Suspicious activities and transactions indicate ML and TF (Part I)

In order to create a strong compliance environment, financial institutions and companies as Obliged Entities always aim to incorporate compliance with the mentality to combat Money Laundering (ML) and Terrorist Financing (TF).

The culture lies the attitude that business priorities and profit-making activities shall not take precedence over the culture of compliance with the laws and regulations of the AML.

For this purpose, the entity is obliged to control and report to the supervisory authorities, suspicious transactions and activities related to money laundering or terrorist financing.

In this context, investors should be aware of some of the situations that may be examples of suspicious trades and activities and so if they make such trades and activities that could be reported to the authorities.

In the text of this week you will see how suspicious Trades and Activities are related to:

• Customer Behaviour.

• Transactions and Actions.

• Customer Identification.

• Investment Activity.

• Activity in The Securities Sector.

While next week we will continue showing how the suspicious Trades and Activities are related to:

• Customer Trading Activity.

• Cash Transactions.

• Non-cash deposits.

• Wire transfer transactions.

• Activity in Credit institutions.

• Employee activity.

The list below is non-exhaustive and presents some of the most typical examples that could be clues that would lead to an investigation into money laundering and terrorist financing.

SUSPICIOUS CUSTOMER BEHAVIOR

Customer has an unusual or nervous behaviour.

Customer discusses record-keeping or reporting requirements with the apparent intention of avoiding them.

Customer is irresponsive to calls or avoids contact.

Customer threatens an employee in an effort to discourage required recordkeeping or reporting.

Customer suggests paying a gratuity to an employee.

SUSPICIOUS TRANSACTIONS/ACTIONS

Transactions with no discernible purpose or are unnecessarily complex.

The transactions or the size of the transactions requested by the customer do not comply with his usual practice and business activity.

Large volume of transactions and/or money deposited or credited into, an account when the nature of the customer’s business activities would not appear to justify such activity.

There are frequent transactions in the same financial instrument without obvious reason and in conditions that appear unusual (churning).

Transactions which are not in line with the conditions prevailing in the market, in relation, particularly, with the size of the order and the frequency.

The settlement of any transaction but mainly large transactions, in cash.

Settlement of the transaction by a third person which is different than the customer which gave the order.

A customer that makes frequent or large transactions and has no record of past or present employment experience.

SUSPICIOUS CUSTOMER IDENTIFICATION CIRCUMSTANCES

Agent, attorney or financial advisor acts as intermediary for the customer without proper documentation, such as a power of attorney.

Customer furnishes unusual and/or suspicious identification documents or refuses to produce originals for verification.

Customer does not want any contact e.g. mail sent to him. (e.g. customer has no permanent residence/address)

A customer is reluctant to reveal details about the business activities.

Customer does not provide a clear picture as to the group structure or unwilling to provide a group structure.

Customer uses a number of offshore accounts.

Customer is unwilling to provide personal background information when opening an account.

Customer provides no record of past or present employment on a loan application.

Customer experiences high turnover of professionals.

SUSPICIOUS INVESTMENT ACTIVITY

Investor seems uninterested in the usual decisions to be made about investment accounts, such as fees or the suitability of the investment vehicles.

Customer wants to liquidate a large position through a series of small transactions.

Customer deposits cash, money orders, traveller’s checks or cashier’s checks in amounts under the reporting threshold to fund an investment account.

Investor deposits money for online trading activity but the account remains idle for some time, makes very little online activity and then starts to withdraw.

Investor opens several accounts for online trading and deposits large amounts of money in all, but activity is very low.

SUSPICIOUS ACTIVITY IN THE SECURITIES SECTOR

The customer appears to be acting as an agent for an undisclosed principal, but declines or is reluctant, without legitimate commercial reasons, to provide information, or is otherwise evasive regarding that person or entity.

For no apparent reason, the customer has multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers.

 The customer’s account has unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity.

The customer makes a funds deposit for the purpose of purchasing a long-term investment followed shortly thereafter by a request to liquidate the position and transfer the proceeds from the account.

The customer engages in excessive journal entries between unrelated accounts without any apparent business purpose.

The customer requests that a transaction be processed in such a manner so as to avoid the firm’s normal documentation requirements.

The customer, for no apparent reason or in conjunction with other “red flags,” engages in transactions involving certain types of securities, such as penny stocks, Regulation “S” (Reg S) stocks, and bearer bonds, which, although legitimate, have been used in connection with fraudulent schemes and ML activity. (Such transactions may warrant further due diligence.)

The customer’s account shows an unexplained high level of activity with very low levels of securities transactions.

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