Money laundering hurts in many ways. Money laundering not only hides the revenues of criminals' illegal activities, but it can also harm the economy and pose many risks to your business. Allowing money laundering through your business may be prone to difficulties in managing your assets. You may encounter high legal costs if the authorities find that your money laundering operation is taking place or the rules are not followed. As a result, millions of 'dirty' dollars are laundered every year. It is important to be aware of the red flag indicators accompanying illegal activity to prevent this situation.
What Is the Mean of Red Flag Indicators for AML-CTF?
It is important to be aware of and act in accordance with the red flag indications that a transaction may be suspect. In some cases, you may need to inquire more about your customers. If your customer questions do not resolve your doubts, the Money Laundering Reporting Officer (MLRO) should decide whether this should be done for the Suspicious Activity Report (SAR) and, if necessary, be presented to the Financial Crimes Enforcement Network (FinCEN).
Red flag indicators also help financial institutions to apply a risk-based approach to CDD requirements, such as knowing who the beneficiaries are and understanding the source of the funds used. If there is a red flag indicator, regulators may suspect that money laundering (ML) or terrorist financing (TF) has occurred. SRBs and law enforcement officers find these red-flag indicators useful when monitoring or researching the professional behavior of professionals or customers. The Financial Action Task Force FATF Report also highlighted the following Red Flags in the Funding Fund for Money Laundering and Terrorism.
Red Flags About the Client
Red flag 1: The client is overly secret or evasive about:
- who the client is
- what the big picture is
- where the money is coming from
- who the beneficial owner is
- why they are doing this transaction this way
Red flag 2: Client:
- actively avoiding personal contact without goodwill.
- refuses to provide information, data, and the necessary documents
- provides 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 actually 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.
Red Flags ın the Source of Funds
- Red Flag 4: The transaction is especially inconsistent with the individual's socio-economic profile
- Red flag 5: If the client or third party contributes a substantial amount of cash as collateral provided by the borrower, without making a logical statement, instead of just using these funds directly.
- Red flag 6: If the funding source is unusual
- Red flag 7: If the customer uses more than one bank account or foreign account
- Red flag 8: If a company, business or government finance private spending
- Red flag 9: If the choice of payment method has been postponed to a very close time to the notarization time without a logical explanation
- Red flag 10: If an unusually short payback period is specified without any logical explanation
- Red flag 11: Mortgages are repaid substantially without a reasonable explanation before the first due date
- Red Flag 12: If the asset is purchased in cash and then quickly used as a guarantee for the loan
- Red flag 13: If there is a request to change the previously agreed payment procedures without a reasonable explanation
- Red Flag 14: Financing is provided by a lender without a logical explanation outside the credit institution
- Red Flag 15: The collateral provided for the transaction is currently located in a high-risk country
- Red flag 16: If there has been a significant increase or consecutive contributions to the same company without a logical statement to the same company recently.
- Red Flag 17: If there is an unrelated or high-risk increase from the capital, company, from a foreign country
- Red flag 18: If the company has received a fairly high injection of capital or assets
- Red flag 19: If there is an excessively high or low price for the securities transferred, for any situation showing such an excess
- Red flag 20: Especially if recently created companies also made large financial transactions without justified rea
Red Flags ın the Choıce of Lawyer
- Red flag 21: Training of a lawyer away from the transaction without a legal or economic reason.
- Red flag 22: Education of a lawyer who does not have experience in a particular area of expertise.
- Red Flag 23: The client is ready to pay significantly higher wages than usual without a legitimate 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: Required service was denied by another professional.
Red Flags ın the Nature of the Retainer
- Red flag 26: In an illegal operation
- Red flag 27: Suspicious statements of the customer or his professional or non-commercial activities
- Red flag 28: Creation of complex ownership structures when there is no legitimate or economic cause.
- Red flag 29: Participation of the client's structures with more than one country without a legitimate or economic cause.
- Red flag 30: Incorporation and purchase of stock or securities of several companies, enterprises, or legal entities within a short period of time with elements in common with no logical explanation.
- Red flag 31: There are no documents to support the customer's story, previous transactions, or company activities.
- Red flag 32: There are a few elements common to a series of transactions within a short time without reason.
- Red flag 33: Property transactions in a row with the purchase price.
- Red flag 34: Abandoned transactions without concern.
- Red flag 35: Unexplained changes in instructions, especially at the last minute
- Red flag 36: Depositing large sums of money without the owner providing legal service.
- Red flag 37: Reasonable business transaction has no legal reasons.
- Red flag 38: The complexity increases in the transaction, resulting in apparently higher taxes and fees than necessary.
- Red flag 39: In cases where assets are not a valid reason, a power of attorney is sought for management or disposal.
- Red flag 40: Invest in an immovable property when there is no link from investment to any financial advantage.
- Red flag 41: The case is dealt with very easily or quickly
- Red flag 42: Requests for payment to third parties without proving the cause or related transaction.
To sum up, red flag indicators use corporate funds for private spending, use it without a basic transaction to the client account, configure payments, establish complex ownership structures without a legitimate or economic reason, use multiple foreign accounts for a good reason. It is very important for such situations. FATF determines red flag indicators, and for detailed information, you can review the FATF report.