The Credit Life of the Criminal

Have you ever been in need of cash to buy that lovely car you dreamt about, the beautiful house you want to surprise your family with, to meet a liquidity challenge or bury a loved one? What about funds to meet working capital need, expansion of business operations or buying extra machinery and equipment? In Ghana, it is only the financial institutions that can help you solve these issues. Yes, friends and family can help you meet some of your liquidity challenges but what happens when there is a default on the payments?

Credit facility in the western world is the order of the day as most stuff (house, car, phone, household items etc) are purchased via credit facility. Literally, people live their lives on credit. There is even a credit facility for college tuition. In difficult times, where liquidity is a challenge for most companies and individuals, it is the loans that financial institutions give out that save the day.

Criminals have or are taking advantage of the loopholes in the system to further launder their ill-gotten funds. One will ask, what is the risk to the borrower when the lender is willing to give out surplus funds? This perception will be cured after reading this article which throws light on how criminals are using the credit system to launder dirty money and also how people can fall victim to criminal activities.

One way criminals launder their dirty money via a credit facility is when the criminal approach a financial institution for a loan and repayments are done using ill-gotten funds. Personal and/or corporate loans and mortgages are usually taken as a cover to launder money proceeds, and lump sum cash repayments, usually from illegal sources are used to repay these loans.

Another common method used to launder money is back-to-back loan or loan-back. This is when the criminal borrows his or her own criminal money. This is usually done through the creation of a loan agreement between the criminal and a third party. Most used third parties are offshore corporations that the criminals control. In the "loan-backed" money laundering method, a criminal provides an associate with a specific amount of illegitimate money. The associate then provides a "loan or mortgage" back to the money laundering for the same amount with all the necessary "loan or mortgage" documentation. This creates an illusion that the criminal's funds are legitimate. The scheme is reinforced through "legislatively" scheduled payments made on the loan by the criminal.

Offering low-interest rate is one of the methods criminals use to wash their dirty money. Criminals can also provide loans and mortgages at a rate which, is below the industry targets, forcing competitors out of business. This makes the criminal control the market and determines the flow of funds. Remember, customers will repay these loans with “clean”, thereby legitimizing the operations of the criminal.

In as much as, Intercompany loans help in tax avoidance and profit shifting, it can also be used to launder the ill-gotten money of companies. Intercompany loans have become a frequent instrument used as a means for raising funds. The ease with which such loans can be arranged makes them popular and vulnerable to criminals operating multinational companies. This can happen when company A in one country loans money to company B in another country (usually a country of low tax regime and lax money laundering control measures). The money is transferred with “prepared” documents. The purpose of this loan is to give the source of the money an appearance of legitimacy and to hide the true identity of the parties in the transaction or the real nature of the financial transactions associated with it.

To win the fight against money laundering through the credit facility system, financial institutions should conduct and implement proper Know Your Customer (KYC) principles and programs. This includes knowing the principal customers and suppliers of business/ corporate customers. Customers should be screened against all available sanctions lists, blacklists, and caution lists. At least google searches must be conducted on customers for any adverse media report. The need/ purpose for the facility must be documented and monitored. This will not only help in the fight against criminals laundering dirty money but also help in providing advisory services to the customers’ businesses.

Instituting policies, directives, laws and procedures over the firm’s credit facility will go a long way in making sure criminals stay off credit facilities as a means of laundering money. Financial institutions should have a customer acceptance policy which, will define the kind of customers/ sectors it wants to lend money to. Also as part of the credit facility requirement, financial institutions should obtain and review the Anti Money Laundering programs of corporate customers, especially accountable institutions, as implemented by the International Monetary Fund (IMF) for countries that require its financial assistance. In 2004, the Executive Board agreed to make AML/CFT assessments and capacity development a regular part of IMF work. Countries that need financial assistance from the fund must ensure that their AML/ CFT programs are adequate and fully implemented.

Constant training and awareness creation on the subject matter would go a long way in the fight against money laundering, terrorist financing and the proliferation of weapons of mass destruction. Financial and non-financial institutions should make it a must to train their employees (including casual staff) annually with frequent reminders and teasers sent to staff.

Another way to win the fight against money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction is through transaction monitoring. With the help of Artificial Intelligence (AI) compliance software, financial institutions will be able to look at a broader scope of alerts without having anyone physically go through all of them. It will also reduce false positives. Also the use of data analytics will help determine the patterns criminals are using to launder their dirty money. Once financial institutions recognize questionable patterns, they can develop client models, tiering potential risks and incorporating daily negative news alerts.

All financial institutions, from large commercial banks to small finance houses, need to be on the lookout for money launderers. By integrating due diligence technology with people training and a robust partnership with law enforcement, financial institutions can more effectively combat the increasingly sophisticated money launderers in Ghana and abroad, helping prevent criminal activity from continuing on their watch.

Would you mind doing me a favor? Share this article with someone so that the awareness of money laundering and terrorist financing could be spread to avoid being used as a conduit by criminals.

By Richieson Gyeni-Boateng, CAMS
If you require further information on this article, please contact Richieson @ [email protected]