Page 560 - IOM Law Society Rules Book

laundering, either through having inadequate internal controls or through becoming
complicit with criminal groups.

Overt ARS Operations within another business

These operators are visible, but do not necessarily advertise their services. This tier
of ARS operator can be similar to a shop front ARS operator, with the same risks. In
the same way as a franchise agent of a multinational ARS operator, they offer
remittance services to local customers in addition to their normal business. The
provision of remittance services may complement their normal business activity or be
a totally separate venture. Where there is a registration or licensing regime, these
ARS operators can be effectively controlled as long as their services are identified.
Risks include those generated by possible commingling of funds coming from
different activities. That could cause difficulties in the proper application of
AML/CFT measures, also breaking the audit trail.

Covert ARS Operations within another business

Covert ARS operation within another business is the first category where the operator
will actively seek to work outside the regulatory regime. A covert ARS operation
will be illegal in that it operates without a licence or registration. It also violates
regulatory provisions by performing ARS operations without carrying out necessary
AML/CFT measures, such as identifying customers, recording transactions or
reporting suspicious transactions. It is also likely to commit banking offences such as
“structuring” where deposits are made below a disclosure limit to avoid identification
of the ARS activity. ARS operators in this category tend to serve a particular migrant
or ethnic community. They rely on referrals within the community they serve. This
category will include most hawaladars, unless they are registered or licensed. This
category of ARS operator is particularly strong in communities where mainstream
banking is not freely available in the destination country. This has been
demonstrated in Somalia where overt and covert ARS operators dominate home
remittances worldwide since there is little if any developed formal banking system.

This category will be most likely to use forms of settlement that do not rely on bank
transfers, but because their transactions will tend to flow to one country they may still
rely on depositing cash into a bank account in the other country in order to effect an
offsetting settlement. Suspicious transaction reports from banks or referrals from
another FIU are the most successful methods of identifying these ARS operators.
Information gleaned from the community these operators serve is also valuable. In
some cases, this category of ARS operator will be resistant to AML procedures.
Their informality is key to their selection by individuals who may be operating
illegally or within the “grey” or “cash” economy.

To law enforcement this tier is high risk for ML and TF. Even many “bona fide” ARS
operators in this sector hide the volume and detail of their transactions. This secrecy
or lack of transparency is a product of their history and business methods; however, it
is this aspect of their operations that arouses suspicion among law enforcement
personnel, since a lack of transparency is often a key factor exploited by criminal
misuse of certain financial channels. The success of criminal money launderers is
directly related to their ability to handle large amounts of cash covertly. Law