Placement, layering, integration — and structuring

Layering is the shuffling that follows. Money moves between accounts, across borders, in and out of securities, through shell companies, in patterns designed to make the trail impossible to follow. Nothing is bought or enjoyed at this stage; the purpose is only distance. A pattern of transfers with no economic sense is the classic layering signal.

Integration is the money coming back as apparently legitimate wealth: a property purchase, a business investment, a loan to oneself from an offshore company. By this point the funds look ordinary, which is why detection has to happen earlier. Firms are required to collect identifying information before an account is opened and to verify it within a reasonable time before or after opening.

Two other checks run alongside. A firm screens customers against the Specially Designated Nationals and Blocked Persons List kept by OFAC: it may not open an account for a blocked person, must first decide carefully whether a name alert is a true match, and must block property of a blocked person in its possession or control and report it to OFAC within ten business days. And under section 314 of the USA PATRIOT Act, when FinCEN sends a request naming a suspect (314(a)), a firm must search its records, report any match and keep the request confidential, while sharing information with another firm (314(b)) is voluntary and needs a notice to FinCEN, renewed each year, and a check that the other firm has filed one too.

Structuring is not a stage; it is a separate criminal offense usually committed during placement. Deliberately breaking a cash transaction into smaller amounts to keep each one under the currency reporting threshold is illegal in itself, whatever the source of the money. A customer who asks how to stay under the line has told you enough, and a customer whose funds are entirely legitimate is still committing an offense by splitting them.

Every member firm must have an anti-money laundering program, and FINRA Rule 3310 sets its minimum elements. The program must be in writing and approved in writing by a member of senior management. It must include policies and procedures reasonably expected to detect and cause the reporting of suspicious transactions, and internal controls to comply with the Bank Secrecy Act. It must provide for independent testing, annually for firms that hold customer accounts, and designate an AML compliance person responsible for day-to-day operations, identified to FINRA. It must provide ongoing training for appropriate personnel, and include risk-based procedures for ongoing customer due diligence.

The program also checks whether the customer appears on any government list of known or suspected terrorists or terrorist organizations, and it gives customers notice that the firm is asking for information to verify their identities. A firm may post that notice in its office or on its website, or put it on the account application.

US persons must generally block all property and interests in property of persons on the Specially Designated Nationals and Blocked Persons List that are within US territory or within the possession or control of a US person, and must report the blocking. The list is administered by the Office of Foreign Assets Control, a Treasury bureau, and a name match is a reason to stop and check rather than a reason to close the account quietly.