Threat Assessment Calls Money Laundering a 'Massive' Challenge

Money laundering remains a "massive and evolving challenge" for investigators, according to the federal government's first-ever threat assessment of the problem.

Even getting a handle on the size of the money laundering threat and the success of efforts to stop it has been difficult, the report found.

"It is currently not possible, for example, to quantify with accuracy the total money laundering activity being apprehended by the government," it said.

Problems with data, incompatible computer systems and even differing definitions of "money laundering" have hampered some efforts to combat the crime. The assessment is intended to help law enforcement and government regulators grapple with the issue.

"Before you can effectively treat a problem, you must first have an accurate diagnosis," said Stuart Levey, the Treasury Department's undersecretary for terrorism and financial intelligence.

While law enforcement and investigators have made considerable progress in recent years, money laundering is still a vast enterprise made easier by computerized banking and global transactions. With a few clicks of a mouse a drug dealer can wash his proceeds from New York City through the Dominican Republic to an offshore account unknown to investigators. Federal Reserve Governor Susan Bies said the assessment "gives banks a better idea of what types of threats are out there."

Other recent trends and new technology allow criminals to exploit loopholes, such as store gift cards, which officials call "stored value" cards.

"The volume of dirty money circulating through the United States is undeniably vast and criminals are enjoying new advantages with globalization and the advent of new financial services such as stored value cards and online payment systems."

Although law enforcement agencies are concerned about new technologies, traditional methods of money laundering though money service business -- such as money orders, check cashing business and currency exchange remain most prevalent.

Most Laundering Not Linked to Terrorism

The assessment, which was prepared by 16 different government agencies, found that most suspicious transactions are flowing to criminal interests and enterprises in South and Central America, Russia and Caribbean Rim nations. While a great deal of focus has been given to terrorist financing in recent years, the report shows that only 1 percent of Suspicious Activity Reports filed by financial institutions involved potential terrorist financing. Despite this small number, law enforcement officials remain greatly concerned about the nexus of criminal organized crime groups engaged in money laundering and the possibility of financing terrorist operations.

The 9/11 plot cost the al Qaeda network approximately $400,000 of which approximately $300,000 passed through the hijackers' established bank accounts in the United States. Although they left a paper trail in the United States, Germany and the United Arab Emirates, the hijackers moved their funds in a routine way which avoided the scrutiny of law enforcement and banking officials.

Since the 9/11 attacks the Treasury Department and FBI have worked with foreign countries to strengthen global anti-money laundering laws and regulations. The Treasury Department, Justice Department and the Department of Homeland Security also work together in the Financial Action Task Force to monitor global money laundering. The controversial Patriot Act also contains several provisions requiring increased reporting for banking and financial institutions.

After the 9/11 attacks, much attention was focused on regulating informal money transfers, known as the hawala system, originally developed in India. Some challenges remain in detailing and understanding the scope of their use. "It is virtually impossible to ascertain the full extent of [Informal Value Transfer Systems] activity in the United States due to the opacity of the sector and the absence of registration."

Bulk-cash smuggling is a common money laundering technique which may be on the rise because of some anti-money laundering enforcement efforts.

The report cautioned that more data needs to be collected and that electronic and online banking and the decline in paper checks make it more difficult to track financial transactions. Also the working group has found that money remitters and money orders are too voluminous to accurately track down. The sheer scale of Western Union providers around the globe totals 196,000 agents in over 190 countries, for example, allowing money launderers to move their money virtually anywhere.