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Are You Unwittingly Laundering Money?

One consequence of increased anti-money laundering legislation and regulation (which is predominantly aimed at financial institutions) is that launderers are commonly utilising the services and facilities of other companies and business sectors, warns Peter Lilley. In fact, this trend has already become prevalent in the United States, particularly in the context of their dealings with South America.

Executives from some of the top corporations in America, including Hewlett-Packard, General Motors and Westinghouse, were summoned to the US Department of Justice in June 2000 after their companies were linked to South American drug cartel money laundering operations.

The black market peso exchange in which Colombian pesos are exchanged for dollars and then used to purchase goods in the US, poses problems for numerous different types of businesses. These narco dollars are being used to buy household appliances, consumer electronics, alcoholic drinks, cigarettes and car parts. Ironically, money is also laundered in part through buying washing machines.

Another problem is where US companies accept payments in cash or through third parties. The current advice being given is for companies to avoid all third party payments.

Whirlpool is the world’s largest manufacturer of home appliances – but in 1997 the company’s name started to appear in connection with money laundering. Due to this unwanted attention, Whirlpool instigated robust KYC policies that included establishing a profile for every trading partner which is located in a high-risk money laundering area. The profile includes detailed information on the company’s principals, financial institutions it uses, the geographical regions in which it operates, any related companies and contract expectations.

As well as various other controls, all Whirlpool employees in positions which might include the risk of money laundering, undergo annual training. The general advice to all companies at risk of being unwittingly involved in money laundering is to take the following steps:

  • Have a clear written policy that recognises money laundering as a serious problem which will not be tolerated and ensure that this policy is communicated to all staff members.
  • Define specific KYC (Know Your Customer) and due diligence requirements to all staff.
  • Establish an independent reporting system so that any employee can report money laundering suspicions.
  • Appoint a designated compliance officer who is sufficiently senior to investigate, correct and take action on potential problems.
  • Conduct a regular audit of the systems and processes to ensure compliance.

Additionally the following red flags should be watched for:

  • Payments from third parties – although this is common in Latin America, any third partypayments should be scrutinised.
  • Distributors or partners without appropriate facilities – if the facilities of your partners do not match the financial turnover or stated activities of their company, you should be wary. For example do their offices and warehousing facilities match with what they are telling you?
  • Unknown entities – beware of unknown entities, particularly when no one else in your industry has heard of the newcomers.
  • Be suspicious of contracts that have a round number total – most transactions that involve commodities or products do not result in exact totals.

And of course, the normal red flags to indicate possible money laundering activities still apply.


Author: Peter Lilley

Original publication date: June 2001

This document was originally published in June 2001. It has been provided for information purposes and should be read in the context of its original publication date.


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Dirty Dealing Revisited

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In 2012 Peter Lilley, the founder & owner of Proximal Consulting, was invited to give a keynote presentation in Prague to a major gathering of law enforcement officials from numerous countries. He took this opportunity to update his highly regarded book “Dirty Dealing: the untold truth about global money laundering

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