! ! ! = A Guide to the I Financial ,,~. ~i~ii' :ii ~'' ~ ~i ii ~: " :i:- 2!!:: ...... i:~i ......... -. ~ ................ " '- " ............ - iii;.: I Analys s".... ::~:~.! ........ :.:.. ii ~ @: '~:~ ! ....... or'" .... - : - . .. :: ... ::~(:: ":=~=:::::::::::::-:..... Pe r so n al ....... :::. 'i '~: ! ' C" =============================.:. Bank Records Second Edition ! January 1998 I .| I I National White Collar Crime Center I Richard L. Johnston, Director I ! A Guide to the I I ! Financial Analysis I of Personal and Corporate I I I Bank Records ! I by Marilyn B. Peterson, C.C.A., C.F.E. I Second Edition ! .~,--*,'~ PROPERTY OF National Oriminal Justice Reference Service (NCJRS) 8ox 6000 I Rockville, MD 20849-6000 I i I I I I ! i ~S,~,~. ~~ ,>, ~ .......... Published by the Nationa! ~hli~ ~llar'~Hm~ Center~::~, 1001 Boulders Parkway~"S~'ite~'5~."i;....... i , ~ ~: ~......... ............ Richmond, VA 23~5~5~2 ~........ " '~...... Additional copies~yailabte, for purchase..![ "':~...... Section edition, January~1998 ~, ~.~. ~<.~ ~=.~:~' I Copyright ©1995 by Marilyn B. Peterson 2nd Edition copyright © 1997 by Marilyn B. Peterson I All rights reserved. This project is supported by grant number 96-WC-CX-0001, awarded by the Bureau of Justice Assistance, Office of Justice Programs, U.S. Department of Justice. The Assistant Attorney General, Office of Justice Programs, coordinates the activities of the following program offices and bureaus: Bureau of Justice Assistance, Bureau of Justice Statistics, National Institute of • Justice, Office of Juvenile Delinquency Prevention, and the Office of Victims of Crime. J I I I I Table of Contents and Figures I Preface I I. INTRODUCTION A. How Investigations Benefit From an Analysis of Financial Records ! B. Previous Guidance on Bank Record Analysis Figure 1 - Bank Operations ! Figure 2 - The Financial Profile C. Limitations of the Monograph I II. BANK RECORD ANALYSIS A. Plan the Collection of the Records 9 I Figure 3 - Bank Record Analysis Steps B. Obtain and Inventory the Records 9 I Figure 4 - Attachment A Inventorying and Filing Records 13 Figure 5 - Sample Bank Record Index I Figure 6 - Status Log Sample Figure 7 - Bank Record Management System I C. What Bank Records Look Like 15 Statements 16 Figure 8 - Bank Statement I Checks 17 Figure 9 - Bank Check - Front (a) and Back (b) Deposit Tickets 19 I Figure 10- Deposit Ticket Signature Cards and Resolutions 20 Figure 11 - Business Signature Card I Figure 12 - Corporate Resolution Debit/Credit Memos 22 Figure 13 - Debit Memo I Wire Transfers 23 Figure 14- Wire Transfer Activity Statement Cashier's Checks 24 ! Figure 15a - Cashier's Check Figure 15b - Customer Receipt Certified Checks 25 I Figure 16- Certified Check Money Orders 26 I I I Figure 17 - Bank Money Order Figure 18a - Domestic Postal Money Order Figure 18b - Customer Receipt I Traveler's Checks 28 D. Other Types of Bank Accounts 28 Savings Accounts 28 I Figure 19 - Savings Account Deposit Slip Money Market Accounts 28 Nominee Bank Accounts 29 I Escrow Accounts 29 ! Trust Accounts 29 E. Compilation Methods 29 1. Manual Accounting Template 30 I Figure 20 - 14-Column Accounting Sheet Database . Computerized Formats 31 Figure 21 - Multiple Account Analysis Database Fields I Figure 22 - Sample Q & A Database 3. Spreadsheet Analysis 34 I Figure 23 - Sample ExcelTM Spreadsheet F. Review the Records for Investigative Leads 35 I Figure 24 - Bank Records' Leads Extraction Table Signature Cards 36 Corporate Resolutions/Articles of Incorporation 36 I Check Payee 36 Check Number 37 Check Date 37 I Check Amount 37 Check Signatory 37 Memo Line 37 I Check Endorsement 38 Check Stamps by Bank 38 Deposit Ticket 38 I Deposit Items 39 Certified Checks 39 Cashier's Checks 39 I Wire Transfers 39 Money Orders 40 Location of Check's Negotiation 40 I Other Leads 41 G. Analysis of Bank Records 41 Figure 25 - Bank Account Summary I Figure 26 - Bank Account Summary by Month Figure 27 - Line Graph Showing Deposits and Withdrawals by Month I I I . Sorting Records by Date 44 Figure 28 - Database Records Sorted by Date I Figure 29 - Time Line . Sorting Records by Payee 46 Figure 30 - Sorted by Payee I Figure 31- Primary Payee Listing Figure 32 - Sorted by Type of Expense I . Sorting Records by Source From 48 Figure 33 - Sorted by Company~Account From I Figure 34 - Pie Chart Showing Sources of Income . Other Views of Records 49 Figure 35 - Deposit Sources by Month I Figure 36 - Primary Payees by Month H. Analyzing Flow Among Multiple Accounts 51 Figure 3 7 - Data Base with Flows Among Accounts I Figure 38 - Commodity Flow Matrix I IlI. PATTERNS, UNUSUAL ACTIVITY, AND INDICATORS I A. Patterns of Payments from Personal and Corporate Accounts 54 B. Income Patterns in Personal and Corporate Accounts 55 I C. Unusual Bank Account Activity 57 D. Indicators Shown Through Bank Record Analysis 58 I Financial Difficulties 58 Fraud Within A Business 59 Illegal Income 59 I Straw Person or Straw Company Account Indicators 59 Money Laundering 60 Skimming 60 I Misappropriation of Funds 60 Check Kiting 61 I IV. BEYOND THE COLUMNS I A. Charting from Bank Record Analysis 62 Figure 39 - Financial Summary Figure 40 - Event Flow Chart I Figure 41 - Activity Flow Chart Figure 42 - Commodity Flow Chart I I Figure 43 - Commodity Flow Summary I Figure 44 - Link Chart I No Summarizing Data from a Bank Record Analysis 66 C. Drawing Conclusions from Bank Records 66 I D. Making Recommendations from the Analysis of Bank Records 67 Records Checks 67 Records Requests 67 I Handwriting Exemplars 67 Investigative Operations/Surveillance/Undercover Operations 68 Additional Interviews 68 l Targeting 68 Establishment of a Joint Task Force 69 Referral to Another Agency 69 I Cessation of Investigation 69 I V. BUSINESS RECORD ANALYSIS A. Computerized Business Records 70 I B. Computing Business Profits 71 C. "Funny" Business as Business 73 D. Common Check Memos 73 I E. Other Activity Records 74 F. Use of Small Businesses to Launder Money 74 G. Products of Business Record Analysis 75 I Figure 45 - Bar Graph H. Conclusions from Business Record Analysis 76 I VI. FUTURE DEVELOPMENTS 76 I Appendix A: Sample Bank Record Analysis 79 Figure 46 - Commodity Flow Chart I Appendix B: Glossary 84 I Appendix C: Some Sources of Financial Information 89 Appendix D: California Financial Investigations Checklist 91 I Appendix E: Check Kiting 94 Appendix F: Some Money-Laundering Typologies 99 I Figure 47 - Money Laundering Map I I I Appendix G: ABA and Federal Reserve Numbers 105 I Appendix H: Banks' Checklist of Potential Abuse Indicators 108 About the Author 112 ! References 113 Index i 118 ! I I I I I I ! I I I I I I I I Preface I This monograph is intended to provide analysts and investigators who review bank records with a I guide to how a bank record analysis can be done. It would not have been completed without the encouragement and assistance of the following: I National White Collar Crime Center New Jersey Division of Criminal Justice, Department of Law and Public Safety Ed Adams, Federal Law Enforcement Training Center, Financial Fraud ! Institute Debbie Ansman, Federal Bureau of Investigation George W. Arnett Ill, Esq., New Jersey Division of Criminal Justice ! Karla Belcher, National White Collar Crime Center Paula A. Carter, New Jersey State Commission of Investigation Louis Jonas, New Jersey Bureau of Consumer Affairs Clifford Karchmer, Police Executive Research Forum i Barry Riley, New Jersey Division of Criminal Justice Charles Rogovin, Esq., Temple University School of Law I Gerald A. Schwartz, New York State Banking Department Special thanks go to Jessie W. Fleming and Kathryn A. Malbon of the National White Collar i Crime Center for their editing and production of this monograph. For the second edition, several people made suggestions that were helpful in expanding and i updating the text. They include: Peter Engstad, Coordinated Law Enforcement Unit, British Columbia Douglas Fraser, Bureau of Competition Policy, Ontario I Jason A. Thomas, National White Collar Crime Center Larry Schwartz, New York State Banking Department Richard Small, Federal Reserve Board I Professor Robert J. Kelly, Brooklyn College Sandra J. Putnam, Georgia Bureau of Investigation i Stephanie L. Concodora, National White Collar Crime Center I I I I I I I. INTRODUCTION Modem criminal investigations require the review and analysis of bank account records which detail I the deposits, checks, wire transfers, credit and debit memos, withdrawals, bank checks, and any other income or outflow from a bank account or accounts. The depth of this analysis depends upon the needs of the investigation and the time constraints under which it is done. The purpose of this monograph is to ! provide an exemplar of one approach to the analysis of bank records as part of a criminal investigation? Indicators of particular types of illegal activities that may be seen during the review of bank records are i also presented. A. How Investigations Benefit From an Analysis of Financial Records 1 "Money is the reason for the big crime syndicates' existence and.., the source of their strength. Taking it away is the solution. Finding it is the problem" I (Sterling, 1994, p. 229). ! Bank records are collected and analyzed because the majority of criminal acts are motivated by profit. Identifying those profits and their destinations are key not only to proving cases but also to determining the power structures of organized crime groups and continuing criminal enterprises. ! Beasley, of the Federal Bureau of Investigation, noted that "documentary evidence can be of tremendous value" to racketeering cases. Without its analysis, charges or "cases may go unprosecuted I and those cases prosecuted may not result in the maximum sentence (Beasley, 1993, p. 7)." The most traditional use of bank record analysis has been in white collar, narcotics, and organized crime investigations. The dispersal of the profits and its timing give us keys to the illegal activity, as well i as to the breadth and hierarchy of the conspiracy.