Cash-Intensive Businesses & AML/CFT

 Cash-intensive businesses are businesses that experience a high volume of cash flows. However, because cash-based transactions are inherently difficult to trace, as discussed above, cash-intensive businesses may potentially be used as vehicles for money laundering and the financing of terrorism and illegal organisations. Businesses that generate a large volume of cash revenue may be susceptible to abuse by illicit actors that integrate the proceeds of crime into the banking system under the guise of legitimate business. In particular, they may exploit cash-intensive businesses for money laundering and the financing of terrorism and illegal organisations by using cash-intensive business to:

 

·         Provide a front to launder large amounts of cash and reinvest cash proceeds of crime in the economy;

·         Co-mingle illicit and legitimate income; and

·         Finance, though often through small amounts of cash, terrorist activities without traceability.

 

 

Examples of cash-intensive businesses include: 

 

·         Convenience stores.

·         Restaurants.

·         Retail stores.

·         Liquor stores

·         Cigarette distributors

·         Privately owned automated teller machines (ATM)

·         Vending machine operators

·         Parking garages

 

Cash-intensive businesses can be vulnerable to criminal exploitation by their operators and as such may represent an increased money laundering risk. They can be used to launder the proceeds of criminal activity by mixing the illicit proceeds of crime with legitimate income from the cash-intensive business. Another risk is that income from cash businesses may go unreported to the tax authorities by the business operators, resulting in tax fraud. 

 

Money Service Business (MSBs) effectively convert cash into another form, such as wire transfers, money orders, or stored value cards. An MSB’s customer base is highly transient, and the transactions processed offer a relatively high degree of anonymity with minimal documentation.

 

Private ATM operators are another type of cash processor with a high money laundering risk. These businesses own ATMs which are often located in convenience stores, gas stations, and other retail locations. The ATM owner provides the cash for the machine from their own funds and is then reimbursed through a payment processing service.

A money launderer could purchase ATMs and install them in various retail locations, potentially within business establishments that are co-conspirators. The launderer loads the ATMs with illegal cash or co-mingled with clean cash. Ordinary people use ATMs, and the electronic transaction process debits the cardholder’s account and credits the ATM operator’s bank account. These transactions appear as electronic deposits from a legitimate financial institution, effectively laundering illegal cash.

Private ATM operators are regulated by state banking agencies but are extremely difficult to oversee and control.

When conducting a risk assessment of cash-intensive businesses, banks should direct their resources to those accounts that pose the greatest risk of money laundering or terrorist financing. The following factors may be used to identify the risks:

• Purpose of the account.

• Volume, frequency, and nature of currency transactions.

• Customer history (e.g., length of relationship, CTR filings, and SAR filings).

• Primary business activity, products, and services offered.

• Business or business structure.

• Geographic locations and jurisdictions of operations.

• Availability of information and cooperation of the business in providing information

Happy reading,

Those who read this, also read:

1. Organised Financial Crime Customer

2. Anti-Money Laundering - Definitions, Origins