To really grasp the Bank Secrecy Act and its related policy components and activities, you need to understand money laundering. It's the basis of what we are trying to help law enforcement uncover. You'll often hear the Bank Secrecy Act referred to as an "anti-money laundering" or AML program. 

Money earned from illicit activities flows through financial institutions, including credit unions. Whether it is laundering funds for terrorism, drug trade, arms trafficking, income tax evasion, or other crimes, recognizing factors that may indicate the need to take a closer look at an account or investigate a member is critical.

There are regularly news stories about crimes and even well-known individuals who are under investigation for possible crimes. Pay attention because the initial charges are often money laundering or tax evasion. Whether in politics, business finances, or drug-related crimes, there is always a monetary component. Sometimes credit unions even know they assisted with uncovering part of the criminal case with their BSA reporting to law enforcement and state or federal agencies.

The three steps of money laundering are discussed below. Keep in mind that any or all of the steps in the process may occur in accounts at your credit union, and they may be nearly impossible to detect. Many credit unions use software to assist with picking up on patterns and activities that may point to needing to take a closer look at a member or account. You can see a list of red flags of money laundering activity in Appendix F of the FFIEC BSA examination manual to get a better understanding of what signs you might look for in your department.

If you are unsure if your credit union is using an AML software, it is a good question for your BSA compliance officer. Nasdaq Verafin is a common one that many mid-sized and larger credit unions currently use in Montana, but there are other options on the market.

Placement

After the collection of funds through an illegal or illicit activity, a money launderer may look to place the funds into the financial system. Cash is anonymous, but can be difficult to handle, hard to hide, and it often attracts attention. There are also required reports for cash over certain amounts. Cash might be split into multiple deposits across several financial institutions to avoid detection. Funds also come into your credit union through the ACH system, payment apps, wire transfers, or even check deposits.

Layering

One of the primary goals of money laundering is to move the funds as far from the point of origin as quickly as possible to hide the true nature. Through layering, a launderer might combine funds from a legal business or activity with their illegally gained monies to further mask the origin. The illegal money is then disassociated from the source by creating a complex web of financial transactions aimed at concealing the sources and ownership of funds while also helping to confuse the audit trail and account history. 

Integration

When funds are layered sufficiently, the laundering process can be completed through integration. This simply means the money is used or invested in a legitimate purpose, or placed into another financial institution to start the cycle again. Moving funds may be accomplished by sending a wire transfer, purchasing property or a luxury asset, or by making an investment, including cryptocurrency. It might also occur with a cashier's check withdrawal, or through electronic means such as a wire transfer or payment app transaction.

The graphic above comes from the U.S. Department of Treasury 2024 report, National Strategy for Combatting Terrorism and Other Illicit Financing. It does a good job of showing the various threats to the U.S. financial system (left) and how the system may be exploited through the numerous vulnerabilities (right). All are important to the anti-money laundering and countering the financing of terrorism fight.

Donya Parrish, VP Risk Management | donya@mcun.coop | 406-459-3497