Is your finance company on the lookout for all the right red flags concerning anti-money laundering?
As Bill Gates once said, ‘Success is a lousy teacher.’ It persuades the intelligent to put their money where they are sure they cannot go wrong.
To manage the risk, your business must identify and keep a very close watch for AML red flags.
It prevents your business from being used as a channel for money laundering and other related criminal activities.
These might be anything ranging from odd cash transactions to a bad attitude of the client. This article will outline the main AML red flags that every finance company should consider.
Definition of AML Red Flags
AML signals are suspicions that might be a sign of the existence of money laundering or other related offenses.
It is a very broad area that includes all ranges of red flags, from such cash transactions as daily cash sales to such transaction structures as such.
Particularly helpful is keeping an eye out for trade finance AML red flags that characterize other AML activities, helping finance companies immediately detect suspicious activity.
Bonus: Contact us to learn more about knowing and avoiding TBML red flags on the AML front for your business.
Unusual Cash Transactions
The first of the anti-money laundering red flags is abnormal cash transactions. Such cash transactions that a client does not normally make constitute money laundering.
This may include depositing large amounts into an account, withdrawing cash frequently, or transferring money from one account to another without apparent business rationale.
The non-cash suspicious activities had reached $316 billion in 2023, and the cash-based ones had been among the most reported.
Complicated business processes
Another structure that has to be addressed under AML is the complexity of transactions.
Financial activities that involve multiple transfers or involve much complexity which is not motivated by any economic purpose.
Different types of trade Credit cards fraudulent, complex TBML (trade-based money laundering) schemes, and complicated trade transactions may be utilized to conceal the source of the money.
Trade finance red flags were identified in an estimated 18% of the money laundering activities in 2023.
Suspicious Client Behavior
Finance companies must avoid clients who have suspicious behaviors. This may include clients who provide incongruent information, who never want to disclose their details or transaction data, or who look too nervous.
A paranormal scheme of the client’s behavior in comparison with their predictable financial activities may be a sign of AML.
The latest data indicate that 25 percent of financial organizations mentioned clients with such behaviors during AML checks.
Geographical Risk Indicators
The places that are involved in the technical process of a financial transaction can also be suspected by AML.
Those who engage in transfers both to and from countries with high levels of economic crime, corruption, and weak AML regulations should beware.
Clients or transactions associated with geographical areas related to trade-based money laundering (TBML) may cause concern among a finance company.
The FATF has listed more than 20 nations as being noncompliant with AML rules and standards.
Politically exposed persons (PEPs)
Finance companies must also ensure they carry out stringent transaction scrutiny for politically exposed persons (PEPs), natural persons connected with prominent public functions.
It is more likely for a PEP to be involved in money laundering and identification of PEP-related accounts and PEP transaction accounts.
These accounts will be subject to further scrutiny to curb money laundering. More than 50 percent of global financial institutions noted an uplift in managing third-party PEP-connected risk.
Sanctions and Watchlists
Finance companies also have to avoid dealing with customers or the transactions associated with any malicious person.
Avoid organizations banned by the government or any international watch list, and dealing with parties on these lists unleashes legal and reputational risks on a finance company.
Monitoring client information against the latest available list of sanctions and other watch lists is a basic requirement for AML compliance.
Over 20 thousand individuals and entities are placed on global sanctions lists at the moment, proving that scrutiny is increasingly crucial as of 2024.
Trade-Based Money Laundering
Finance companies should understand one type of money laundering called Trade-Based Money Laundering, commonly abbreviated as TBML.
It involves the utilization of bogus or inauthentic commercial transactions with the purpose of concealing the era in which they acquired the ill-gotten funds.
Basic control factors of TBML red flags that demand attention in the activities within trade finance include suspicious trading practices.
The UNODC identifies trade-related money laundering as constituting between 50 and 80 percent of the IFLs observed worldwide.
Employee Protection Policy
The finance company may have identified certain characteristics that can be considered potential AML issues.
The question arises of who within the organization should be handling the reportage and reporting of such matters.
This would allow any form of enforcement to investigate any fishy transaction and report the same to the appropriate enforcement agencies as provided for under the AML laws.
In 2023, the financial institutions of the whole world filed more than two million SARs.
Most finance companies should ensure that they have an effective reporting system in relation to their AML compliance program.
