Watch Out for These 8 Money Laundering Warning Signs

2 years ago

Whether you’re a money laundering reporting officer (MLRO), or a fee earner, recognizing money laundering the moment it walks in your door is a constant challenge. 

Criminals are continually adapting to ever-changing opportunities and markets. However, the warning signs of some money laundering cases remain the same over the years. 

While a single warning sign isn’t sufficient enough to confirm if there is an actual money laundering going on, it still serves as a basis to constantly ask more questions. 

Here are some of the top money-laundering warning signs to look for:

1. Unwillingness to provide information

Is there any reason not to trust the information that was provided by a client, such as the reluctance to provide more detailed information about their business? 

Well, the thing is evasiveness and secrecy can be a major red flag. This usually involves the reluctance to divulge information, such as who’s the beneficial owner, who their clients are, or any other important information, data, or document that’s required to fulfill the transaction. 

2. Unusual money transfers and transactions

Unusual transactions or money transfers could be another possible red flag. When you identify that there are transfers of assets and money where there isn’t any apparent relationship between the two parties or loan transactions don’t usually match the usual commercial arrangements, then these are sufficient reasons to investigate a little bit more. 

An abnormally high turn-over for cash-based businesses that are misaligned with other relatively similar-sized businesses in the industry might need more questioning and explanation as well.

3. Incomplete and inconsistent information

You should keep an eye on various tax IDs, documents that couldn’t be verified, and those who try to hide the identity of their owners or business partners.

There might also be some sort of reluctance on their end to give more information about their business.

Another red flag is incomplete and false documents. For a complete CDD and identity verification of clients, utilize electronic identity checking.

4. Complex ownership structure 

So, maybe you’ve seen their business structure, and it makes absolutely no sense to you.

If you are told by an individual who doesn’t seem to have any controlling interesting in the engagement but has a controlling interest in the company, then ask yourself why is that so.

5. Intangible purchase/sale of items

Watch out for those who acquire and sell items whose values are intangible. Although a lot of services and programs can be measured, you couldn’t do the same with a very rare or antique vase for example.

For instance, someone bought a vase for 10 million USD but didn’t close on the item. Assuming that they have wired that from Italy to the US and then fail to close, then, that money could be eventually refunded for an account in the US. 

6. Sudden changes in instructions

In this fast-paced, ever-changing economy, things are constantly changing. Meaning, there’s also a chance that the instruction on your retainer might also change.

Are these sudden changes of instructions are just their way to make sure that you don’t ask too many questions or entice you to pay funds only to realize that the cheque they have given you is fraudulent?

With the retainer, the explanation should justifiable to merit a change. If there’s no clear, apparent explanation, and if there are other warning signs, then you should prod them more and ask more questions.

7. Strange manner

Whenever a client displays a behavior that is over the top, whether it’s aggressive or friendly, then it’s something that you should be wary of. Chances are, they’re into some questionable financial transactions. 

For example, a client chooses to give you too much information and wants to justify everything or wants you to believe something that’s far from the truth. 

There also clients who rush with the process or try to intimidate you with a particular conversation. These actions can be signs that they are having shady activities. 

Be on the look-out for overly-friendly clients as well, the ones that drop you with little gifts every now and then. They should also be reported to compliance. 

8. Negative information about the company and client

A simple search on the Internet can tell you whether or not a certain client or company could be directly involved in any unusual business activities. 

While media reports aren’t considered enough evidence that the client is indeed money laundering, you could conduct further research on their background to know for sure.

Before you accept the client, you should carry out proper diligence, and always be vigilant for any red flags. Also, reporting to the proper authorities will help protect the reputation of your firm. 

Over to You

While it might feel impossible to identify every single attempt to use the money of your firm for money laundering, you can take the aforementioned precautions to prevent this from happening and to protect yourself in the long run.

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