Welcome to Your CAMS Study Guide: Money Laundering in Banks
Hello! We are so glad you are here. Whether you are a seasoned compliance officer or brand new to the world of financial crime, this chapter is the cornerstone of your CAMS journey. Why? Because banks and depository institutions are the primary "gatekeepers" of the global economy. Most money laundering starts, passes through, or ends up in a bank. Don't worry if some of these terms feel heavy at first—we are going to break them down into bite-sized pieces using everyday examples!
1. Structuring and Smurfing
Before we dive into specific banking products, we need to understand how criminals get their "dirty" cash into the system. This is usually the Placement stage.
What is Structuring?
In many countries, banks must report any cash transaction over a certain limit (like \$10,000 in the U.S.). Structuring is the act of breaking up a large amount of cash into several smaller deposits to stay under that reporting threshold.
\nAnalogy: Imagine you have a giant bag of cookies that won't fit into a small jar. Instead of forcing it, you take a few cookies out at a time and put them in the jar throughout the day so no one notices the jar is getting full.
What is Smurfing?
\nSmurfing is just a specific type of structuring. It involves using multiple people (called "smurfs") to make these small deposits at many different bank branches or different banks altogether.
\nCommon Mistake: Students often think structuring only happens with deposits. Actually, it can also happen with withdrawals or purchasing money orders!
Quick Review: Structuring
\n• Goal: Avoid triggering a Currency Transaction Report (CTR).
\n• Method: Multiple deposits under the legal limit.
\n• Red Flag: A customer making several deposits of \$9,500 over three days.
2. Correspondent Banking: The "Bank for Banks"
This is one of the most important topics in the CAMS exam. Correspondent banking is when one bank (the Correspondent) provides services to another bank (the Respondent).
Why is it Risky?
The Correspondent bank is processing transactions for people it doesn't know. They only know the Respondent bank; they don't know the Respondent bank's customers. This is called "dealing with a bank's bank."
Two Major Risks to Remember:
1. Nested Accounts: This happens when the Respondent bank allows other even smaller banks to use its account at the Correspondent bank. It’s like a Russian Nesting Doll—the Correspondent bank is now three layers removed from the actual customer!
2. Payable-Through Accounts (PTAs): This is a high-risk setup where the Respondent bank’s customers can directly use the Correspondent bank’s services (like writing checks or wire transfers) as if they were the Correspondent's own customers.
Did you know? PTAs are dangerous because the Correspondent bank often lacks the "Know Your Customer" (KYC) data for the people actually moving the money.
Key Takeaway: Correspondent Banking
The main risk is the lack of direct relationship with the end-user. If the Respondent bank has weak AML controls, the Correspondent bank is at high risk of being used for money laundering.
3. Private Banking: The "VIP" Risk
Private Banking provides highly personalized services to High-Net-Worth Individuals (HNWIs). While this is a legitimate business, it is a "honey pot" for money launderers.
Why the High Risk?
• Secrecy: Private banking emphasizes confidentiality, which criminals love.
• PEPs: Many private banking clients are Politically Exposed Persons (PEPs)—government officials or their families who might be involved in corruption.
• Large Sums: It is easier to hide a \$1 million "dirty" deposit when the client's average transaction is \$5 million.
Memory Aid: The "C" Risks of Private Banking
• Confidentiality (Too much secrecy)
• Corruption (PEPs)
• Commission (Bankers are paid to keep these wealthy clients happy, which might lead them to "look the other way").
4. Wire Transfers (Electronic Funds Transfers)
Wire transfers are the preferred method for the Layering stage of money laundering because they are fast and cross borders easily.
How Criminals Use Wires:
1. Speed: Moving money through three different countries in 24 hours makes it hard for police to follow.
2. Stripping: This is a serious crime where a bank intentionally removes information from a wire transfer (like the name of a sanctioned country or person) so the payment goes through undetected.
Step-by-Step of a Wire Risk:
• A "dirty" deposit is made in Country A.
• A wire is sent to a shell company in Country B.
• That company wires the money to a "clean" account in Country C.
• Result: The "paper trail" is now incredibly confusing for investigators.
5. Credit, Debit, and Prepaid Cards
We use these every day, but for a launderer, they are tools for moving money across borders without carrying a suitcase of cash.
Prepaid Cards (Stored Value Cards)
These are particularly risky because they are portable and often anonymous.
Example: A criminal buys five prepaid cards worth \$2,000 each using "dirty" cash. They mail these cards to an associate in another country. The associate withdraws the cash from an ATM. No wire transfer was ever recorded, and no cash crossed the border in a luggage bag!
Credit Cards
\nLaunderers use "dirty" cash to overpay their credit card balance.
\nExample: If I owe \$1,000 but I pay the bank \$10,000 in cash, I now have a "credit" of \$9,000 on my card. I can then ask the bank for a refund check. That check looks like "clean" money from a reputable bank!
6. Remote Deposit Capture (RDC)
RDC is a fancy term for mobile check deposit—using your phone to take a picture of a check and deposit it.
The Risk: The bank doesn't see the physical check or the person depositing it. Launderers can use this to deposit many checks quickly without ever talking to a bank teller who might get suspicious.
Quick Review: Emerging Methods
• Prepaid Cards: High anonymity and portability.
• Credit Cards: Risk of overpayment to create "clean" refunds.
• RDC: Risk of depositing checks without face-to-face interaction.
Final Summary for the Exam
When you are studying this chapter, always ask yourself: "How does this help the criminal hide the source of the money?"
• Banks are the main entry point (Placement).
• Correspondent Banking hides the identity of the underlying customer.
• Private Banking creates a veil of secrecy around PEPs.
• Structuring is the most common way to get cash into the system while avoiding reports.
Don't give up! You are doing great. This chapter is all about understanding the "loopholes" criminals try to use. Once you see the patterns, the CAMS exam becomes much easier to navigate!