No cash...no laundering... it's simple!

I would like to take you back to the first few months when you just jumped into the AML/Compliance profession. We were very well educated about a typical cycle of money laundering -

Placement -> Layering -> Integration

Of course we all have come a long way and understand different ways money laundering can happen where unique and complicated schemes are involved. This may or may not involve cash. However, as the headline suggests, there are still a fair amount of banking professionals who are convinced that money laundering cannot happen if your bank is not processing cash (or the business product is not exposed to cash). Please allow me to dig deeper as this is a risk you don't want to have floating around in your bank!

The mis-conception

Compliance professionals (AML professionals in particular) are very well aware of the risks exposed by different instruments/products offered to customers. The business/front-line on the other hand are not so much experienced in this area. For them money laundering experience comes from the "mandatory" trainings they have had which always talks about a 3 stage process where the first stage definitely includes "cash"! This in my opinion is the starting point of the confusion. For them, and rightly so, if they are not processing any cash, why will their product be exposed to Money Laundering threats. What they fail to understand is their bank can be part of the layering stage where the cash may have entered elsewhere and their product can be exposed quite easily.

Many a times I have been confronted with statements such as "we only offer loans, it's a low risk product and on top of it, we don't process cash". The outcome... money laundering is not possible! This is just one example, but explains how far away from reality our front office staff can be at times. There is another classical fantasy on how money laundering is done (as the only way). Drugs are sold, someone with cash full of suitcase comes to the branch and deposits the cash in small chunks. It may sound silly, but for people who are far away from compliance domain, this is where money laundering schemes happen and end. In short, the opinion is that if their bank does not have a physical branch, no cash deposit counter, no ATM deposit options... money laundering exposure is not there!

Cash is no more the king

Training and awareness programs should take into account this increasing trend of using "cash" based examples to explain money laundering. Rather than any benefits, it's driving a lot of mis-conception in the first line of defence. Cash is not the king. In this day and age of cryptocurrencies, we are confronted with ever changing means and modes of laundering and have to raise the bar and not go to the lowest possible denominator (relying on education based on simplistic methods of money laundering).

In addition, we should use technology solutions to bring awareness for our front office in exposing how their supposedly simple products can be used and abused quite easily for some techniques where other banks/FI's may have already been exposed at. I recall one instance where I was trying to convince a room full of attendees that bank guarantee can also be an instrument to facilitate money laundering. When no one was convinced, I pulled up the Russian Laundromat case. Just sharing an experience from a well known scheme helped turn the discussion in a positive direction and we ended up defining a good set of controls (both automated and processes wise) around guarantees. Hence sharing exposure to known schemes, on your own banks products, goes a long way in not only convincing your front office staff, but will also allow them to pro-actively control any risk exposure of your portfolio.

And yes, cash can still claim the throne of a king for a short while, however the end of cash is approaching much faster after the COVID crisis. We as an industry need to act fast and have our front office/ business staff ready for the current and upcoming challenges ahead!