Money laundering hurts organizations and countries in different ways. If the authorities find out, allowing money laundering through your business might make you face high legal costs. Criminals launder millions of ''dirty'' money every year, and many get caught. It is essential to be aware of the red flag indicators that point out illegal activities to protect your business from financial crimes and penalties from Anti-Money Laundering Regulators.
What Does Red Flag Indicators Mean for AML-CTF?
It is essential to be aware of suspicious activities. Red flag indications help companies detect and report suspicious activities easier. It helps the Money Laundering Reporting Officers (MLRO) to categorize suspicious activities and help them write Suspicious Activity Report (SAR) and report to the Financial Crimes Enforcement Network (FinCEN) if necessary. The Financial Action Task Force (FATF) also highlighted the importance of red flags.
Red Flags About the Client
Red flag 1: The client is overly secret or evasive about:
- who the client is
- where the money is coming from
- who the beneficial owner is
- why they choose the payment method they used for the transaction
Red flag 2: Client:
- actively avoiding personal contact without goodwill.
- refuses to provide information, data, and the necessary documents
- provide fake documents
- uses an email address that cannot be found on the Internet
- a partner associated or known or known to a person involved in or suspected of terrorist or terrorist financing activities
- asks repeated questions about procedures for implementing standards
Red flag 3: Parties:
- Parties or their representatives are located in a high-risk country.
- The parties to the transaction are tied for no apparent commercial reason.
- The links between the parties of a family, employment, institution, or any other nature raise doubts about reality.
- In a short time, the same parties have more than one view of transactions.
- The transaction is unusual for the processing parties, especially if the age is below the legal age.
- The person who directs the operation is not one of the official parties of the transaction or its representatives.
- A real person working as a director or representative is not an appropriate representative.
Political Exposed Person Red Flag and Indicators
Red Flags and Source of Funds
- Red Flag 4: The transaction is inconsistent with the individual's economic profile.
- Red flag 5: The client or third party contributes a considerable amount of cash as collateral provided by the borrower without making a logical statement.
- Red flag 6: The source of the funds is suspicious such as funds sent from a high-risk customer.
- Red flag 7: The customer has multiple back accounts/foreign accounts.
- Red flag 8: A business, organization, or government-funded private spending.
- Red flag 9: The payment method has been postponed to a very close time to the notarization time without a logical explanation.
- Red flag 10: A short repayment period has been set with no logical reason.
- Red flag 11: Mortgages has been constantly repaid significantly before the initially agreed maturity date, with no logical reason.
- Red Flag 12: An asset was purchased in cash and quickly used as a guarantee for a loan.
- Red flag 13: One of the sides requested to change the previously agreed payment procedures with no logical explanation.
- Red Flag 14: A lender other than a credit institution provided finance with no valid reason.
- Red Flag 15: The transaction collateral is located in a high-risk country.
- Red flag 16: A relatively new incorporated company received high amounts of capital, or it has been sending high amounts of money to a company with no logical explanation.
- Red Flag 17: A high-risk foreign company increased its capital in the company.
- Red flag 18: The company has received a high amount of capital/assets compared to the business size or market value with no explanation.
- Red flag 19: A good or service price is extremely low or high with no valid reason.
- Red flag 20: A relatively new company transacted large amounts of money that didn't fit the company's purpose with no valid reason.
Red Flags & Choice of Lawyer
- Red flag 21: An instruction from a legal professional that has no relations with the client or transaction was followed without a valid reason.
- Red flag 22: An instruction from a legal professional with no experience in the particular area was followed without a valid reason.
- Red Flag 23: The client is prepared to pay higher fees than usual without a valid reason.
- Red flag 24: The client changed the consultant several times in a short time or met with multiple legal counsels without a valid reason.
- Red flag 25: A professional denied the essential service.
Red Flags & Nature of Retainer
- Red flag 26: A transaction is unusual for many reasons, such as its size, nature, frequency, or manner of execution was made.
- Red flag 27: The customer is suspicious for various reasons, such as appearing very disinterested in the outcome of a retainer or asking for short-cuts, or unexplained speed in completing a transaction.
- Red flag 28: A complex ownership structure is built with no valid reason.
- Red flag 29: A structure in that multiple countries are involved with no link to the client or transaction with no valid reason.
- Red flag 30: The incorporation purchased stocks with the same elements in common (one or several partners or shareholders, director, registered company office, corporate purpose, etc.)
- Red flag 31: There are no documents to support the customer's story, previous transactions, or company activities.
- Red flag 32: The transactions that have several elements in common were transferred in a short time.
- Red flag 33: Property transactions in a row with the purchase price.
- Red flag 34: The transactions were abandoned without concern.
- Red flag 35: There are unexplained changes in instructions, especially at the last minute.
- Red flag 36: The client holds high amounts of money on the account without the provision of legal services.
- Red flag 37: The transaction was made without a valid reason.
- Red flag 38: There is increased complexity in the transaction, or the structures used, resulting in higher taxes and fees than necessary.
- Red flag 39: A power of attorney is sought for management or disposal in cases where assets are not a valid reason.
- Red flag 40: An investment is made in immovable property with no link to the place or financial advantage from the investment.
- Red flag 41: The investment is made too quickly with little to no involvement by the legal professional retained.
- Red flag 42: Payment to third parties without providing a cause is requested.
Red flag indicators show different kinds of financial crimes, such as using corporate funds for private spending, complex ownership structures without a valid reason, etc. FATF determines red flag indicators. For detailed information, check the FATF report.