We know this - criminals today are smarter and more cunning than ever, and use a wide variety of money-laundering techniques to make illegally obtained funds appear clean. The trick is, how do we stay ahead?
We’ve compiled a few common red flags and tell-tale signs that you should look out for to minimise risk.
1. Client red flags
It’s important to use a critical eye when it comes to verifying your clients and prospective clients. There are a few factors that would be a reason for your team to consider carrying out enhanced due diligence, such as:
- if your clients are PEPs (Politically Exposed Persons) or are High Net Worth individuals (HNWIs)
- the presence of cash-intensive businesses such as a hair salon, barber or restaurant that could act as a front for money laundering
- if your client is acting secretively, or in a way that is obstructing you from obtaining all the information you need
- if your client cannot be found on the internet, or is a business owner but operates using a free-mail service such as GMail or Yahoo
- If your clients’ activity appears to be inconsistent from the start through to the end.
The presence of any of these factors doesn’t necessarily mean that you cannot act for these individuals. Your business-wide risk assessment should detail what you are willing to tolerate, along with the policies, controls and procedures in place to give the business comfort in these instances.
2. Transaction red flags
Red flags relating to the nature of the transaction include:
- if your transaction is unusually large or complex for that client (if you have undertaken work for them prior)
- if you notice that it involves jurisdictions that have minimal AML laws
- if the transaction involves using shell companies for reasons that are not clear
- if large amounts of cash is being used to pay deposits or other fees
- if someone other than the main person you’ve been dealing with joins the process at the last second to avoid background checks
- if the purchase price is much higher or lower than expected which can indicate price manipulation (particularly in real estate).
3. Transaction party red flags
This is particularly useful to look out for when looking at trusts, trustees, and beneficiaries.
- Is the age of the parties unusual?
- Is there a logical connection between all parties? For example, it may be suspicious if you’re working with a family trust but a beneficiary, who has no relation to the family, is requested to be added.
- Is the structure of the trust confusing?
If there are unexplained beneficiaries in the trust or the reason, structure, or jurisdiction is not immediately clear, this would warrant a closer look.
4. Source of Funds
Understanding the source of funds is critical when considering your AML obligations. When looking at funds used in a transaction, watch out for:
- A third-party supplying the funds with no connection to the transaction
- The funds being sent from a foreign country with no connection
- Large amounts of cash being used with vague explanations as to its origins.
If any of the above is unclear, a further investigation is recommended to understand the origin of the funds and if appropriate, send an Suspicious Activity Report (SAR) to your governing body.
If you come across any of the red flags above (keeping in mind it’s not an exhaustive list), it’s important to ask more questions and collect further documentation and evidence until you reach a level of comfort about going ahead with a certain client or prospective client.
If any further documentation or evidence is still unsatisfactory, you can decide against working with that client or prospective client, and/or consider filing a Suspicious Activity Report (SAR).
About First AML
First AML is an AML technology provider, and the maker of Source, an all-in-one AML platform. Source powers thousands of compliance experts around the globe to reduce the time and cost burden of complex and international entity KYC. Its enterprise-wide, long term approach to the KYC / CDD data lifecycle addresses time and cost challenges while minimising compliance, reputational and security risks.
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