AML Awareness - Red flags

By Jeremy Clarke CA, Assistant Director of Practice, ICAS

17 January 2019

When considering money laundering, there are some client behaviours or issues around the business and its finance that should act as a warning that further investigation is necessary.

Client behaviour

When risk assessing a client, there are some red flag behaviours that should raise questions in your mind and cause you to make further enquiry. These include, but are not limited to, the following:

  • The client has changed advisers a number of times in a short space of time without a legitimate reason.
  • The client chooses an adviser geographically distant from himself or the location of the transaction, and there is no legitimate reason for choosing that adviser over one who is closer.
  • The client asks for short-cuts and/or unexplained or unusual speed.
  • The client attempts to disguise the real owner of the business or the parties to the transaction.
  • The client is known to have convictions for acquisitive crime.

Where the finance comes from

Sometimes the source of finance doesn’t make sense and should raise questions in your mind about the basis of the transaction. Red flags include:

  • A significant amount of private funding from an individual running a cash-intensive business.
  • The involvement of a third party private funder without an apparent connection to the business or a legitimate explanation for their participation.
  • A disproportionate amount of private funding or cash which is inconsistent with the socio-economic profile of the individuals involved.
  • The finance is being provided by a lender, other than a financial institution, with no logical explanation or economic justification.

The nature of the business itself

If the way a business is structured seems a little unusual, it should raise a red flag. For example:

  • The ownership structure is overly complicated when there is no legitimate or economic reason;.
  • Business transactions involve countries where there is a high risk of money laundering and/or the funding of terrorism.
  • False or suspicious documents are used to back up transactions.
  • The level of activity is not consistent with the firm’s understanding of the client’s business or level of legitimate income.