Alternative Remittance Services (1) Remitter Origination Recipient Distribution Message Sending Agent Disbursing Agent Secure Message Transaction Record ‘Unofficial’ Record Value Storage Settlement Agent Liquidity Provision Alternative remittance services – how they work, potential for misuse: 1. The remitter instructs the sending agent to make a remittance and deposits funds with him, often in cash. The remitter may send their own message to the recipient independently of the sending agent, to alert them to the fact that money is on its way. The sending agent contacts the disbursing agent with instructions to issue funds to the recipient, which the disbursing agent duly does. The sending agent makes a record of the transaction, and the remitter’s funds sit in storage, accruing value and ready to complete the settlement via a settlement agent (if one is used). The sending agent either issues funds directly or via a settlement agent to the destination country, where the money is held in storage and available for use. On receipt of the settlement funds the disbursing agent is reimbursed for the funds issued and the transaction is complete. Problems arise when the settlement amounts are transmitted as a bulk transfer, in which case it is relatively easy for laundered funds to be hidden in with the legitimate ones. Unscrupulous ARS operators may also keep a separate ‘unofficial’ record of these covert transactions, this unofficial record being maintained separately from records of legitimate transactions. Bulk Settlement Copyright Lessons Learned Ltd 2016 Copyright Lessons Learned Ltd 2007

Alternative Remittance Services (2) Key facts Definition: any system used for transferring money from one location to another and generally operating outside normal banking channels Reasons to use ARS: accessibility; cultural familiarity; personal contacts; speed; anonymity/secrecy Common features: remittance is a ‘one-off’ relationship unlike ongoing relationship with a conventional bank ARS Operators: mostly legitimate, but rogues are always active; balance prevention against need not to push ARS underground Money launderers’ perspective Avoidance of regulatory oversight Anonymity/secrecy Key facts ‘Alternative Remittance Service’ (ARS) is a term which can describe any system for transferring money outside of normal banking channels. There are many perfectly legitimate ARS operators as well as a few rogues. There are often ties between certain systems and particular geographic regions, and such systems are often described using a variety of specific terms including hawala, hundi and fie-chien. It is clear that the vast majority of people who use ARS operators are perfectly ordinary law-abiding with no criminal intentions whatsoever. There are a number of legitimate reasons for such people to want to send money via an ARS operator rather than through normal banking channels, for example: Reasons of accessibility: many people are denied access to normal banking facilities because of where they are based geographically, or because of their personal creditworthiness; these people have no choice but to use ARS operators to send money Cultural familiarity: in certain parts of the world (e.g., many parts of the Middle East and Asia) systems such as hawala, hundi and fie-chien are culturally perfectly normal and would probably be chosen in preference to the normal banking system Personal contacts: extended families spread across the world may often use informal agreements to exchange money on behalf of friends and associates who need money to get to a particular person perhaps more quickly than the banking system can arrange; there is nothing illegal in what these people’s contacts do for them, they are just being pragmatic and helpful Speed: as explained above the banking system is not always fast enough, and informal arrangements via networks of associates can offer a quicker service where one is needed Anonymity/secrecy: clearly remittances that bypass the normal banking systems can be carried out in relative anonymity and secrecy, and it goes without saying that this is why money launderers find them ARS systems attractive. Money launderers’ perspective The attraction for money launderers is, as stated above, the opportunity for concealment that Alternative Remittance Systems can sometimes offer. ARS operators are generally unregulated and not subject to scrutiny by the authorities. The operators themselves often use codes in their records rather than specific individuals’ names, and this also helps to provide concealment. Copyright Lessons Learned Ltd 2016 Copyright Lessons Learned Ltd 2007

Alternative Remittance Services (3) Possible ‘red flags’ remittances in excess of norm for the customer’s known economic background unusual escalation in levels of remittance for an individual personal remittances sent to destinations that do not have an apparent family or business link remittances made outside migrant remittance corridors reluctance of customer to give explanation for remittance personal funds sent at a time not associated with salary payments requests for a large transfer but settling for smaller amounts – potential structuring FATF has identified a number of possible suspicion indicators which might indicate that an ARS operator’s business is being used for money laundering. Indicators include the items listed above. Copyright Lessons Learned Ltd 2016 Copyright Lessons Learned Ltd 2007