Preventing the Financing of Terrorism: the Role of Financial Institutions

December 14, 2011
Case Western Reserve University School of Law
Case Downtown Lecture Series

Speaker:
Richard Gordon
Professor
Case Western Reserve University School of Law

Summary:
Both U.S. and international law have long required regulated financial institutions to help fight money laundering by through a series of due diligence measures. These include identifying their customers, establishing client profiles, monitoring for unusual transactions, reviewing those transactions to see if there was suspicion that they involved the proceeds of crime and, if so, reporting the transaction to the authorities in the form of a suspicious activity report (SAR). When these requirements were first established neither financial institutions nor their supervisors had much experience as to what in a client's profile and the client's patterns of transactions might indicate money laundering. However, based on an expanding knowledge of how criminals tend to launder their money, over time financial institutions have developed increasingly effective detection and reporting systems. By studying known examples of laundering, authorities have identified patterns or indicators of possible money laundering and made them available to financial institutions as money laundering patterns or red flags. Using these sources, financial institutions have been able to develop systems to help them determine which transactions carry a materially greater risk that laundering is involved.