Small businesses are often the victims of money laundering schemes. Criminals target these types of businesses because they often lack experience and knowledge about the risks involved with certain types of transactions. Oftentimes, small business owners receive “business opportunities” that they simply can’t pass up. It looks like easy money, so they oblige and unknowingly start serving as a conduit for laundered money. Unfortunately they soon discover that they have entangled their business with the world of crime and potentially face legal trouble. However, the adage of “if it is too good to be true it probably is” applies to these situations.
The topic of money laundering has become so familiar that it has become the central theme of shows like Ozark on Netflix. On the show, a financial advisor gets caught up with drug bosses from the Mexican cartel that force him to launder money. While the show is fiction, it touches on some very real situations that businesses experience.
The consequences can impact what you have worked so hard to achieve. It might mean jail time, fines and penalties, and the loss of credibility.
However, as a small business owner, you can change that and not become a statistic just by knowing the ways to protect yourself. It’s critical to have a solid process in place to ensure your business is in good standing and you have no affiliations with criminals or those on watchlists. The more you know, the more effective you will be at identifying any situations that could involve money laundering.
Here are five ways to be proactive and vigilant in your fight against money launderers:
1. Ask a Lot of Questions
When approached with a business proposition, there are a number of things you need to ask to ensure that it is a legitimate partnership or if it sends off alerts to potential money laundering. First, ask about the amount of money and investors involved. Vague answers are a red flag.
Second, if someone has contacted you suddenly and wants to invest in your business, you need to ask why and start doing some investigative work. Third, ask about assets that may have appeared in the financials they share with you. Fourth, ask about any cash payments or why they would want to give you cash. If the answers do not seem to make sense or are too good to be true, you may want to pass on this deal.
2. Learn About Money Laundering Schemes
Criminals continually develop new tactics. The more you know and share with your team, the more likely you are to detect any attempts at money laundering through your small business.
For example, there are many ways to launder money, including putting illegal cash in your account, layering proceeds through wire transfers and conversion of cash to financial instruments, and making wealth from illegal activity look legitimate by falsifying invoices or over-billing. Prepaid credit cards are also something typically used for these schemes that you may want to avoid accepting.
A typical way this happens is that a person places a large deposit on an order and then later cancels it. Then, a refund is given in clean dollars. This makes it seem legal and legitimate. Online auction sites can be involved in money laundering schemes. They are an ideal place to make dirty money clean. Businesses that typically don't have a lot of paperwork can also be used for money laundering. These include currency exchanges, art galleries, vending companies, restaurants and car washes.
Knowing these tricks can help you stay clear of becoming part of a money laundering scheme. The U.S. Treasury's Financial Crimes Enforcement Network site, the Securities and Exchange Commission's compliance information and a money laundering news alert site from the Association of Certified Anti-Money Laundering Specialists are great resources that can help educate you and your team about money laundering.
3. Do Due Diligence
Thoroughly investigate anyone involved in these financial transactions. For example, if a complete stranger says they want to give you a large sum of money, you didn't just hit the jackpot. If anything, it's likely a money laundering scheme.
This means a client, strategic partner, vendor, investor, or trading partner. You can conduct online background checks to see if any of these people have been previously investigated or charged with a crime. Be sure you know the identity of everyone involved in these deals and relationships before agreeing to become involved.
When you are checking out a potential partner or client, see how their company is registered. You can do this online by checking with the trading standards authority or a local government office that keeps this information on record. This is particularly important if foreign countries are involved. They may also be able to share whether or not this company has received any complaints.
4. Establish a Formal Anti-Money Laundering Policy
Even a small business can have a formal policy about its anti-money laundering strategy. The policy can include instructions on certain actions to take or avoid. For example, you may want to include accounting and cash handling procedures within the policy. It could also state that you have a no-cash policy on certain transaction sizes.
Having this as a framework can direct decision-making about deals and partnerships with others. It can also help shape and train other team members' understanding of what might be a money laundering scheme. It also emphasizes the serious nature of these schemes. Every company must report suspicious activity to the authorities.
5. Maintain Your Privacy
Your small business is everything to you. Keep it that way by not sharing any financial details or data within anyone else that you don't know very well, particularly someone that has solicited you through an email or phone call. Also, be sure that you maintain security with all devices, including regularly changing passwords and not sharing that with anyone else. You also want to employ new types of security technology. Make sure your team knows to also maintain the privacy of those details.
Be Watchful and Use Common Sense
Those out there who want to launder money will continue to seek out a small business that seems vulnerable. Don't let it be yours. Stay on top of the latest schemes and far away from anyone who wants to give your money. You don't want the risk that comes with it nor do you want to put your small business in harm's way. Be sure to help other colleagues and report any suspicious activity. Vigilance will shut down more of these crimes.