PRACTICAL SOLUTIONS
M
oney laundering investigations
will undoubtedly involve a
review at some time of wire
transfers (sometimes called “electronic
funds transfers”). Wire transfers have been
a common means of laundering money to
offshore accounts in jurisdictions known for
being bank secrecy havens.
A wire transfer is initiated with a request by a
customer to direct the transfer of funds elsewhere, either domestically or internationally.
The request, usually made through a bank
or similar financial institution, gives instructions through a system of messages by telephone, email, fax or other electronic means
of communication. Before the proceeds
reach their final destination, the funds may
go through several financial institutions and
transit jurisdictions using correspondent
bank accounts, serial wires, cover payments,
shell companies and off shore jurisdictions.
This feature has made wire transfers, at least
in the past, attractive to money launderers by
adding complexity in the layering, or second
phase of the money laundering cycle. In
some cases, unscrupulous financial institutions have facilitated the transfer of illegally
obtained proceeds by helping criminals
launder funds through complex transactions
using corporate vehicles and establishing
special private wealth account privileges.
While there have been efforts in recent
years to encode information in the wire
transfer message that may enable investigators to better track the source and
destination of the funds, it is helpful for an
investigator to understand more fully how
wire transfers operate and what information is actually available.
A wire transfer comprises two components: (1) the instruction, which includes
information on both the originator and the
beneficiary institutions, and (2) the actual
movement or funds transfer. Instructions
may be sent in a number of ways, typically
through a financial institution, through electronic communication networks, email, fax,
telephone, telex or other various interbank
payment systems. The method most used
in the banking industry to communicate
transfer instructions to each other is through
the use of a special financial telecommunications system known as the Society for
Worldwide Interbank Financial Telecommunications, otherwise known as “SWIFT.”
It should be noted that SWIFT operates as a
messaging service only — it does not hold or
manage accounts and does not itself engage
in the actual transfer of funds. The actual
transfer is accomplished through the use of
correspondent bank relationships, which will
be discussed below.
SWIFT may be used for domestic and international transfers; however, some jurisdictions have alternative interbank payment
systems available. For instance, in the United
States, there are at least two other interbank payment systems available: Clearing
House Interbank Payments System (CHIPS)
and Fedwire Funds Service (Fedwire).
The primary difference between these two
systems and that of SWIFT is that both
CHIPS and Fedwire can be more