By Dr Frank Anthony Tabone – Associate
Several individuals use different typologies and techniques to lauder the proceeds of crime. The below is a non-exhaustive list of red flags which could serve as possible indicators that money laundering activities are taking place.
Whilst it is important to be pointed out that in the case of a red flag, it does not automatically mean that money laundering or terrorism financing activities are taking place, however a more rigorous due diligence must be carried out on that customer.
Some of the most common red flags identified in AML are:
- Cross-Border Money Transfers to Different Accounts to avoid detection from authorities – This could be in the form of rapid transfers to and from different accounts in different countries; funds received from foreign accounts with no clear explanation of its source; payments with no apparent link to a legitimate business.
- Secretive new clients – when new clients avoid meeting in person and when they refuse to answer any questions or even provide false identification details or documentation when carrying out the Know your client (KYC) and customer due diligence (CDD) processes.
- Unusual Payments by clients and unusual source of funds – when payments are inconsistent with the clients profile, such as for example large cash payments, the use of multiple foreign accounts, unexplained payments made by a third party on their behalf, and the use of cryptocurrency.
- Clients holding high positions – typically related to political exposed persons (PEPs) such as head of states, members of parliament, members of the judiciary, senior executives of stated owned corporations. Officials involved in political parties and senior officials appointed by the government, amongst others.
- Unclear Ultimate beneficial ownership – such as when the identity of the individuals owning the company are not clear due to complex ownership structures or the use of shell companies.
- Countries classified as high risk – Clients deriving from countries subject to financial sanctions or else those countries identified by the FATF or by the EU Commission as being suspected to be involved in corruptive practices, having unstable governments or known as tax or money laundering havens.
- Sanctioned customers – when clients are sanctioned by the UN, EU or even nationally. Such customers are to be considered as high risk of money laundering and terrorism financing.
- Adverse media – the clients are subject to adverse media in any part of the world and linked with criminal activities which could be related with possible predicate offences, which are the criminal offences generating the illegal proceeds of crime.
- Suspicious clients activity – when it results that the clients are living a lavish lifestyle which could not be supported with their declared income.