Red Flag Indicators For AML/CFT
Red flag indicators for AML/CFT
AML UAE, with its vast experience and on the basis of the AML/CFT guidelines, has systematically prepared Red flag indicators for AML/CFT pertaining to different aspects such as customers, their source of funds, etc.
Money laundering can cause a lot of troubles in both qualitative and quantitative manner on the business organization. Money laundering primarily hides the income and the source of funds of the criminals or money launderers, as the same is illicit or unexplained. In addition to that, Red flag indicators for AML/CFT also harm the overall economy and poses several risks to the business enterprise.
Facilitating criminal activities like money laundering either directly or indirectly through one’s business may lead to dramatic challenges in managing the assets of the business organization. Furthermore, Red flag indicators for AML/CFT may add to high legal costs and penalties if any sort of money laundering activities is taking place involving one’s business organization or the organization is not abiding by the anti-money laundering compliance regulations.
Surprisingly, a humongous amount of money is being laundered every year. In order to avoid that, one has to be very mindful of the Red flag indicators for AML/CFT and constantly monitor the same where something unusual is observed. The Sooner the identification of the Red flag indicators for AML/CFT, the more efficient would be the measures to avoid/control the damage or restrict the intensity of the same.
What is the meaning of Red flag indicators for AML/CFT?
It is essential to be well aware of and act according to the red flags indications that pinpoint involvement of any fraud or suspicious activities in a financial transaction. In a few complex cases, one may experience the need to obtain more information from the customers. For example, suppose certain essential questions or details pertaining to the customers remain unaddressed or unanswered. In that case, the AML Compliance Officer should evaluate the reasonableness of suspicion involved and, if needed, filing a Suspicious Transaction Report with the Financial Intelligence Unit.
Red flags indicators also aid financial institutions in order to apply a risk-based approach to meet customer due diligence (CDD) requirements like knowing about the beneficial owners and understanding the legitimacy of the source of funds. If there is a red flag indication, the regulators might suspect the occurrence of either terrorist financing or money laundering, or any funding of illegal organizations. Law enforcement officers find these red-flag indicators helpful when monitoring the behavior of the professionals or even the customers. A report from Financial Action Task Force or FATF highlights the following red flags related to terrorist financing and money laundering:
Red flags about the customer
The customer is extraordinarily secretive or tries to evade information related to the following aspects.
- Who the customer is
- What precisely the bigger picture is, and is there anything that is lying under the table
- What is the source of the enormous sum of money
- Who exactly is the beneficial owner
- Why are they carrying out a particular financial transaction in a different or unusual manner
- Who the customer is
- What precisely the bigger picture is, and is there anything that is lying under the table
- What is the source of the enormous sum of money
- Who exactly is the beneficial owner
- Why are they carrying out a particular financial transaction in a different or unusual manner
Customers are looking up to these things
- Customers are actively avoiding any sort of direct or personal contact
- Uses an email address that is not found on the internet
- If the customer clearly refuse to provide information, necessary documents, or data
- Upon asking, the customer offers irrelevant or fake documents
- An associated partner, or any known or unknown person involved in any kind of suspected criminal activities like terrorist financing and money laundering
- Customers are actively avoiding any sort of direct or personal contact
- Uses an email address that is not found on the internet
- If the customer clearly refuse to provide information, necessary documents, or data
- Upon asking, the customer offers irrelevant or fake documents
- An associated partner, or any known or unknown person involved in any kind of suspected criminal activities like terrorist financing and money laundering
Red flags alerts for parties are generated when
- When the parties or their representatives are situated in a country that is prone to high-risks
- The parties involved in any financial transaction are tied for no apparent commercial reason
- The links between the families, employment, institution of the parties may raise doubts about the legitimacy or authenticity of the parties
- The individual who directs the operation is not amongst the official parties of the transaction or its representatives
- A natural person working as a representative or a director is not appropriate in many terms, and even his behavior is not right
- When the parties or their representatives are situated in a country that is prone to high-risks
- The parties involved in any financial transaction are tied for no apparent commercial reason
- The links between the families, employment, institution of the parties may raise doubts about the legitimacy or authenticity of the parties
- The individual who directs the operation is not amongst the official parties of the transaction or its representatives
- A natural person working as a representative or a director is not appropriate in many terms, and even his behavior is not right
Red flags in the source of funds
Red flags
1. The financial transactions are expressly inconsistent with the socio-economic profile of the individuals.
2. If one finds out that the actual source of funding is illicit
3. If the customer uses more than one national or foreign bank account under his name
4. The choice of payment mode or method has been postponed to a highly close time to the time of notarization without any explainable or logical reason.
5. If there is any unexplained or suspiciously short payback period
6. Mortgages are repaid quickly without any sustainable explanation, even before the first due date
7. If the assets are being purchased in cash and rapidly used as a guarantee for the loan
Compliance. Trust. Transparancy
Customized and cost-effective AML compliance services to support your business always
8. If any prompt request comes in order to moderate the previously agreed payment procedures without a good experience
9. Finance is provided by the lender without any logical explanation outside of the credit institution
10. The collateral provided for the transaction is located in a country that is categorized as high-risk.
11. If there has been an exponential increase or consecutive contributions to the same business enterprise without having any recent logical statement in favor of that same business unit.
12. If there is an unrelated increase in the capital from a company or from a foreign company.
13. If the business enterprise has received a relatively high sum of capital or fixed assets.
14. If there is an unnecessarily high or low price for the transfer of the securities.
15. If recently incorporated, companies are also making large financial transactions without any justification or logical reason.
Red flags related to behaviour
- Where the customer makes unusual requests for maintaining the secrecy of the transaction;
- Where the customer insists on the use of an intermediary in all interactions, without sufficient justification and avoids personal contact without sufficient justification;
- Where delivery instructions requested appear to be unnecessarily complex or confusing;
- The customer exhibits unusual concern with the firm's compliance with government reporting requirements and the organization's AML policies;
- Customer involving foundations, cultural or leisure associations, or non-profit-making entities, especially when the characteristics of the transaction do not match the goals of the entity;
- When the customer suddenly cancels the transaction when asked for identification or information;
Our recent blogs
side bar form
Share via :
FAQs: Red flag indicators for AML/CFT
Red flags in AML means a warning or an alert that there is an undesirable characteristic or threat in a transaction, customer, or entity.
AML transaction monitoring red flags include sanctioned sources of money, owners belonging to high-risk countries, unusual bank transactions, inconsistencies in the identity verification process, the sudden withdrawal of high amounts, etc.
Yes, there can be more than one AML red flag indicator in a transaction.
Here are a few actions that must be taken immediately when multiple red flags are observed:
- Receive internal reports from the employees of any kind of unusual or suspicious activities or transactions.
- Assesses the reports thoroughly that helps determine the probability of any potential terrorist funding and money laundering.
- If needed, a Suspicious Transaction Report shall be filed with the Financial Intelligence Unit.
- Developing and coordinating proper reporting channels for issues pertaining to effective compliance
- Building effective communication channels for the Company’s compliance with AML/CFT regulations
- Coordinating and scheduling necessary compliance training for the concerned employees
Add a comment
About the Author
Pathik Shah
FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)
Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.
He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.