People can sometimes be misled into thinking that money laundering is a victimless crime. Indeed, some believe it only affects financial institutions and has no real impact on the daily lives of ordinary people.
This is a dangerous misconception, though, as money laundering and other financial crimes do take a very real toll on society. Through them, criminals such as arms traffickers, drug traffickers, organized criminals, sex traffickers, and even terrorists can ensure that their illegal activities can continue, and that they’ll be able to keep on benefiting from them.
For this reason, financial institutions have an important responsibility to uphold. Specifically, they must make sure that they protect themselves from malicious actors looking to funnel their dirty money through legitimate financial systems. It’s also in their best interests to do so.
If financial institutions are found to have facilitated financial crimes, they can face serious consequences such as fines, sanctions, and reputational damage.
Getting smarter about anti-money laundering is crucial to ensuring that your financial institution or business can effectively ward off criminals who are only getting smarter by the day.
Below are the four warning signs of money laundering that your business should definitely be keeping an eye on:
Red Flag #1: Highly Secretive Customers
Businesses and financial institutions can stop money laundering in its tracks even before beginning a business transaction or relationship with a customer.
During the onboarding or account opening process, you’ll want to be extremely thorough in obtaining all of the necessary information to establish and verify a customer’s identity. You’ll also want to do the same when it comes to checking the identity and nature of their business.
Customers who are cagey about their personal information or are reluctant to provide more details about their business should set off an immediate red flag.
Other factors that should instantly alarm you include documents that cannot be verified and the presence of multiple tax ID numbers. You should also be wary of any potential customer that refuses to disclose their source of income and hides the identities of their beneficial partners or owners.
Red Flag #2: Unusual Transaction Patterns
The process of transferring money itself is not a problem on its own. However, there are certain situations in which money transfers can be considered suspicious.
After some time, you should be able to identify a customer’s usual transaction patterns. Sudden deviations from the norm should be considered red flags.
For example, a long-dormant account that suddenly experiences a high level of activity should raise an eyebrow. If the activities include sending money to sanctioned areas or unregistered jurisdictions, your financial institution may want to consider giving the account a closer look.
The same goes for inconsistent money transfers that do not seem to have a logical explanation. Your customers should always be able to justify every transaction they make through their business account. If not, your financial institution should probably investigate.
Red Flag #3: An Account Holder from a High-Risk Country
Sometimes, your busines will receive requests to open an account from customers who belong to high-risk countries. The Financial Crimes Enforcement Network (FinCEN) makes use of the Financial Action Task Force (FATF) blacklist to determine which countries are considered high-risk. As of February 2020, the countries on this blacklist are Iran and the Democratic People’s Republic of Korea (DPRK).
Your financial institution or business does not have to refuse these requests outright. However, you should make every effort to ensure that these applicants are thoroughly vetted before starting a business relationship with them. You’ll want to perform all of the necessary background checks, such as verifying whether they belong on any sanctions lists or Politically Exposed Persons lists.
It’s also a good idea to keep an especially close eye on applicants from the 16 countries on the most current FATF greylist. As of October 2020, these countries are Albania, The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Myanmar, Nicaragua, Pakistan, Panama, Syria, Uganda, Yemen, and Zimbabwe.
These lists are updated regularly, so it’s a good idea to monitor them.
Red Flag #4: Conversions to Virtual Assets or Vice Versa
The FATF defines virtual assets as “any digital representation of value that can be digitally traded, transferred, or used for payment.”
Cryptocurrency and crypto assets are examples of virtual assets, and fraudsters often use them to launder money. That’s because it’s easy to convert one virtual asset into another, which can effectively erase all links to the crime. After that, criminals can simply send the ‘clean’ virtual asset to a service provider or financial institution that can convert it into fiat money and withdraw it.
Transactions of this nature should be closely monitored. If your financial institution spots frequent conversions, there may be reason to believe that something not quite aboveboard is going on.
Knowing how to spot some of the most common signs of money laundering can keep your financial institution from becoming an unwitting accomplice to financial crime. The best and easiest way to efficiently catch these red flags, though, is by making use of an AML solution from a provider that you trust. As such, investing in one sooner rather than later should be a top priority for your company.