone - until it went offline. That lead me to assume they operated with integrity up until they stole most clients’ money (I assume). I read one report saying as much about his account on PowerPrivacy’s forums.

What follows here is a report I wrote about the bank’s demise for the site’s entry on AboutUs.org. For some reason, you later needed an account to access the information because it had been deemed as “Adult” content. That doesn’t make any sense, but here it is, out in the open… Read the rest of this entry »

by Ulrika Lomas, Tax-News.com, Brussels
Friday, November 14, 2008

The European Commission (EC) announced on Thursday that it has adopted an amending proposal to the savings tax directive that will widen the scope of the legislation “with a view to closing existing loopholes and eliminating tax evasion.”

Effective since 2005, the savings tax directive seeks to ensure that paying agents either report interest income received by taxpayers resident in other EU member states or levy a withholding tax on the interest income received. The Commission proposal seeks to tighten the directive, so member states can tax more interest payments channelled through intermediate tax-exempted structures.

The EC proposes to extend the scope of the directive to forms of income obtained through investments in some “innovative financial products” as well as investments in certain life insurances products. It also proposed to simplify the technical operation of the directive to make it more “user friendly and efficient.”

Laszlo Kovacs, Commissioner for Taxation and Customs, said: “The first report on the operation of the savings tax directive concluded that the directive, although effective within the limits of its scope, can be easily circumvented. The current scope of the directive needs to be extended, in order to meet our goal of stamping out tax evasion, which affects the national budgets and creates disadvantages for the honest citizens.”

At present, it is relatively easy for individuals to circumvent the rules of the savings directive by using interposed legal persons or arrangements, such as foundations or trusts, which are not taxed on their income – something that the Commission has long acknowledged.

With regard to interest payments made by paying agents (banks, financial institutions, independent professionals, etc.) established in the EU to certain intermediate structures established outside the EU, the Commission proposes that paying agents in the EU apply the provisions of the directive (exchange of information or withholding tax) at the time of the payment to the intermediate structure, as if this payment was directly made to the individual.

Concerning payments of interest to certain intermediate structures established within the EU, including some non-charitable trusts and foundations, those structures will be always obliged to act as a “paying agent upon receipt” under the proposed new regime. This means that the provisions of the directive must be applied by these structures upon receipt of any interest payment, no matter where they are established and regardless of the actual distribution of any sums to the individual beneficial owners. The suggested definition of “paying agent upon receipt” includes all entities and legal arrangements (trusts, foundations etc) which are not taxed on their income under the general rules for direct taxation in their Member State of residence or establishment.

The savings tax directive can also be circumvented by using financial vehicles other than a classical savings account in a bank. To combat this, the Commission proposes extending the scope of the directive to income from securities which are equivalent to debt claims and life insurance contracts whose performance is strictly linked to income from debt claims.

In addition, the Commission proposal seeks to ensure a level playing field between all investment funds or schemes independently of their legal form. This means that income obtained from those investment funds by individuals resident in the EU will be subject to effective taxation.

The savings tax directive has applied in 42 jurisdictions since July 1, 2005. These include 27 member states, 5 non-EU ‘third countries’ (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) and 10 dependent and associated non-EU territories (Anguilla, Aruba, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Montserrat, the Netherlands Antilles and the Turks and Caicos Islands).

Following the request of the Ecofin Council, the European Commission started discussions with selected Asian financial centres earlier this year regarding the application of the directive, namely Hong Kong, Singapore and Macao. Formal negotiations are also expected to take place with Norway, at its request, whilst other jurisdictions like Bermuda and Iceland have shown interest in participating in the savings taxation arrangements.

I was reading the Offshore section of the TalkGold Forum a while back, and I’d noticed this post. It says the following about Loyal Bank, an offshore bank headquartered in Saint Vincent and the Grenadines.

This is their policy on banking secrecy:

“The Bank had the right to cooperate with national and foreign authorities in information provision in cases where official investigation is being carried out on a client or there is official request for information with reference to an investigation.”

I contacted Loyal Bank to inquiry if this meant a court order and I was told, “No, an official request can be a phone call or faxed letter from an police or legal authority.”

LOL, you might as well bank in the US and save money rather than pay Loyal’s very high fees.

Loyal Bank is the worst bank in Caribbean.

That got me wondering… is that so? Surely banking secrecy is stronger than that by law in St. Vincent. …right? Well, I didn’t look up the law, but I did e-mail Loyal Bank and ask them a serries of questions about this. In fact, I didn’t just stop there. I asked a slew of Caribbean area offshore banks the same questions in e-mails and the following is what I’ve learned after one week’s time from when I sent the initial messages…

Read the rest of this entry »

by Ulrika Lomas, Tax-News.com, Brussels
Thursday, November 06, 2008

During a recent European Free Trade Association meeting, negotiations took place between Liechtenstein and the European Union to finalise an anti-fraud agreement, the conclusion of which would cement Liechtenstein’s commitment to conforming to European standards with regard to cross-border exchange of information.

According to Prime Minister Otmar Hasler, Liechtenstein remains determined to discourage cross-border tax offences. While maintaining that Liechtenstein was fully prepared to co-operate, however, Hasler added that it should not be expected to provide any greater degree of cooperation than that currently conceded by other European Union member states. Indeed, calls for double taxation agreements to be signed with states harbouring additional demands would be met by Liechtenstein’s request to be recognised as a diverse and highly industrialized business location, Hasler said.

The draft form of the anti-fraud agreement reflects Liechtenstein’s commitment to providing legal and administrative assistance, on the basis of a widened concept of fraud. Furthermore, Liechtenstein has also revealed its intention to fully comply with the Organisation for Economic Co-operation and Development’s standards regarding bilateral double taxation agreements.

Ulrika Lomas, Tax-News.com, Brussels
Friday, October 31, 2008

Some 16 new bilateral agreements on exchange of information for tax purposes were signed in the past week between OECD member counties and three offshore financial centres, as the countries stung by the recent banking crisis commence a fresh drive towards “transparency” in global financial regulation and taxation.

During the week in question, the British Virgin Islands signed bilateral tax information exchange agreements (TIEAs) with Australia and the United Kingdom. Meanwhile, Guernsey and Jersey each signed bilateral TIEAs with the Nordic economies- Denmark, the Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden.

These new agreements bring to 44 the number of arrangements put in place since 2000 when the OECD began its first offshore crackdown. The Isle of Man is leading, with 11 such pacts; Jersey has signed 10, Guernsey nine, the Netherlands Antilles four and the British Virgin Islands three. Bermuda, also has three of these agreements, having signed its first bilateral pact with the United States in 1986.

In signing these agreements, these offshore centres may well have succeeded in ensuring that they do not get included on any new ‘blacklist’, which is likely to be published some time in 2009.

“The latest agreements represent a significant extension of information exchange networks in place in these jurisdictions, showing their commitment to implementing OECD’s standards of transparency and exchange of information in tax matters,” the organisation noted.

As the OECD observed in its announcement, the global financial crisis and recent tax evasion scandals have strengthened governments’ determination to fight tax evasion and bring increased transparency to cross-border transactions.

“At a time when governments are seeking to forge a more stable world financial system, these are issues that need to be addressed with urgency,” said OECD Secretary-General Angel Gurría said.

The OECD also revealed that progress towards increased openness is being made in other financial centres. Cyprus and Malta have removed the last impediments to a full exchange of information; Belgium has negotiated its first tax treaty with full exchange of information; Bahrain and the United Arab Emirates are implementing the OECD standards; and the government of Hong Kong (China) recently launched a review of its policy on exchange of information.

“The political climate is changing, and financial centres that do not respect the OECD standards will not be allowed to gain a competitive advantage,” Gurría added.

“Every new bilateral agreement demonstrates that we can make progress internationally. It is in the interest of all financial centres to have adequate measures in favour of full transparency as quickly as possible,” he argued.

Identity Loop - 28 October 2008

HSBC claims to have become the first bank in the UK to use facial recognition technology to improve security at its data centres following successful trials at its offices in Canary Wharf.

The bank will be installing ten facial biometric access control units in two new data centres in the UK over the next six to nine months in a bid to protect sensitive information that might otherwise be vulnerable to loss or misuse.

The move comes at a time when identity theft is now the fastest growing crime in the UK – affecting more than 100,000 people at a cost of £1.7m according to Home Office figures.

Recent high profile cases of sensitive data being lost by financial and also public sector organisations has highlighted the risk to individuals and to the reputation of the organisations concerned.

Recognising this problem, HSBC has been co-operating with UK facial biometric company OmniPerception to develop a more secure access control system for their new data centres. The bank has worked closely with the company in testing and developing the right solution, based onOmni’s CheckPoint  facial recognition product.

First deployed in police applications, in Liverpool, London and elsewhere, OmniPerception’s biometric solutions are now being applied to access control, data protection and the improvement of identity management generally.

After extensive field trials at HSBC’s Canary Wharf offices, the CheckPoint system will be installed at access points as a way of verifying the identity of staff and external contractors who need access to areas containing sensitive information.

John Williams, Head of Physical Risk at HSBC said: “We decided to use biometrics to protect our high vulnerability inner sanctums such as communication suites and data halls.”

In explaining his choice of a facial biometric solution, he said: “To gain acceptance from the user, a biometric needs to be as non-intrusive as possible. One natural thing human beings always rely on is to be recognised by someone they know. It’s far more natural than say, getting your eye scanned or gently moving your finger across a reader to get yourself identified”

He announced the bank’s intention to install ten CheckPoint facial biometric access control units in various IT facilities in the UK; and anticipated their wider deployment to other sites in the future.

…and that’s probably because, in usual form for a government, the Australian governments cannot stay within their budget, do not produce anything of value, and must steal more and more from their “subjects” to sustain themselves. For the archives, here are the Australian government’s latest contributions to the growing global threats to financial privacy:

Tax Office reaps rewards from Austrac data mining

Karen Dearne | October 16, 2008

THE nation’s financial intelligence unit helped bust drug rings, arrest money-launderers and people sending funds to terrorists but the Tax Office was the biggest beneficiary of an expanded regulatory regime over the past year.

In 2007-08, Austrac identified $36 million in previously undisclosed income through the ATO’s offshore voluntary disclosure initiative, and contributed to ATO assessments of more than $76.7 million, according to the Australian Transaction Reports and Analysis Centre’s annual report.

Austrac also found more than $8.5 million of annualised savings for Centrelink.

Austrac had appointed a senior data mining analyst to work with the Tax Office in its investigation of the financial arrangements of high-wealth individuals. The analyst produced modelling programs to match Austrac financial transaction records with ATO information, improving data matching rates and providing more robust investigative options.

The financial intelligence unit has now started work on several predictive models to help monitor transactions involving offshore tax havens.

Austrac chief executive Neil Jensen said the unit received nearly 70,000 financial transaction reports each day from its regulated entities during 2007-08, up more than 14 per cent on the previous year.

“Under the new Anti-Money Laundering/Counter Terrorism Financing Act, we deal with a wider range of ‘designated service’ providers, and our approach at present is on achieving voluntary compliance,” Mr Jensen said.

“We have identified over 15,000 businesses and organisations with obligations under the new law - a much broader family of entities than under the original Act.”

Of the nearly 18 million financial reports received, there were 29,000 suspicious transaction reports - up 19 per cent on the previous year; and 2.9 million significant cash transaction reports involving $10,000 or more, up nearly 10 per cent.

The ATO was by far the biggest recipient of Austrac’s reporting, receiving 27,730 notifications in the past year, while the Federal Police received 3072 and Customs 1468.

Victoria Police was the fourth largest user, receiving 664 reports, with NSW Police not far behind on 620. Centrelink received 507 reports.

Austrac’s annual report said information about a number of transactions involving $2.5 million of foreign currency resulted in the seizure of cocaine with an estimated street value of $87.5 million and the arrest of three people charged with importing cocaine and one charge of money laundering.

In another investigation, several people were arrested and charged with being members of a terrorist organisation and making funds available to a terrorist organisation. The Australian-based individuals were allegedly transferring large sums to businesses in Southeast Asia believed to be acting as fronts for the terrorist group.

And the director of an offshore company who operated accounts in Australia using legitimate personal and business details was found to be involved in money laundering activities exceeding $58 million in total, by exploiting local financial institutions, the report says.

During the year, Austrac complete a review of its intelligence capabilities, and plans to introduce a case management system to better track its internal processes and interactions with partner agencies.

It also conducted research into the use of advanced text mining for analysing suspicious transaction reports.

“This research revealed trends and patterns that will assist in prioritising high-value suspect reports for dissemination to agencies,” Austrac said. “We have also continued to expand access to external data sources, which include restricted information held by partner law enforcement agencies, and publicly available information such as media reports and business name registraion information.

“Austrac will continue to seek broader access to external data sources which can validate and enhance the quality of our financial intelligence.”

And then there’s this, from The Age:

EBay users warned about declaring income

October 17, 2008 - 5:31PM

The tax man has warned eBay users they must declare income earned from the sale of goods on the popular auction website.

Australian users of the site were recently asked to provide detailed personal information, including user IDs and monthly sales data, following a request from the Australian Tax Office.

In particular, the ATO requested information from eBay members who sold more than $50,000 worth of goods on the site in the 2005-06 and 2006-07 financial years, and those who sold more than $75,000 in the financial year ending June 2008.

The difference between the tax years is because the income threshold at which a person must register for GST has changed.

The ATO said it had not targeted eBay users, but requested the information as part of its normal compliance procedures.

“People need to consider whether they’re running a business or whether they’re engaging in a hobby,” an ATO spokesperson told AAP.

“If it’s a business then they are required to declare that income in a tax return.”

And then we have:

Austrac releases new AML guidance

Reporting requirements

By Alice Uribe | Wed 08 Oct 2008

In preparation for the first phase of the AML and counter-terrorism laws, Austrac has released new reporting guidance.

Regulator Austrac has released a Public Legal Interpretation (PLI) in preparation for the December 12 date, when all reporting entities will be required to submit suspicious matters, under the first phase of Australia’s anti-money laundering (AML) and counter-terrorism laws.

The sixth in a series, the PLI aims to explain various provisions and obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) and the Financial Transaction Reports Act 1988 (FTR Act).

The PLI is focused on the requirements to report suspect transactions and suspicious matters, and it also sets out Austrac’s view on the general prohibition on the use of these reports as evidence.

“The PLI series is an important channel, through which Austrac provides guidance about some of the more complex legal issues affecting cash dealers and reporting entities,” Austrac chief executive Neil Jensen said.

“This latest topic is significant, as it touches on the current FTR Act reporting requirements, as well as the reporting requirements soon coming into effect under the AML/CTF Act.”

The Financial Transaction Reports Amendment (Transitional Arrangements) Bill 2008 was recently introduced into parliament.

It provides for affected entities, which currently report to Austrac as cash dealers under the FTR Act, to continue to report in the same way during their transition to the new reporting format.

According to Austrac, this will assist entities with the transition from the FTR Act reporting obligations to their AML/CTF Act reporting obligations.

Australia’s government hates you and wants to fine you for making money. The end.

Avoiding being falsely profiled as a money launderer can be hard. Today we’ll quickly look at what the US government calls “Informal Value Transfer Systems (IVTS)”.

US Gubberment says: (IVTS) are efficient remittance systems based on trust that operate primarily within ethnic communities. IVTS include various centuries-old remittance systems centered in ethnic/national communities, the most utilized of which are Hawala/Hundi (South Asia), Fei ch’ien (China), Phoe Kuan (Thailand), and Door to Door (Philippines). Although these systems primarily service legitimate customers and purposes, criminal elements exploit IVTS to launder/transfer proceeds because of their lack of transparency and low costs. Indeed, these systems have historically proven themselves to be among the safest methods to transfer mone without visibility. IVTS provide transfers to and from areas where modern financial services are unavailable, inaccessible, unaffordable, or localities where corruption within the financial system is prevalent. The system provides rapid funds transfers (usually within hours of the transaction’s initiation), under a safeguard of trust and reliability.

Other examples of informal value transfer systems might be Pecunix, e-Dinar, Liberty Reserve, eCache, Numox, or similar Digital Currencies.

Here is what not to do if you’re using informal value transfer systems according to the US’ first Money Laundering Threat Assessment.

Suspicious transactions indicating Informal Value Transfer Systems (IVTS) activity included the following techniques:

Multiple deposits of combinations of cash, money orders, or third-party checks;

Multiple deposits of combinations of cash, money orders, or third-party checks made to the same account from different states;

Daily deposits;

Multiple structured deposits; and, multiple incoming wire transfers followed by any of the activities listed below:

1. Outgoing wire transfers, either domestic or international

2. Outgoing transfers via Automated Clearing House debits to known MSBs

3. Checks written to cash by the accountholder

4. Checks written to or endorsed by known MSBs

5. ATM cash withdrawals in remote locations, including other countries

Additional indicators useful for law enforcement in identifying an Informatl Value Transfer Systems (IVTS) operation include:

Structured deposits followed by wire transfers to unrelated businesses in Southeast/Southwest Asia;

Multiple financial ledgers (one for legitimate transfers, one for criminal activity, possibly an additional ledger for settling accounts between brokers);

A high volume of mail and packages from out of state that contain various monetary instruments such as checks or money orders;

Short telephone calls coming into the broker (instructions from the customer sending funds);

Numerous lengthy telephone calls made to overseas recipients (indicates the broker is coordinating with counterparts and placing orders); and

Fax transmittal logs. Faxes sent may be a rollup of the day’s transactions or may be single transactions. Faxes may contain the name of a sender (not necessarily a real name), beneficiary, or code used by the receiving broker to identify the beneficiary.

All credit for the following content goes to… well, I had it going to Sapphirecapital of the Reserve-Bank Forum, but it appears he got it from FORM 7E - the U.S. “Comptroller’s Checklist of Potentially Suspicious Bank Transactions and Activities that Should Trigger Further Investigation” out of Federal Money Laundering Regulation (2004 Supplement) by Steven Mark Levy. It’s being reprinted here to spread the info and archive it here as well. So, without further ado…

The following consists of the list handled by compliance officers in banks or similar financial institutions in the US and involving USD transfers addressed to a US entity or booked through a US entity.

The Comprtoller of the Currency has provided the following list of potential red flags that should trigger further inquiry to determine whether a suspicious activity report is required. [Comprtroller's Handbook, Bank Secrecy Act/Anti-Money Laundering, 12-18 (December 2000)]

Activity Inconsistent with the Customer’s Business
• A customer opens several accounts for the type of business he or she purportedly is conducting and/or frequently transfers funds among those accounts.
• A customer’s corporate account(s) has deposits or withdrawals primarily in cash rather than checks.
• The owner of both a retail business and a check cashing service does not ask for cash when depositing checks, possibly indicating the availability of another source of cash.
• The customer engages in unusual activity in cash purchases of traveler’s checks, money orders, or cashier’s checks.
• A large volume of cashier’s checks, money orders, and/or wire transfers are deposited into an account in which the nature of the account holder’s business would not appear to justify such activity.
• A customer frequently makes large dollar transactions (such as deposits, withdrawals, or purchases of
monetary instruments) without an explanation as to how they will be used in the business, or the purchases
allegedly are for a business that generally does not deal in large amounts of cash.
• A business account history that shows little or no regular, periodic activity; the account appears to be used
primarily as a temporary repository for funds that are transferred abroad. For example, numerous deposits of cash followed by lump-sum wire transfers.
• A customer’s place of business or residence is outside the financial institution’s service area.
• A corporate customer who frequently makes large cash deposits and maintains high balances, but does not use other banking services.
• A retail business routinely makes numerous deposits of checks, but rarely makes cash withdrawals for daily operations.
• A retail business has dramatically different patterns of cash deposits from similar businesses in the same general location.
• The currency transaction patterns of a business experience a sudden and inconsistent change from normal activities.
• The amount and frequency of cash deposits are inconsistent with that observed at the customer’s place of business.
• The business frequently deposits large amounts of cash, but checks or other debits drawn against the account are inconsistent with the customer’s retail business.
• Businesses that do not normally generate currency make numerous currency transactions (i.e., a sanitation company that makes numerous deposits of cash).
• Financial transactions involving monetary instruments that are incomplete or contain fictitious payees, remitters, etc., if known.
• Unusual transfer of funds among related accounts or accounts that involve the same principal or related principals.
• A business owner, such as an owner who has only one store, who makes several deposits the same day using different bank branches.

Avoiding the Reporting or Record Keeping Requirement
• A business or new customer asks to be exempted.
• A customer intentionally withholds part of the currency deposit or withdrawal to keep the transaction under the reporting threshold.
• A customer is reluctant to provide the information needed to file the mandatory report, to have the report filed, or to proceed with a transaction after being informed that the report must be filed.
• A customer or group tries to coerce a bank employee into not filing any required record keeping or reporting forms.
• An automatic teller machine or machines (ATM) are used to make several bank deposits below a specified threshold.
• Unusually large deposits of U.S. food stamps (often used as currency in exchange for narcotics).
• A customer is reluctant to furnish identification when purchasing negotiable instruments in amounts exceeding thresholds for additional reporting.

Fund (Wire) Transfers
Wire transfer activity to/from financial Countries of Concern without an apparent business reason or when it is inconsistent with the customer’s business or history.

• Periodic wire transfers from a personal account(s) to bank secrecy haven countries.
• Large incoming wire transfers on behalf of a foreign client with little or no explicit reason.
• Frequent or large volume of wire transfers to and from offshore banking centers.
• Large, round dollar amounts.
• Funds transferred in and out of an account on the same day or within a relatively short period of time.
• Payments or receipts with no apparent links to legitimate contracts, goods, or services.
• Transfers routed through multiple foreign or domestic banks.
• Unexplained repetitive or unusual patterns of activity.
• Deposits of funds into several accounts, usually in amounts of less than $3000, which are consolidated subsequently into one master account and transferred, often outside of the country.
• Instructions to a financial institution to wire transfer funds abroad and to expect an incoming wire transfer of funds (in an equal amount) from other sources.
• Regular deposits or withdrawals of large amounts of cash, using wire transfers to, from, or through
countries that either are known sources of narcotics or whose laws are ineffective in controlling the laundering of money.
• Many small incoming wire transfers of funds received or deposits made using checks and money orders, with all but a token amount almost immediately being wire transferred to another city or country, in a manner inconsistent with the customer’s business or history.
• Large volume of wire transfers from persons or businesses that do not hold accounts.

Insufficient or Suspicious Information by Customer
• The reluctance of a business that is establishing a new account to provide complete information about the
purpose of business, its prior banking relationships, names of its officers and directors, and information
about the location of the business.
• A customer’s refusal to provide the usual information necessary to qualify for credit or other banking services.
• A spike in the customer’s activity with little or no explanation.
• A customer desires to open an account without providing references, a local address, or identification (passport, alien registration card, driver’s license, or social security card); or refuses to provide any other
information the financial institution requires to open an account.
• Unusual or suspicious identification documents that the financial institution cannot readily verify.
• The discovery that a customer’s home/business phone is disconnected.
• No record of past or present employment on a loan application.
• A customer makes frequent or large transactions and has no record of past or present employment experience.
• The customer’s background is at variance with his or her business activities.
• The customer’s financial statements differ from those of similar businesses.

Other Suspicious Customer Activity
• Substantial deposit(s) of numerous $50 and $100 bills without apparent business purpose.
• Mailing address outside the United States.
• Frequent exchanges of small dollar denominations for large dollar denominations.
• Certificate(s) of deposit or other investment vehicle used as loan collateral.
• A large loan is suddenly paid down with no reasonable explanation of the source of funds.
• Frequent deposits of large amounts of currency wrapped in currency straps that have been stamped by other banks.
• Frequent deposits of currency wrapped in currency straps or currency wrapped in rubber bands that are
disorganized and do not balance when counted.
• Frequent deposits of musty or extremely dirty bills.
• A customer who purchases cashier’s checks, money orders, etc., with large amounts of cash.
• A professional service provider, such as a lawyer, accountant, or broker, who makes substantial deposits of cash into client accounts or in-house company accounts, such as trust accounts and escrow accounts.
• A customer insists on meeting bank personnel at a location other than their place of business.
• Domestic bank accounts opened in the name of a casa de cambio (money exchange house), followed by
suspicious wire transfers and/or structured deposits (under a specified threshold) into these accounts.
• Suspicious movements of funds from one bank into another bank and back into the first bank. For example:
< purchasing cashier’s checks from bank A;
< opening up a checking account at bank B;
< depositing the cashier’s checks into a checking account at bank B; and
< wire transferring the funds from the checking account at bank B into an account at bank A.
• Offshore companies, especially those located in bank secrecy haven countries, asking for a loan from a domestic U.S. bank, or for a loan secured by obligations of offshore banks.
• Use of loan proceeds in a manner inconsistent with the stated loan purpose.
• A person or business that does not hold an account and that purchases a monetary instrument with large denominated bills.
• A customer who purchases a number of cashier’s checks, money orders, or traveler’s checks for large amounts under a specified threshold, or without apparent reason.
• Couriers, rather than personal account customers, make the deposits into the account.
• Money orders deposited by mail, which are numbered sequentially or have unusual symbols or stamps on them.

The following is a substantial list of potential abusive activities employees may encounter.
Employees need to be alert to these situations and report their suspicions to their supervisor. Bank employees should always think of the following steps when confronted with suspicious activities:

• Evaluate the transaction, situation, or the individual causing suspicions considering the following common warning
signs.
• Assemble appropriate supporting transaction records.
• Discuss your suspicions with a supervisor or senior officer.
• If not satisfied with supervisor’s action, go to someone higher up, preferably to the security officer.

BANK EMPLOYEE ACTIVITIES
• Lavish lifestyle cannot be supported by an employee’s salary.
• Absence of conformity with recognized systems and controls, particularly in private banking.
• Reluctance to take a vacation.

BANK-TO-BANK TRANSACTIONS
• Significant changes in currency shipment patterns between correspondent banks.
• Increase in large amounts of cash without a corresponding increase in the filing of mandatory currency transaction reports.
• Deposits with a Federal Reserve Bank or its branches are disproportionate to the previous historical volume or volumes of similarly sized depository institutions.
• Significant turnover in large denomination bills that would appear uncharacteristic given the bank’s location.
• Inability to track the true account holder of correspondent or concentration account transactions.
• A large increase in small denomination bills and a corresponding decrease in large denomination bills with no corresponding currency transaction report filings.
• The rapid increase in the size and frequency of cash deposits with no corresponding increase in non-cash deposits.

BRANCH OPERATIONS

BSA Exemption and CTR Red Flags
• Transaction activity for customers that appears to be unreasonably high given the type and location of the business.
• Exempt entities list contains numerous customers with minimal review procedures.
• CTRs are frequently incomplete or inaccurate.

Currency Red Flags
• Teller cash frequently exceeds limitation set in the bank’s security program.
• Large volume of cash being deposited into a customer’s account whose business would not generate this level of cash.
• Cash deposit to a correspondent account by means other than armored car.
• Large turnover in large bills or an excess of small bills from the bank accompanied by the bank’s demand for large bills not normally seen in this sized bank.

Deposit / Withdrawal Discrepancies
• Kiting situations, where a large number of small checks are deposited and a few large checks are written off the account and the average account balance is generally held at very low levels given the account activity
• A large volume of deposits to several different accounts with frequent transfers of a significant portion of the balances to one account
• Checks on the account are frequently paid against uncollected funds and account balance is consistently low

Official Check Red Flags
• Significant volume of official checks and traveler checks sold for cash
• A large volume of official checks deposited into a customer’s account whose business would not normally support this type of activity

Cash Shipment Red Flags
• Cash shipments which appear large in comparison to the number of CTRs filed
• Increase in cash shipments without a proportional increase in the number of accounts

WIRE TRANSFERS

Number and Size of Wires
• Significant number of wire transfers to/from offshore banks
• Wire transfers to/from countries known to be used to evade BSA rules
• Frequent or large wire transfers against uncollected funds
• Wire transfers involving currency exceeding $10,000

Circumvention of Wire Transfer Controls
• Continual circumvention of wire transfer internal controls, such as ignoring approval limits
• Splitting transactions to evade authority limitations
• Lack of control of password access
• Recurrent wire transfer errors and customer complaints about errors

LENDING

Lending Production/Documentation
• Disproportionate lending out of the bank’s normal territory
• Loan production a factor in officer bonuses
• Requests for large loans coupled with unsolicited buyout offers from third parties
• Loan purpose not noted
• Loan purpose inaccurately recorded

Deposit / Loan Activity Links
• Promise of large dollar deposits in exchange for favorable treatment on lending decision (e.g., deposit not
pledged as collateral)
• Brokered deposit transactions where the broker’s fees are paid for through loan proceeds
• Loan or deposit solicitations from entities or individuals who claim to have access to large deposits from confidential sources

Offshore Issues
• Loans to offshore companies or immediate transfer of loan proceeds to offshore companies
• Loans secured by obligations of offshore companies
• Loan transactions supported by offshore “shell” bank
• Loans collateralized by investments located in countries known to be used to evade BSA rules

CREDIT CARD AND ELECTRONIC FUNDS TRANSFERS

Controls
• No separation of duties between area issuing cards and area issuing PIN
• Substandard controls over unissued cards and PINs
• Substandard controls over returned mail which may contain returned

ATM or credit cards
• Substandard controls of credit limit increases
• Substandard control over name and address changes
• No daily transaction limits established on ATM withdrawals

Operational
• Frequent failure of payment authorization system
• Unusual mail delay of cards and PINs to customers
• Circumventions of approval limits on credit cards by merchants

MISCELLANEOUS
• Frequent overrides of internal controls or intentional circumvention of bank policy
• Unresolved and frequently occurring exceptions report
• Accounts out of balance

THIRD PARTY OBLIGATIONS
• Closely held companies value is not sustained by audited financial information
• Inadequate credit information on third party obligor
• Inadequate documentation on guarantees

THE PURPOSE OF THIS CHECKLIST IS TO DESCRIBE RECOMMENDED PROCEDURES FOR THE IDENTIFICATION OF PERSONS WHO ATTEMPT TO INITIATE SUSPICIOUS TRANSACTIONS INVOLVING ANY TYPE OF ACCOUNT

On occasion, persons may request the institution to accept deposits and release cash to them under unusual or suspicious circumstances. The institution may have no authority to deny deposits or to withhold funds on deposit. In many instances the institution is obligated to accept deposits to
accounts and release funds. However, when the best interests of the customer and the institution would be served by at least delaying the transaction, do so if at all possible.

To protect the customer’s interests and the integrity of the institution, the following procedures shall be implemented by all employees when a suspicious or unusual transaction is requested:

• The employee receiving the withdrawal request shall satisfactorily identifythe person making the request in accordance with institution policy and procedure.

• Verify that funds on deposit are not subject to any holds.

• The person making the withdrawal request shall sign all required documents in the employee’s presence.

• Any customer or other person requesting the delivery of a large sum of money in cash should be offered a cashier’s check, teller’s check or other negotiable document instead.

• If the person requesting the withdrawal will not accept a negotiable document, the office manager or designee should talk to the customer to verify the necessity for a cash withdrawal.

• If it appears that the customer could be the intended victim of a criminal scheme, the institution security officer should be contacted immediately. Contact with the local law enforcement agency should be made by the security officer or designee.

If a customer frequently deposits or withdraws large amounts of cash in a manner that is suspicious, the security officer should be notified of the circumstances. If appropriate, a Suspicious Activity Report should be filed.

Employees presented with deposits or withdrawals in excess of regulatory limits will be required to complete all necessary forms, and should contact a supervisor when suspicious deposits and/or withdrawals occur.

An internal report describing suspicious activity must be forwarded to the security officer within 24hours of any incident involving significant or unusual deposit or withdrawal activity.