An advisor to the Financial Action Task Force on money laundering (FATF) has been telling Algerian bankers that money launderers routinely employ letters of credit (L/Cs) somewhere in their attempts to make illegitimately obtained money appear legitimate.

Jean Pierre Michau, who is also advisor to the governor of Banque de France, has reportedly sent letters to Algerian banks in which he outlines the risks and detrimental impacts on the financial system of money laundering.

Bank scrutiny soon

Michau told the banks that a staggering 80 per cent of money laundering operations utilised import-export L/Cs according to an Algerian media report.

It says that FATF, the international body responsible for setting anti-money laundering standards, is set to undertake an exhaustive assessment of the Algerian banking system to assess what measures are in place to combat money laundering, which Michau reckons turns over US$6 billion of cash each year.

L/Cs' role

Money laundering analysts have pointed out that L/Cs can play a role in the second stage of a process that usually comprises three stages: placement, layering and integration.

Placement involves funnelling money into the financial system, either through banks or businesses or converting it into assets, which can be resold.

Layering

Once the money is in the financial system, launderers filter it through several layers of transactions to obscure any audit trail. This is the stage at which a launderer would convert cash into L/Cs or alternative instruments such as traveller's cheques or bank drafts.

The third stage, integration, is when the laundered money is returned to the financial system so that it is difficult to distinguish it from clean money by, for example, paying inflated or false invoices for exports or imports.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.