Money Laundering in The Shawshank Redemption
As we wrote in our post on Breaking Bad, we at Beam take money laundering very seriously. That’s why we have devoted ourselves to creating the best anti-money laundering compliance platform on the market.
But we are also fascinated by financial crime. In this series of blog posts, we are exploring the money laundering schemes portrayed in popular works of fiction. Today, let’s explore the modern classic starring Tim Robbins and Morgan Freeman, The Shawshank Redemption.
Warning: The rest of this article contains spoilers about the film.
The Shawshank Redemption follows the story of Andrew “Andy” Dufresne, who in 1947 is convicted for the murder of his wife and her lover and sent to Shawshank State Prison to serve two life sentences. As a Vice President for a bank, Andy’s financial accounting skills play an important role when the warden decides to have Andy stop working in the prison laundry and start laundering money for him instead.
The warden announces his “Inside Out” program, in which he’s going to have prisoners work outside the prison walls on construction projects. He sells it as a public service that will “teach the men an honest day’s labor” while providing valuable services to the public at “a bare minimum of expense” to taxpayers.
In fact, he is underbidding his competitors on construction contracts and skimming off the top on the costs of men and materials. He takes bribes from competitors not to bid on contracts they want. “There’s a river of dirty money running through this place,” Andy says to his friend Red one day.
When Red asks about the paper trail that must surely be left behind from all this activity, Andy explains that he’s set up a phantom investor, Randall Stevens. Andy was able to get Randall a birth certificate, driver’s license, and social security card all through the mail and set up bank accounts in Randall’s name. Because this fictitious person owns all the accounts, the laundered money can’t be traced back to Andy or the warden. As Randall, Andy uses the dirty money to invest in stocks, securities, and tax-free municipal bonds, and Andy estimates that the warden will be a millionaire by the time he retires.
This approach of using a silent investor, fictitious or real, is called layering. Criminals put layers of people and separate accounts between the dirty money and themselves to help disguise the source of funds and make it difficult to trace the activity back to themselves. Know Your Customer (KYC) laws were created for precisely this reason.
Today, financial institutions must do proper due diligence to make sure they know who they are doing business with. Government IDs such as social security cards and drivers licenses cannot be acquired legally through the mail as they were in the movie, but they can still be forged. In the wake of the terrorist attacks of 9/11, for example, it was discovered that the hijackers had set up accounts at SunTrust Banks with randomly selected social security numbers, but according to SunTrust officials, they did have proper documentation, and it all checked out.
As a result, the Patriot Act made KYC requirements--and penalties for non-compliance--even greater. For example, when opening accounts for customers, banks must collect and verify customer-provided information and check names of customers against lists of known or suspected terrorists. That’s why it’s so important to have a powerful KYC solution that allows you to cross-check your customers against watchlists, social media data, and other sources that help you ensure the person is who they say they are.
The Shawshank Redemption is a highly acclaimed film based on a great story about perseverance in the face of adversity, as well as the corruption that can result from power. It does an excellent job of illustrating why KYC laws were created and how important they are to keeping our financial system safe. Tim Robbins and Morgan Freeman are outstanding in their roles as Andy and Red, and despite some upsetting themes and violence, the film is well worth watching and has a truly satisfying ending.