Securities and Futures Broker-Dealers

The industry runs on electronic transfers not cash, so is usually part of the integration or placement stages. Key risk areas:

  • high speed, international nature, using wire transfers

  • ease of converting to cash without loss or penalty

  • competitive, commission driven culture, meaning salespeople can overlook the source of funds

  • use of nominee or trustee accounts, obscuring true beneficiaries

  • use of cash trading accounts which are not subject to the AML controls of banks

There are also activities within the securities markets, such as insider trading and market manipulation which generate illegal funds that need to be laundered.

Wash trading is where two opposite transactions are placed – for example dirty money could be introduced into a brokerage, and a long and a short position could be taken on the same security or future in different brokerages. No matter which way the market moves, the principal is safe, as losses on one side are offset by gains on the other side. If the market moves so that the dirty money is lost, then the gains in the other brokerage account can be withdrawn which look like legitimate investment returns.

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