Are your staff able to spot suspicious transactions when it comes to money laundering?

Suspicious transactions in money laundering

A suspicious transaction is any transaction or business dealing which raisis in the mind of a person involved any concerns or indicators that there may be something illegal or something related to money launering or terrorist financing involved the the transaction or dealing.

Examples of the money laundering suspicious activity

A few examples of suspicious transactions include the following:

• Abnormally large transactions
• Cash payments or deposits where this has not been the norm
• Customer is reluctant to provide personal information or provides insufficient, hard to trace, or fictitious information
• Any transaction whose nature, size, or frequency appears unusual or out of the norm for that customer or account
• Accounts opened in offshore or high risk locations where, for example, drugs or drug trafficking may be prevalent
• Transfer of investments to apparently unrelated third parties
• Evidence of customer being a PEP
• Use of multiple currencies in a transaction

There are many ways that someone will try to launder money, meaning that spotting the crime before it’s too late can sometimes be challenging. Here is some guidance on how to spot suspicious transactions and best practice on how to deal with such suspicions.

There are many ways that someone will try to launder money, meaning that spotting the crime before it’s too late can sometimes be challenging. Here is some guidance on how to spot suspicious transactions and best practice on how to deal with such suspicions.

7 ways to identify suspicious transactions

The guidance below is taken from our interactive e-learning course, Anti-Money Laundering: Know Your Risk. You can demo the course for free here.

E-commerce

Definition: payment for a service or product online through a credit card and other electronic payment systems.

The risk: e-commerce payments create ample opportunity for money laundering and terrorist financing. Selling counterfeit goods online or no goods at all or making payments and transfers where the credit card or the user does not need to be verified are often a blind spot in AML prevention measures.

Tip: have strong identity verification measures and transaction monitoring in place. Using technology to uncover suspicious activity can help reduce the money laundering risk of online payments.

Structuring

Definition: also known as smurfing, structuring means transactions are structured in a certain way to avoid triggering a reporting threshold.

The risk: those undertaking the transactions are designated as runners or smurfs and employed by money launderers to deposit small amounts of cash or purchase financial instruments under the threshold. Someone using this method will have multiple accounts open, perhaps under false identities, and make frequent deposits.

Tip: look out for a certain pattern in the transactions made to and/or from the client’s accounts

Reverse flip

Definition: a form of money laundering where an asset is acquired for less than the real value.

The risk: an asset is paid for with a mixture of clean and dirty money, then sold through normal channels with the profits becoming clean. For example, a £1m house is bought with £500,000 in clean money. £500,000 in dirty money is paid outside of the established transaction, then the house is sold for £1m.

Tip: look out for the purchase of an expensive asset for an unusually low price.

E-cash

Definition: anonymous, pre-loaded gift cards or pre-paid MasterCard or Visa-branded payment cards.

The risk: these are often exchangeable for cash or products and are highly vulnerable. They can be stored with large amounts of cash and there is no limit on the number of cards that can be required. They are easily transported around the world and are a substitute for smuggling cash in bulk.

Tip: is your client making or receiving large payments on pre-paid MasterCard or Visa-branded payment cards or gift cards? Alternatively, is your client or receiving making large payments using several of these types of cards? If the answer to any of these is yes, follow your organisation’s procedures regarding suspicious activity.

Criminal or terrorist property

Definition: criminal property is property, including money, real and personal property, intangible property, or an interest in land or a right in relation to any other property, which is a person’s benefit from criminal conduct. Terrorist property is any money or property which is likely to be used for the purposes of terrorism, the proceeds of the commission of acts of terror or the proceeds of acts carried out for the purposes of terror.

The risk: failure to identify criminal or terrorist property can lead to criminals continually using a property or properties for money laundering or terrorist activity.

Tip: use your understanding of the financial means of your client to establish whether they have the means to afford their property.

Hawala

Definition: an ancient fund transfer system used mainly in the Islamic world. For a small fee, a local Hawala broker, or Hawaladar, will arrange for the funds to be available in another country to be withdrawn. Hawala brokers, who are generally merchants themselves, will then settle the difference during their normal process of trade.

The risk: the practice is particularly vulnerable to terrorist financing and money laundering as the funds do not actually cross any borders and the transactions tend to be highly secretive and done through an honour system.

Tip: Is your client making regular transfers to other countries, particularly an Islamic country, often for less than the invoiced amount? If so, your client may be using a Hawadalar, which could mean they are involved in terrorist financing.

Layering

Definition: transactions are structured in a highly complex way to obscure the origin of funds.

The risk: the cash is being ‘cleaned’ through multiple spins around the financial system, making it very difficult to follow the trail of the money. This is often through one of the following ways:

• Moving cash electronically from one country to another
• Dividing investments via advanced financial instruments or overseas markets
• Buying assets or property to be resold

Tip: keep an eye out for any irregularities in payments made to or received by your client. Once you notice an irregularity, follow previous and future transfers.

Download an anti-money laundering policy template

VinciWorks has created an anti-money laundering and terrorism financing policy that can easily be edited to suit your organisation, industry and staff. The policy covers important definitions surrounding the topic and guidance on how to deal with suspicious transactions. The template can be downloaded directly here.