How understanding wire transfers can help trace …

1 Asset RecoveryHow understanding wiretransfers can help tracelostfundsAsset recovery investigators use many differenttechniques to track and trace money that hasgone missing in the financial system. In this article,Kenneth Bardenexplains how dissectingwiretransfer instructions can lead toabetterunderstanding of where and how funds weretransferred,providingvaluable information to verifyand locate culture has long held that wire transfers are a goodway totransmitfundsfromcriminal activitiesintooffshoreaccounts where the money trail can quickly grow filmshavecreatedtheperceptionthatall acriminal had to do was enter a numeric codeinto somecomputer and magically funds wereinstantlytaken fromone bank account and deposited into one or more foreignaccountsinthe blink of an eye. Withthismagic numberonly the truebeneficiary of the receiving account knew ofthe whereabouts of the funds, forever depriving the trueowner of any chance of wire transfers have never been quite that simple,andin many cases the actualtransferof fundsrequired asecond set of activities,through correspondent bankingrelationships,whichtooka littlelongerthan aUbiinkof , for many yearstransfersby wireinstructionscouldhamperaninvestigati on,primarilybecause of myriadrulesregarding how wire transferinstructionswere designed and combatthisperception,Andin response toInternationaleffortstocombat moneyLaunderingand other abuses ofthefinancialsystem,Changes have been madetostandardizewiretransferinstruction son a global basis andtointroduce measures ofintegrity,not only to preventabuses,but alsotominimizeerrors that couldresultinthedelay of funds beingtransferred,or worse,misdirecting thefunds to an.

2 transfers of money by wire involvethe issuance ofaline of code that containsinstructions from thesendingfinancialinstitutionat the request of the party code detailsthetransaction to beconducted,intermsof dates, amounts, currency,thepartiesinvolved,including the beneficiary and thereceivingfinancialinstitution, as well as directions astohow thefunds are to be transferred. In most cases,the actualfundsarethen transmittedthrough a series of settlements madeby financialinstitutions,enjoying correspondentrelationships, or through third partyinstitutionsuntilthefundssent bythesendinginstitutionare actually depositedto the credit of the beneficiaryin the receiving thelate1990s, theseinstructionscould greatly varyfrom jurisdiction tojurisdiction,as each country would oftendevelop its own coding system. The lack ofstandardizationmade the job of aninvestigator trying to tracktheflow offunds much more difficult. The investigator neededtoconduct a great deal ofresearchto ascertain the meaningandformatsof these coded instructions.

3 And bythetimethey did, thefundshad often already been sent on toanother destination,requiring yet another round ofdetective 1997, significant efforts have been undertaken tostandardizethese instructions for the transfer of funds,byutilizingregular formats and codesthatcould easilybe identified as pertainingtospecificfinancialinstitution s or types IBAN system explainedInitially created as a program tostandardizebankinginstructionsbetween memberjurisdictions of theEuropean Community, the InternationalBank AccountNumber (IBAN) system was createdtoprovide a clear andunambiguous means of identifying bank accounts acrossnational borders, whileminimizingthe risk of errorsproduced in the transcription process. The IBAN systembegan with the European Committee for BankingStandards (ECBS), buthasnow evolvedintoaninternationalstandardrecogn izedby the InternationalOrganization for Standardization (ISO) [ISO 13616,1997and ISO 13616-1:2OO7[. The Society for WorldwideInterbank FinancialTelecommunication (SWIFT)istheorganizationdesignated bytheISO as the primaryauthority IBAN system establishes a protocolthrough theuseofastandardizedformat for accountidentification, containingvalidationinformation to avoid errors of of an alpha country code, followed by two checkdigitsthatare calculatedusingan algorithm, and a BasicBank Account Number(BBAN)with up to thirtyalphanumeric characters.]]

4 The BBAN includes the domesticbank account number and routinginformation needed toget a payment from one bank to another, whereveritmaybe. One of the key features of the IBAN system is that anyIBAN will contain check digits, whichcan be validatedinany country according to a single standard digits within the code enable the sending bank(oritscustomer) to verify the validity of aroutingdestinationand account number from a single string of data at the timeofdata entry. Thisverificationsystem has virtuallyeliminatedroutingand account number errors,reducingthenumber of such errors to less than willalso contain all the key bank account details such as BankIdentifier Codes, branch codes and accountThesecan provide an investigator with , an IBAN iswritten as onelong line of characters with no spaces;however,whenprintedon paper, the IBAN is generally expressed ingroups of four characters separated by a single space,with thelastgroup being of example ofan IBAN for a bank in Greece would be written as: GR160110 1260 0000 0001 2300 the institution andlocationWith the use of algorithms, an IBAN can be validated at thepoint of data entry.

5 There are severalonline validationwebsites (such ),as wellas a number of software products that can check the IBANto determine whether:a)Thecountry code is validb)Thenumber of characters in theIBAN correspondstothe number specified for the subject countryc)Theformat follows the format specified for the subjectcountryd)Theaccount number,bank code and country codecombination are compatible withthecheck deviation fromtheprotocol willbe a strongindicatorthat either an errorhasbeen madeinthe transcription orthattheinformationmay be other than asintended. Forinstance, an accountledger mayindicate that payment wasbeing made to a bank accountinLondon, butthevalidatorindicates that the instructionis for transfer to a can be assigned to banks foridentification purposes when transferring funds istheBank Identification Code (BIC),which is oftenincorrectlyreferredto asaSWIFT code (theformernomenclature).TheBICis a string of eightalphanumeric charactersrepresentinga series of threecodes used to identify banks,typically the institution inwhich the funds are is identifiedusingafour-lettercode,usuallya ssociatedwith theinitials of theinstitution,butnot always.

6 Nextis atwo-letter code representing the countryinwhich theinstitutionis ,alocation code defines morespecifically the state, province or timezoneof thefinancial institution housing of two characters that can be either numeric oralphabetic,or a financialinstitutionglobally has an assigned BICnumber,regardlessof its affiliation with SWIFT;however,institutions thatarenot connected with the SWIFTN etworkare often distinguished by the addition ofan extra digit 1 at the end of the location codeUseful investigation toolsSWIFT provides several online tools to verify whether aBICis valid, andtodecode the name andlocation of theinstitutionto which the BICisdirected. Onehelpfultool canbe found enter the BIC as well as the name of theinstitution and determinewhether does not match,that may stronglyindicate thatthere mayhavebeen some irregularities in the ,theaccountledger may suggestthetransferto one account at a particular bank,but the BIC on transactions and parties In light ofinternational efforts to fight moneylaundering,additionalinformationisn owbeing incorporatedintowire ,banks and other financialinstitutionsarerequiredto obtain certaininformation aboutthe customer and the amount, source, and purpose of thefunds beingtransferred,as well as information informationis generallyrequiredto bekeptandavailable for investigation should the has implementedstandardizedmessagingprotocol s and formats-specialcodes for differentiatingbetweeninformation and direction,and encryption toprevent security breaches during data transmission.

7 Toidentifythe different types of SWIFT messages, there arenumbers assigned to each of them. For example, if amessage isidentified as MT 103,"the MT" prefix stands forMessagetype,"andthethree-digit numberthatfollowsdenotes a specific SWIFT message type (in this case,"103"means a single customer/credittransfer).Otherexamplesin clude MT800's, which only dealwith TravellersCheques,whilstMT300's only deal withForeignCurrencyExchanges. Within a message type,specificfield codes areused to demarcateimportant example,field 50 (ordering customer) is akeyfield to focus on fortracinglaundered funds becauseit may include more thanjustthe customer name and has downloadable tools that Can helptheinvestigator understand each of these codes and how theyfit within the format of a instance,codes Applicable to transfers for corporateAccountscanbedownloaded next stepIBANand SWIFT messages although called"wiretransfers~do not,in themselves, transfer the money. Instead, theyareinstructionsfromthe sending bank as tohowthefundsshould be transferred.

8 Correspondent bankingrelationshipsare thenusedfortheactualtransferof aresultofthis,there will generally be additionaldocuments that willevidence the actualtransmission andreceipt of the , understanding the codesusedin wiretransferinstructionswill oftenleadtheinvestigatorto uncoveradditional documentation maintained by each financialinstitution,such as advice statements confirminga wiretransfer and the debit and credit memos sent by bankstotheir originating or beneficiary may be usefulin ascertainingaccountnumbersand theidentity of the originating and beneficiarycustomers."Kenneth Bardenisan American attorney, CertifiedAnti-Money Laundering Specialist (CAMS) and CertifiedSpecialist inAssetRecovery(CSAR).Formostof the past15years, Ken has worked internationallyadvising financial regulators and law enforcement in variouscountriesinAsia,Europe and the Middle Eastonhow tofight corruption and money laundering,while building integrityinto their Bardenhas recently beenselected by the United States Agency for InternationalDevelopment to serveasSenior Anticorruption Advisor atUSAID headquarters in Washington Recovery: 20:PAYREF XT78305:32A:091010 EUR#1010000#:50:[CUSTOMER NAME AND ADDRESS]:59.

9 [BENEFICIARY NAME AND ADDRESS]CodeInterpretation20 Transaction referencenumber (coded numberassignedby the originatinginstitutiontoidentifythetrans action)32 AValuedate, currency code,and amountofthe transaction50 Ordering customer (party orderingthe SWIFT transaction)59 Beneficiary(partydesignated as theultimaterecipientofthefunds)Inadditio ntothe abovecodes,othercodes may include52 DOrdering bank(financial institutioninitiatingtheSWIFT)53 DSender'scorrespondentbank54 DReceiver'scorrespondentbank57 Dthefinancialinstitutionat whichtheorderingcustomerrequests the beneficiarybepaid70 Detailsofpayment71 ADetailsof charges forthe transaction72 Instructionsfrom thesending bank tothe receivingbankThechart presents an example of what a SWIFT messagelooks like and some common codes used should peruse the SWIFT website( ) whereanumberofdifferentformats and code identifiers canbeaccessed and exploredfurther.