Money-Laundering Update: Kevin Sullivan on Emerging Threats

Beware suspicious money entering the U.S. via politically exposed persons (PEPs). And be mindful of non-banking entities that are involved in illegal activities outside of current anti-money laundering (AML) regulations.

This is the advice from AML expert Kevin Sullivan, who offers insights on the newest money-laundering trends, including:

The latest threats;
Which types organizations are most at risk;
How to fight back against these crimes.

Sullivan is a former Investigator with the NY State Police and was the state investigations coordinator assigned to the NY HIFCA El Dorado Task Force in Manhattan. He has more than 20 years of police experience. Sullivan possesses a Masters in Economic Crime Management and is both a certified anti-money laundering specialist and certified anti-money laundering professional. He is also the director of

TOM FIELD: What are the latest money laundering trends and threats? Hi, this is Tom Field, Editorial Director with Information Security Media Group. I am talking today with our resident anti-money laundering expert, Kevin Sullivan.

Kevin, it is a pleasure to catch up with you again.

KEVIN SULLIVAN: Thank you, Tom. It is a pleasure to be here.

FIELD: It has been a while since we spoke. We spoke some last year about some of the trends that you were seeing, and you produced some webinars for us. What are you seeing now in early 2010 as the top money laundering trends?

SULLIVAN: Well, I think the latest area of concern is not necessarily anything that is new mechanically, however, there has been new light shed on a very old subject down in Washington, D.C. lately. "Politically Exposed Persons" (also known as PEPs) and their inner circles of power have managed to bring massive amounts of suspect money into the United States. There recently has been a Senate Subcommittee on investigations, led by Senator Carl Levin, that is currently finishing up with his investigation, and he will be releasing a report detailing the abuse of the U.S. financial system by the PEPs, or we could also call them corrupt foreign officials.

FIELD: So, what is it that our audience really ought to know about this, Kevin? Our audience has expanded, we talk to financial institutions, government agencies and healthcare organizations as well.

SULLIVAN: Well, I think they should be aware of the risks that they are at. Right now there are some glaring gaps in the Patriot Act that may be circumventing the effectiveness of the Bank Secrecy Act. We have lawyers, lobbyists, real estate and escrow agents that have assisted in disguising the existence of hundreds of millions of dollars that have been brought into the U.S. by these various PEPs, and they are usually from corrupt regimes. However, it should be noted that those professions are under no obligation to establish or maintain any type of AML program. However, these U.S. entities did nothing illegal per se, but they are at the forefront of an absolute black hole in our AML policies. And while the Senate investigation didn't just completely focus on those professions (such as the lawyers and lobbyists), they did note that they have no AML obligation, which probably needs to change. And there were some major financial institutions -- I don't feel the need to name them right now, but they are certainly in newspaper right now and you could find out if you want -- but these major institutions failed to identify PEPs, and/or they failed to clear up the fog that surrounds some quite dubious transactions that these PEPs completed.

FIELD: Well, it sounds like what you have always told me: As soon an organization builds a ten-foot wall the bad guys build an eleven-foot ladder.

SULLIVAN: That is what they do. That is their job. The bad guys' job is to figure out ways to circumvent what defense shields you have managed to establish.

FIELD: So Kevin, we have worried for years about financial institutions and their money laundering risk and the protections that they have in place to watch over customers. What types of organizations do you see most at risk now from what the bad guys are doing?

SULLIVAN: Any type of financial institution right now is at risk because the bad guys, whether they be PEPs or organized crime, they will use any and every method possible. So it is tough to say that one particular element of the legitimate financial community is exposed; they are all exposed. And just like any good drug dealer will do, a good smart drug dealer doesn't put all of his eggs in one basket per se. He doesn't send one truck full of all of his cocaine up the highway and across the border. He send boats, trucks, cars, submarines, airplanes, postal service -- he does it a million different ways. The same thing with our financial institutions; no one is particularly more at risk than another, but if there is any loophole in the system, the bad guys will find it and they will abuse it.

FIELD: Well, Kevin, tell us a little bit more about how organizations can prevent some of the suspicious money from entering the U.S.? What should they be looking for? What can they do to fight back?

SULLIVAN: Well, as far as financial institutions are concerned, I think they must realize that dealing with a PEP is a risk that requires significant mitigation. Absolutely, when you deal with a PEP it can be quite profitable for your company, but however you need to realize that your institution's reputation is also at stake. So there are several items that I think should be on your AML to-do list.

They would be to make sure that you can and you do identify any customer who might be a PEP. Also, verify the source of the funds; transparency is good, fog is bad. Make sure that there is some form of enhanced monitoring of the entire PEP relationship, particularly in private banking. And some other recommendations I would have, not necessarily for the financial institutions but for government: We need to mandate that U.S. corporations identify their beneficial owners. This way it prevents the use of shell companies who have hidden PEPs as their owners. Also, remove the exemption in the Patriot Act for real estate and escrow agents. They need to abide by the same AML standards as all other financial institutions. And I think finally, my last recommendation would be to update the immigration rules and make foreign corruption a legal basis for denying entrance into the United States.

FIELD: Kevin, there is a topic I haven't asked you very much about, but I am curious. One of the things that we know, people in financial institutions government, healthcare organizations are concerned about our social networking sites and social networking activity. Do you see money laundering activity going to those venues as well?

SULLIVAN: I haven't done any investigations on that. I think just before I retired at the end of last year that probably was going to be one of my next little projects is to look into some of these social networking sites. I think if there is any type of value that gets transferred over these sites, you can certainly abuse it for money laundering.

But I think what is more of a major concern for law enforcement is that these social networking sites just give more methods of communications to the bad guys. So it used to be that their only form of communication was the telephone, and we could go up on a wiretap and listen in on phone conversation. Well, now we have to worry about the wiretaps, you have to worry about mobile phones, you have to worry about IM messages and now going on FaceBook and leaving things on that, and usually they are kind of coded messages. So what it has done is just opened up a treasure trove of opportunity for communication in the world bad guy network.

FIELD: Now it seems like it has been a year or so since we have seen any significant AML Guidance. Is there anything that has come down that organizations ought to be aware of?

SULLIVAN: Well, I think as a result of this recent Senate investigation, there will be some new regulations coming down the pike with reference to identifying corporate transparency. Now, we will never mandate an attorney in the United States to report suspicious activity; however they do that in the EU. Now as much as I would love to see that, I just don't see that happening here in this county. But the Senate Subcommittee will recommend that lawyers at least certify that their attorney/client accounts do not accept suspect funds that involve PEPs who have been red flagged for suspect behavior and activity.

FIELD: Now, Kevin, you referenced your retirement from police work. For people that have listened to your webinars before, have listened to your podcast interviews and have gotten to know you some, can you give us a sense of where your career has taken you now and what you are up to these days?

SULLIVAN: Well, the first few months since I retired from law enforcement my focus was basically on working on my slice to the right; however, it didn't work out that well, and it still stinks.

Once I put that behind me, I have been working now on developing an online and on-demand AML training courses, which will be available via my website at I am a real big believer that there is a void in the training process. You know, there are a lot of trainers out there than can talk about money laundering and recite the three phases of money laundering. However, the focus must be on any learning situation the student has to remember, retain and be able to recite back what he has been taught, and you have to do that long after he leaves the classroom. So the way you do that is by using interactive methods and basically making the program enjoyable and informative.

FIELD: Well, Kevin, it sounds like fun, and I look forward to seeing some of your programs and to talking with you down the road about anti-money laundering activities as they emerge.

SULLIVAN: Well, thank you very much, Tom, and I appreciate you allowing me to be here.

FIELD: The topic has been anti-money laundering. We have been talking with AML expert, Kevin Sullivan. For Information Security Media Group, I'm Tom Field. Thank you very much.

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