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Tracing illegal money fights crime, speaker says during Forensic Banking event

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The Department of Political Science and Global Studies hosted guest speaker Sonia Desai on Sept. 13, who spoke about forensic banking, or how banks follow the money trails of criminal activity.

Desai, the Bank Secrecy Act and anti-money laundering officer, and vice president of Charles Schwab Bank, said she chose to participate in the event in order to inform students about the importance of knowing how the banking system deals with illegal flows of money within their institutions.

“We wanted to teach the students a little more about anti-money laundering, terrorism finance, sanctions, just so everyone has an understanding of how it works around the world, why it is truly global, why it’s important,” said Desai.

Desai opened with a focus on marginalized societies, using examples such as the Italian mafia and Irish gangs who dominated society during the Prohibition era, as a root to the problem of money laundering, which is essentially dirty money being washed clean.

“What you see when you look at these marginalized societies is that of course, people want to break out, and a lot of times, they turn to crime,” said Desai.

She explained that these groups turned to crime directly because of the fact that they were mistreated by society and the government at the time, being forced into slum-like housing and subpar living conditions.

Desai guided the audience through a typical money laundering scenario, where a shell company [a fake business] is used to conduct transactions with oftentimes dirty money acquired through criminal channels, where the money is circulated back into society.

Banks follow the money trail and therefore have a string to follow back to the source of the money laundering.

Some common money laundering methods include smurfing, or breaking large chunks of cash into smaller deposits under reporting limits, a rapid movement of funds and hawalas, or the hard to track underground movement of money between individuals, said Desai.

Another problem people like Desai face is terrorism finance, or activities that provide financial support to terrorist groups.

Martin Morales, the department chair of PSGS who facilitated the event, said that Desai also has experience with the Office of Foreign Assets Control, a financial intelligence and enforcement agency of the U.S. Treasury Department.

“OFAC is a partnership between banks and government trying to keep us safe,” said Morales. “Terrorism, like anything else, needs money to function and that’s part of her job, to prevent that from taking place.”

The major differences when facing terrorism finance as opposed to money laundering is that terrorism finance is ideological, dealing with internal cells and small donations which leave a linear money trail, said Desai.

Some major ways in which banks combat illegal financial activities is through the Bank Secrecy Act, which requires financial institutions to assist the U.S. government to detect and prevent money laundering, the Financial Action Task Force, which develops policies to combat money laundering and economic trade sanctions, or penalties applied against a country, group or individual.

Desai closed with some examples of case studies that looked at banks’ financial dealings and the fines and reputation damage these banks had to face due to violations against policies such as the BSA and sanctions.

The floor then opened for questions and answers after the presentation, where the audience was able to engage in the discussion and propose questions to the speaker.

Nathaniel Coats, a 22-year-old finance major, said that the opportunity to learn how banks track money laundering and combat terrorism finance was very informative.

“We need more presentations like this,” said Coats. “The more the public knows, the more they can make educated decisions.”

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Tracing illegal money fights crime, speaker says during Forensic Banking event