Puerto Rico’s Financial Sector: A Hotbed for Money Laundering Activities and Emerging Trends

The Caribbean island of Puerto Rico, with its unique economic structure and attractive tax incentives, has emerged as a major hub for money laundering activities. This article explores the trends and techniques associated with money laundering in the region.

Money Laundering: An Overview

Money laundering refers to the process of disguising the proceeds of illegal activities as legitimate funds. Criminals use various methods and techniques to launder their ill-gotten gains, often involving the financial system and the physical movement of cash.

Growing Trend: Use of Money Service Businesses (MSBs)

A growing trend in the money laundering world revolves around the use of MSBs and their role in “wholesaling” transactions. Criminal organizations use this scheme to bypass the banking sector and hide the origin of the funds.

Vulnerabilities in Puerto Rican Financial Entities

The Financial Crimes Enforcement Network (FinCEN) published a National Money Laundering Risk Assessment in February 2022, which highlighted the concerns surrounding Non-Federally Chartered Puerto Rican Financial Entities (IFEs, IBEs). These vulnerabilities include:

Low staffing requirements
Minimal physical employees’ presence
Questionable organizational stability
Corresponding services (local and US-based)
Lack of compliance programs for cryptocurrencies

Role of Money Mules

Criminals also rely on unsuspecting individuals, known as money mules, to transfer illicit funds electronically or physically. Vulnerable populations, such as college students, small business owners, elderly individuals, and new immigrants, are often targeted for recruitment.

Use of Cryptocurrencies

Another growing trend involves the use of cryptocurrencies for money laundering. The anonymity and borderless nature of these digital currencies make them attractive to criminals and allow them to mask their illicit transactions.

Cryptocurrency Exchangers and Regulations

Cryptocurrency exchangers, which trade virtual currency for other assets, must comply with anti-money laundering (AML) and counter financing of terrorism (CFT) regulations. Failure to do so can result in severe penalties. Registered businesses are required to:

Keep records
Monitor transactions for suspicious activities
File reports with FinCEN

Red Flags for Criminal Activity

FinCEN has provided several red flags to help financial institutions identify potential money laundering transactions involving virtual currencies:

Receipt of multiple cash deposits from various sources and followed by the acquisition of cryptocurrencies
Series of deposits from disparate sources amounting to aggregated fund transfers close to cryptocurrency exchange platforms
Structuring transactions below the Currency Transaction Report (CTR) threshold or daily ATM limits
Deposits from unknown sources followed by conversion to legal tender, potentially indicating theft of funds

Conclusion

Puerto Rico’s unique economic landscape and financial sector structure make it an attractive location for money laundering activities. As the techniques and trends evolve, it is crucial for financial institutions and law enforcement agencies to stay informed and vigilant in identifying and reporting suspicious transactions.

For more information or questions, contact:

Sofia Estrada FBI San Juan Money Laundering Squad Intelligence Analyst Email: istrada@fbi.gov Phone: +1 (787) 966-5651

TS Nadia Lopez FBI San Juan Money Laundering Squad Tactical Specialist Email: nlopez4@fbi.gov Phone: +1 (787) 406-3741