On December 20th the Treasury Department released its National Illicit Finance Strategy (something required under the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA). That Strategy was based on three risk assessments that were released simultaneously, but to little or no fanfare:
- 2018 National Proliferation Financing Risk Assessment
- 2018 National Terrorist Financing Risk Assessment
- 2018 National Money Laundering Risk Assessment
The 2018 National Money Laundering Risk Assessment (2018 NMLRA) is available at https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf. It follows the June 2015 NMLRA, available at https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/National%20Money%20Laundering%20Risk%20Assessment%20%E2%80%93%2006-12-2015.pdf.
What threats, vulnerabilities, and risks have changed or been added in the last 3 1/2 years since the 2015 NMLRA? Oddly … not much.
The 2018 NMLRA begins with an estimate of the size of the AML problem:
“The United States continues to estimate that domestic financial crime, excluding tax evasion, generated approximately $300 billion of proceeds for potential laundering, based on the sources and analysis cited in the 2015 NMLRA.”
So over the last 2 1/2 years, the size of the AML problem in the US hasn’t changed – it remains $300 billion of proceeds for potential laundering. In other words, not all of the proceeds of criminal activity make it into the financial system for potential laundering. But for arguments sake, let’s assume that all of the proceeds of criminal activity in the US make it into the financial system (and of course the NMLRA notes that proceeds of criminal activity from outside the United States are laundered through financial institutions based in the United States, and much of that simply passes through US-based financial institutions that are facilitating US DOllar-based transactions). Three hundred billion dollars is a lot of dirty money to go into, pass through, and/or end up in US financial institutions … but how much total money flows through those institutions? The 2015 NMLRA gives a clue: at page 35 is a reference to the volume of funds flowing through Fedwire, CHIPS, and ACH. The Fedwire and CHIPS numbers are daily volumes: $3.5 trillion per day and $1.5 trillion per day, respectively (ACH is measly $10 trillion per year). By my math, the three main US-based financial payments systems move ~two quintillion dollars a year, which means that criminal proceeds make up about $3 for every $20,000 that flow through US based financial institutions. To put that in perspective, $300 billion in criminal proceeds out of $2 quintillion in total proceeds means that 99.999985% of dollars moving through US financial institutions are “clean”. This is different than the other anecdotes and axioms we hear about the volume of dirty money in (or flowing through?) the financial system. Regardless, we can all agree that $300 billion is too much … and I digress …
What is particularly interesting about the 2018 NMLRA is that the sources of criminal proceeds, and how those proceeds are laundered, didn’t materially change from 2015 to 2018.
Both the 2015 and 2018 NMLRAs conclude that the biggest sources of criminal proceeds are the common frauds – bank fraud, consumer fraud, healthcare fraud, securities fraud, and tax refund fraud – drug trafficking, human smuggling and human trafficking (correctly noted as two very different crimes), organized crime, and corruption. Health care fraud and drug trafficking each account for the bulk of the $300 billion in criminal proceeds – $1oo billion each. Human trafficking is a large and growing source at an estimated $36 billion a year.
Notably, the most significant money laundering risks in the United States in 2018 are essentially the same risks found in 2015: the misuse of cash (pages 4, 20), complicit individuals and financial services employees, and lax compliance at financial institutions (pages 40-45). And the “main risk that facilitates money laundering”? Anonymity in transactions and funds transfers (pages 4, 46). Much of the 2015 and 2018 NMLRAs deal with the misuse of cash – bulk cash smuggling, structuring, and funnel accounts are detailed in both assessments. And according to the 2018 NMLRA, cash structuring is a predominate activity reported in Suspicious Activity Reports: at page 24 is a table of SARs filed in 2015, 2016, and 2017. At a high level, over those three years the ratio of “structuring” SARs didn’t change much: about one in seven SARs had structuring as the sole category of reported activity, and about four in ten SARs had structuring as one of the categories of reported activity.
I highly recommend that every AML professional download and read the 2018 National Money Laundering Risk Assessment. It is well-written, well-organized, and provides links to excellent resources. It refers to and provides a link to the 2015 NMLRA, which, in some respects, is a more comprehensive (and still relevant) source. Many of us still have the 2005 United States Money Laundering Threat Assessment on our book shelves: for those that don’t …