WATCH WEBINAR: https://www.caseware.com/alessa/webinars/fraud-risks-wire-transfers/
Wire transfers have long been the tool of choice for money launderers and fraudsters. To mitigate these risks to the financial institutions they serve, AML compliance and fraud professionals must understand how wire transfers work, both in the U.S. and globally, as well as be able to recognize the red flags in wire transfer transactions that may indicate money laundering or fraud is taking place through a customer’s account.
In this presentation, Laurie Kelly, CAMS shares her knowledge and experiences gained from 20 years in leading the AML, fraud, and sanctions compliance functions for a $130 billion U.S. financial institution that processed 12,000 to 15,000 wire transfers per day. Attendees will learn about the mechanics of wire transfers, both in the U.S. and globally, and how wire transfers differ from other types of money movement methods. She will then discuss the FinCEN “Travel Rule”, as well as sanctions screening best practices for wire transfers. Finally, Laurie will explore the money laundering and fraud risks and red flags associated with wire transfers and ways to mitigate them.
About Alessa, a CaseWare RCM product:
Alessa is a financial crime detection, prevention and management solution offered by CaseWare RCM Inc. With deployments in more than 20 countries in banking, insurance, FinTech, gaming, manufacturing, retail and more, Alessa is the only platform organizations need to identify high-risk activities and stay ahead of compliance. To learn more about how Alessa can help your organization ensure compliance, detect complex fraud schemes, and prevent waste, abuse and misuse, visit us at caseware.com/alessa.
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SUBSCRIBE to Alessa on YouTube: http://tiny.cc/Alessa
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Agenda
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1. What is a wire transfer?
2. Wires vs. ACH
3. Fedwire, CHIPS and SWIFT
4. Wire transfer terminology
5. Fedwire’s biggest weakness
6. Myths and misconceptions about wire transfers
7. FinCEN “Travel Rule”
8. Sanctions screening for wire transfers
9. Wire transfers, money laundering and fraud
10. Concluding comments and Q & A
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What is a Wire Transfer?
• Originated with the telegraph in late 1800’s
• Essentially, a message from one bank to
another
• Electronic Funds Transfer (EFT):
• Wire transfers
• ACH
• Direct deposit
• Online bill pay
• Person to person payments (PayPal)
• Digital wallets (Venmo, Google Pay,
Apple Pay)
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Wire Transfers vs ACH
Type of transaction Single transaction Batches of transactions
Cost $25 to $50 average Pennies
Reversible No Yes
Recipient can initiate (pull funds) No Yes
Funds availability
Same day (domestic)
1-2 business days (int’l)
1-2 business days
Same day by 5pm
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Fedwire
• Operated by the US Federal
Reserve Banks
• Primary U.S. wire transfer
network
• Real time gross settlement
Source: FRBServices.org Fedwire Funds Service Volume and Value Statistics
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A Fedwire Wire Transfer
Beachside
Bank
Mrs. Smith
Pinstripe
Bank
Mr. Jones
Payment
Order
Fed Reserve Bank
Pinstripe Fed account
Debit $5,000
Beachside Fed account
Credit $5,000
Fedwire System
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Fedwire Wire Transfer – Non-Participating Bank
Mrs. Smith
Pinstripe
Bank
Mr. Jones
First Nat’l Bank
*Correspondent*
Payment
Order
Beachside
Bank
Fed Reserve Bank
First Nat’l Bank Fed account
Debit $5,000
Beachside Fed account
Credit $5,000
Fedwire System
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Correspondent Accounts
Pinstripe Bank
Due To/From First Nat’l
5/1 Debit $5,000
5/6 Credit ($2,000)
5/8 Credit ($10,000)
5/28 Debit $12,000
End Bal May: Debit $5,000
First Nat’l Bank
*Correspondent*
Due To/From Pinstripe
5/1 Credit ($5,000)
5/6 Debit $2,000
5/8 Debit $10,000
5/28 Credit ($12,000)
End Bal May: Credit ($5,000)
Activity on Pinstripe’s behalf:
5/1 Outgoing wire $5,000
5/6 Incoming wire $2,000
5/8 Incoming wire $10,000
5/28 Outgoing wire $12,000
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• LARGE inter-bank transfers amongst ~ 50
participants
• Private sector version of Fedwire
• $1.5 trillion per day – average transfer $3 million
• Slower, but less expensive than Fedwire
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Clearing House Interbank Payments System: “CHIPS”
• Smaller payments settled real-time; larger
payments settled bilaterally or multilaterally
• Daily “security deposit” required
• International bank participants must have U.S.
presence
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• Based in Brussels, Belgium; 11,000+ participants
• $5 trillion in payment messages per day
• ONLY a messaging system – no settlements
• Relies on correspondent relationships
• Message “types” – payments, ForEx, export LCs,
securities, general communications
• Primary system for international funds transfers
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SWIFT
Society for Worldwide Interbank Financial Telecommunications
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How a SWIFT Wire Transfer Works
BNP
Paribas
Bon Vie
Winery
Due To/From BNP
Paribas
Debit $2,000 USD
Due To/From Banco de
Brasil
Debit $2,000 USD
Banco de
Brasil
Senora
Martinez
Payment
Order
MT103
Payment Msg
SWIFT Network
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International WT – Not a SWIFT Participant
First Nat’l Bank
*Correspondent*
Due To/From BNP Paribas
Debit $2,000 USD
Pinstripe
Bank
Mr. Jones
Payment
Order
BNP
Paribas
Bon Vie
Winery
JPMChase
*Correspondent*
Fed Reserve Bank
First Nat’l Bank Fed account
Debit $2,000
Beachside Fed account
Credit $2,000
Fedwire System
MT103
Payment Msg
SWIFT Network
Due To/From JPMChase
Credit $2,000 USD
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Know the Lingo
Beachside Bank
Fedwire: Beneficiary’s Bank (BBK)
SWIFT: Receiver Institution RTN
Mr. Jones
Fedwire: Originator (ORG)
SWIFT: Ordering Customer
Mrs. Smith
Fedwire: Beneficiary (BNF)
SWIFT: Beneficiary Customer
Fedwire: ORG ID (Acct #)
SWIFT: Ordering Customer Acct (#)
OGB ID: Fed RTN
SWIFT: Ordering Inst BIC
Pinstripe Bank
Fedwire: Originator’s Bank (OGB)
SWIFT: Ordering Institution
Fedwire: BNF ID (Acct #)
SWIFT: Beneficiary Customer Acct (#)
BBK ID: Fed RTN
SWIFT: Receiver Inst BIC
Fed RTN: 123 103 716
SWIFT BIC:
BOFAUS3NXXX
BOFAUS3MXXX
BOFAUS6HXXX
CHIPS UID: 136397
Fedwire System
Payment
Order
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More than One Bank Involved
Fedwire Term (abbrev) Meaning
Sender Depository Institution (SDI)
The bank that puts the payment instruction into the Fedwire system.
MUST be a Fed RT (ABA) number
Receiver Depository Institution (RDI)
The bank that will receive the Fedwire payment. MUST be a Fed RTN
(ABA number)
Intermediary Bank (IBK)
May be the same as the Receiver DI, or could be a second
intermediary bank
Intermediary Bank ID (IBK ID)
The identifying number of the Intermediary bank – Fed RT, SWIFT
BIC, or other
Beneficiary’s Bank (BBK)
The final bank in the transfer chain; where the Beneficiary’s account
resides
Beneficiary’s Bank ID (BBK ID)
The identifying number of the Beneficiary’s bank – Fed RT, SWIFT
BIC, or other
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Multiple Banks Involved - Fedwire
Pinstripe
Bank
Beachside
Bank
Mrs. Smith
First Nat’l Bank
*Correspondent*
Sender DI
Intermediary Bank
(IBK)
ID: Fed RTN
Originator’s Bank
(OGB)
ID: Acct # w. First Nat’l
Receiver DI
Beneficiary’s Bank
(BBK)
ID: Fed RTN
Originator (ORG)
ID: Acct # w. Pinstripe
Beneficiary (BNF)
ID: Acct # w. Beachside
Mr. Jones
Payment
Order
Fedwire
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Multiple Banks Involved – Fedwire cont’d
Beachside
Bank
Sender DI
Originator’s Bank
(OGB)
ID: Fed RTN
First Nat’l Bank
*Correspondent*
Receiver DI
Intermediary Bank
(IBK)
ID: Fed RTN
Beneficiary’s Bank
(BBK)
ID: Acct # w. First Nat’l
Pinstripe
Bank
Mr. Jones
Beneficiary (BNF)
ID: Acct # w. Pinstripe
Mrs. Smith
Originator (ORG)
ID: Acct # w. Beachside
Payment
Order
Fedwire
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Multiple Banks Involved – Fedwire/SWIFT
JPMChase
*Correspondent*
First Nat’l Bank
*Correspondent*
Pinstripe
Bank
Mr. Jones
Payment
Order
BNP
Paribas
Bon Vie
Winery
MT103
Payment Msg
SWIFT NetworkFed Reserve Bank
Fedwire System
Sender DI
and IBK #1
Receiver DI
and IBK #2
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• “Records to be Made and Retained by Financial
Institutions” CFR §1010.410
• Funds transfer data must be collected, then “travel”
to each subsequent bank
• Goal: To help law enforcement “follow the money”
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What is the Travel Rule?
#1 – What information must be included
#2 – When the Travel Rule does NOT apply
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Mandatory:
• Originator’s name (the term used by the regulation is “transmitter)
• Originator’s full address
• Originator's account number (if there is one)
• The amount of the payment
• The execution date of the payment
• The IDENTITY of the recipient’s financial institution
Must be included IF PROVIDED by the Originator:
• Recipient’s name
• Recipient’s address
• Recipient’s account number or other identifier
• Any other payment instructions provided
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Travel Rule: What Data Must be Included?
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When the type of transfer is excluded:
• Transfers processed through an automated clearinghouse – ACH
• Automated teller machine transfers
• Point-of-sale system transfers
• Direct deposits or withdrawals
• Telephone banking transfers
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When Does the Travel Rule NOT Apply?
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When the transfer meets any of these criteria:
• Under $3,000
• Between a sender and recipient who are the same person
• Between two account holders at the same institution (“book transfer”)
• Between any two of these types of entities:
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When Does the Travel Rule NOT Apply?
Bank Commodities/futures broker The U.S. Government
U.S. subsidiary of a bank
U.S. subsidiary of a
commodities/futures broker
State or local government
Securities broker/dealer
U.S. subsidiary of a securities broker
dealer
Federal, state or local
government agency or
instrumentality
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• No specific regulations for screening protocols
• Screen all wire transfers: Fedwire, SWIFT, CHIPS
• Screen every key data field that could ID a
sanctioned party
• All party names (including banks) and
addresses
• Freeform text fields (OBI, BBI, remittance info)
• Outgoing: before releasing to settlement/clearing
system
• Incoming: before posting to beneficiary’s account
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Sanctions Screening: Best Practices
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Wire Transfers and Money Laundering
National Products
LLC
(shell company)
$9,790
Sue Greedy
$200
Bob Gullible
Boris Badenov
$9,990
$8,000$9,700
$90 fee
Layering
Placement
Integration
Crime:
Fraud
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A Tool of Choice:
• Irrevocable, same-day
• Funds available immediately for withdrawal
• Full information not required per Travel Rule
• Huge volumes of payments per day – smaller
amounts less noticeable
• Rapid funds movement facilitates the layering
process
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Wire Transfers and Money Laundering
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Wire Transfer Red Flags for Money Laundering
Commercial accounts:
• Sudden use of wires
• Frequent wires with no apparent business purpose
• Patterns of incoming wires followed by outgoing
disbursements
• Foreign wires, especially if no import/export
• Explanations that don’t make sense
• High volume of wire transfers on an account, but
balance always low (possible funnel account)
• Large wire transfers by a cash-based business
• Incoming round amounts $25k to $50k
Consumer accounts:
• Any wire transfer
• To/from financial secrecy country
• PUPID (pay upon proper identification) wires
• Non-account holders
• Funded by cash or bearer instrument
#1 – Out of pattern activity
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Research indicates 76% of all fraud attempts involve wire transfers
Wire Transfers and Fraud cont’d
Malware
Social
engineering
Phishing,
smishing,
vishing
Email
compromise
Call Center
Mobile &
online banking
Bank employee
FAX
Branch
Methods of
compromise
Points of
compromise
Wire Initiation
Methods
Email
Computer or
mobile
device
Call Center
Bank employee
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#1: Business email compromise
• No technology needed
• Targets people, not systems vulnerabilities
• Can bypass banks’ fraud monitoring systems
• Medium-sized businesses are a common target – BUT big
companies are also vulnerable
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Social Engineering
Social engineering: Manipulating a person into doing
something they wouldn’t ordinarily do.
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CEO or executive impersonation scams:
• Crelan Bank (Belgium): $75 million
• FACC: $61 million
• Upsher-Smith Laboratories: $50 million
• Ubiquiti Networks: $47 million
• Leoni AG: $44 million
• Xoom Corporation: $31 million
• Pathé: $21 million
• Tecnimont SpA: $18 million
• The Scoular Company: $17 million
• Mattel Toys: $3 million
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Social Engineering
Vendor impersonation/fake invoices:
• Facebook and Google: $100 million
• MacEwan University: $11.8 million
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Red flags:
• #1: Out of pattern activity
• Sudden use of wires
• Foreign wire transfers - especially consumer accounts
• Incoming wire transfers of just under $10,000 then cash withdrawal
• Wire request in non-standard format
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Fraud & Wire Transfers: Red Flags, Best Practices
Best practices:
• Two-party authentication on free-form wire and new wire templates
• No wire requests by fax or email
OR: Confirm by calling established customer phone #
• Educate customer service and fraud interdiction staff
• Educate customers about fraud risks
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• Funds movement methods keep evolving –
faster than the regulations can keep up
• Will wire transfers disappear soon?
• Understand the mechanics of wire transfers –
and all other funds movement methods
• Out of pattern activity is the #1 red flag
• Consider the synergies of a FRAML approach
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Concluding Comments