Are AML Transaction Monitoring systems built on faulty logic? Is this why we detect so little financial crime? Transaction Monitoring systems look for activity that adheres to rules or engages in outlier behavior, aka “Rules-Based” or “Behavior-Based,” situations that trigger alerts. Why?

Do we think skilled money launderers are unaware of these rules or don’t understand that transacting in ways that deviate from some norm trigger TM alerts?

Sure, TM systems detect suspicious activity. There are dumb and careless money launderers, thankfully, and we should catch them. But if $1+ trillion a year is laundered and we detect only some tiny amount of that, could it be because money launderers good at their jobs know not to conduct transactions that follow known red-flag rules or deviate from “normal looking behavior?”

To illustrate, let’s use a basic structuring rule – we visit four branches on the same day and deposit $9,000 each time. Rule tripped; alert generated.

Or, a high-risk international wire – we’ve sent one wire from my account in the past year to Duluth, MN, for $3,500. Yesterday, we sent a $50,000 wire to Dubai. Alert!

If we are good launderers, we have companies that are legitimate business operations. We mask our money within those operations. We own ten pizza parlors. We pay managers and staff, rent and utilities, and buy supplies. Every day, each store sells $3,000 of legit pizza. But our bookkeeper, part of our laundering team, deposits $4,000 in sales. Nothing crazy.

No system will alert on this because why would it? It’s not conforming to some Red Flag rule, nor is it out of the ordinary. $1,000 a day, 363 days a year (closed on Thanksgiving & Christmas) = $364,000 laundered per store or $3,640,000 annually.

How do we get the money back to our customer (drug organization)? Simple, we set up, or they set up a pizza parlor supply business – boxes, sauce, cheese, pepperoni (No pineapple – that’s disgusting). They inflate every invoice by a few thousand dollars, and we pay those invoices.

The money is successfully Placed, Layered, and Integrated. What TM approach is catching this and why?

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