#QuickBiteCompliance Day 48
What Are Cash Collateralized Loans? And Why Should We Care?
Imagine you lend your friend $10, but they promise to pay you back by giving you their piggy bank as collateral. If they don’t repay you, you get to keep the piggy bank. That’s how cash collateralized loans work—except in the grown-up world, instead of piggy banks, it’s real money kept in bank accounts.
Here’s the tricky part: sometimes, these “piggy banks” are in other countries, far away from where the loan is happening. That can make it harder for banks to figure out where the money originally came from.
How Can This Be Misused?
Bad guys, like criminals or money launderers, use cash collateralized loans to hide their dirty money. Here’s an example:
1️⃣ A criminal places illegal money (earned from drugs, fraud, etc.) into a bank account in another country.
2️⃣ They use that money as collateral to get a loan in a different country.
3️⃣ When they repay the loan, the money looks “clean” because it came through a legal bank loan process.
This sneaky trick is called money laundering. The bad guys make dirty money look clean so they can spend it without raising suspicion.
Why It Matters
Banks and financial experts work hard to catch these tricks. But we all need to be aware because this type of crime hurts everyone—it funds harmful activities and weakens our economies.
Stay Alert
If you work in finance, always ask questions:
Where is the collateral coming from?
Why is the money in another country?
Does it make sense for this customer?
Every question helps keep the bad guys from winning.
#FinancialCrime #AntiMoneyLaundering #AML #CashCollateralizedLoans #FraudPrevention #StayAlert #InclusiveRegtech #OpenSourceAML
Source: https://www.acams.org/en/resources/aml-glossary-of-terms
