National Money Laundering Risk Assessment

1 National Money Laundering Risk Assessment February 2022 Department of the Treasury National Money Laundering Risk Assessment 510152025 Table of Contents EXECUTIVE SUMMARY ..1 INTRODUCTION ..3 PARTICIPANTS .. 4 METHODOLOGY .. SECTION I: THREATS .. 6 FRAUD ..6 1. Special Focus: COVID-19-Related Fraud and Scams .. 8 a) Exploiting Stimulus Measures .. 8 b) Vaccine Fraud, Fake Cures, and Fraudulent Vaccine 2. Special Focus: Synthetic Identity Fraud .. 11 3.

2 Healthcare 12 DRUG 1. Main Drug Types .. 14 a) Illicit Opioids and Heroin .. 14 b) Cocaine .. c) Methamphetamine .. 15 d) Marijuana .. 16 2. Priority Drug Traficking Organization Threat 16 1. Ransomware .. 17 2. Business Email Compromise .. 3. Compromise and Sale of Financial 20 PROFESSIONAL Money Laundering ..21 1. Money 22 2. Special Focus: Chinese Money Laundering Organizations .. 23 1. Foreign Corruption .. 2. Domestic Corruption .. 26 HUMAN TRAFFICKING AND HUMAN SMUGGLING ..27 1. Human Traficking.

3 27 2. Human 29 SPECIAL FOCUS: WILDLIFE National Money Laundering Risk Assessment SECTION II: VULNERABILITIES AND RISK .. 31 1. Bulk Cash 31 2. Postal Money 33 3. Funnel Accounts .. 33 4. Cash-Intensive 34 MISUSE OF LEGAL ENTITIES ..35 1. Status of Beneficial Ownership 36 3. Special Focus: 2. Shell and Shelf Companies .. 37 38 VIRTUAL ASSETS ..40 1. Virtual Asset Service Provider Registration and Compliance Obligations .. 43 2. Anonymity-Enhanced Cryptocurrencies and Service 45 COMPLICIT MERCHANTS AND PROFESSIONALS.

4 46 1. Merchants .. 46 2. 46 3. Real Estate 47 4. Financial Services Employees .. 48 COMPLIANCE 1. Banks .. 49 2. Money Services 52 3. Securities Broker-Dealers .. 54 4. 56 LUXURY AND HIGH-VALUE 1. Real 58 2. Precious Metals, Stones, and Jewels .. 61 Art 623. Special Focus: ENTITIES NOT SUBJECT TO COMPREHENSIVE AML/CFT REQUIREMENTS ..63 1. Investment Advisers and Private Investment 63 2. Third-Party Payment Processors .. 66 Non-Federally Chartered Puerto Rican Financial Entities .. 683. Special Focus: CONCLUSION.

5 71 LIST OF ACRONYMS .. 72 National Proliferation Financing Risk Assessment 1 National Money Laundering Risk Assessment EXECUTIVE SUMMARY This is the third publication of the National Money Laundering Risk Assessment (NMLRA) since the inaugural publication in 2015. The Department of the Treasury is publishing it during a transformative time for crime with increasing cybercrime complaints from the public exceeding $ billion in 2020, a proliferation of ransomware attacks holding hostage sensitive information and demanding payment from citizens and businesses, and a growing overdose crisis that has killed over 100,000 citizens in a one-year period, quadrupling over the last decade, largely driven by synthetic opioids like fentanyl.

6 Fundamentally, Money Laundering is a necessary consequence of almost all profit-generating crimes. Money Laundering remains a significant concern because it facilitates and conceals crime and can distort markets and the broader financial system. The United States is particularly vulnerable to all forms of illicit finance because of the size of the financial system and the centrality of the dollar in the payment infrastructure supporting global trade. Criminals and professional Money launderers continue to use a wide variety of methods and techniques, including traditional ones, to place, move, and attempt to conceal illicit proceeds.

7 These range from the traditional use of cash to the purchase of luxury or high-value goods, to the ever-evolving world of virtual assets and related service providers, including decentralized finance and the growing use of anonymity-enhancement technologies. Fraud dwarfs all other proceed-generating crimes that are laundered in or through the United States. The exploitation of data, mainly personal identifiable information that is stolen, hacked, or compromised, remains one of the most common methods fraudsters, launderers, and other criminals use to set up bank accounts and conceal fraudulent activity.

8 Drug traficking, cybercrime, human traficking and smuggling, and corruption also generate significant volumes of illicit proceeds within the United States or through the financial sector. The COVID-19 pandemic afects almost every aspect of social interaction and human activity globally, to include how criminals earn Money and launder their proceeds. Criminals have exploited government-led economic support programs during the pandemic. The pandemic has led to an increase in fraud risk for online financial services and general commerce, resulting in a dramatic spike in the number of stimulus, healthcare, bank, elder, and government fraud schemes and scams.

9 Cybercriminals and malicious foreign state actors have and are continuing to exploit the COVID-19 pandemic through phishing schemes, exploitation of remote applications, ransomware, and business email compromise (BEC) fraud. While many regulated financial institutions have adequate anti- Money Laundering (AML) programs, compliance deficiencies at some institutions continue to be a Money Laundering vulnerability, particularly considering the size and global reach of the industry. Additionally, certain financial intermediaries, such as investment advisers and third-party payment processors, are not subject to comprehensive AML/countering financing of terrorism (CFT) regulations and the NMLRA analyzes these intermediaries for their vulnerability to Money Laundering .

10 Key weaknesses within the AML/CFT regulatory regime include a lack of timely access to beneficial ownership information of legal entities and lack of transparency in non-financed real estate transactions. The deliberate misuse of legal entities and arrangements, including limited liability companies and other corporate vehicles, trusts, partnerships, and the use of nominees, continue to be significant tools for facilitating Money Laundering and other illicit financial activity in the financial system. The 2022 NMLRA s purpose is to inform the understanding of risk by governmental and private sector actors, risk mitigation strategies of financial institutions, and policy deliberations by the government.