Aqua World, Inc., a local boat dealer, applies for a corporate account at your institution. You review the application, applying your institution's due diligence procedures for new accounts. You find that Aqua World's projected transactions and amounts match those of accountholders that conduct similar business and you approve the account. Should you recommend that Aqua World's banking activity be subjected to any special monitoring for suspicious and potentially criminal activity?

Yes. Boat dealers are one of more than a dozen businesses that U.S. federal financial institution supervisory agencies describe as "high risk" for money laundering activity. While the U.S. suspicious activity reporting regulations do not require that banks pay special attention to transactions with these customers, the supervisory agencies say your institution's internal policies should address the special money laundering threat posed by these businesses.

In its Bank Secrecy Act Comptroller's Handbook, the U.S. Office of the Comptroller of the Currency lists several "high risk" businesses that "could potentially be a source of money laundering." They are:

* Nontraditional financial entities such as currency exchange houses, money transmitters and check cashers
* Casinos
* Offshore corporations and banks located in tax and secrecy havens
* Leather-goods stores
* Car, boat and airplane dealerships
* Used car or truck dealers and machine parts manufacturers
* Travel agencies
* Securities broker/dealers
* Jewel, gem and precious metal dealers
* Import/export companies
* Cash-intensive businesses such as restaurants, retail stores and parking garages * Telemarketers.

The characteristics that make these businesses "high risk" vary. Non-traditional financial entities, casinos, and securities broker/dealers, for example, are popular money laundering targets because they offer financial services in an environment that is often less regulated than banks. Offshore entities also provide financial services that are conducted behind the shield of strict bank secrecy laws. Car, boat and airplane dealers, as well as jewel, gem and precious metal dealers, provide launderers access to "big ticket items," which often can be purchased with little or no customer identification and later sold to provide a "legitimate" source of cash proceeds. Import/export companies provide a cover for international money laundering operations through false trade pricing schemes. Cash intensive businesses allow launderers to disguise cash derived from illegal activities in deposits containing cash derived from regular, legitimate business activity.

The OCC says that "although attempts to launder money through a legitimate financial institution can emanate from many different sources," high risk businesses, such as those listed above, "may lend themselves more readily to potential criminal activity than others." The Office of Thrift Supervision echoes the OCC's instruction in its Bank Secrecy Act Examination Procedures.

To prevent abuse through the accounts of such businesses, the OCC and OTS recommend that financial institutions have in place internal controls that include:

* money laundering detection procedures, including Know Your Customer policies and procedures and internal training programs
* periodic monitoring of account activity
* internal investigating, monitoring and reporting of suspicious transaction as required by the agencies' SAR regulations
* identification and monitoring of accountholders that are non-traditional financial entities and that engage in a high volume of cash activity.

Next month, SAA will explore certain geographic locations designated by federal supervisors as high risk. Until then, be alert.