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What are the signs of Money Laundering?

Compliance Knowledge Base | Anti-Money Laundering

Posted by: India Wentworth Published: Thu, 06 Sep 2018 Last Reviewed: Thu, 06 Sep 2018
What are the signs of Money Laundering?

Money laundering is the term used to describe the act of taking illegal money from source A and making it look like it came from source B, a legitimate, legal source. Criminals make the proceeds of crime appear to be legitimate in order to get away with their crime without raising suspicion. Until they do this they are unable to use the money without authorities tracing it back to their crime.

The proceeds of crime refer to an asset that is linked to crime. An example of this could be a car bought with stolen money, this makes the car criminal property, and therefore becomes a proceed of crime.

The term "laundering" comes from the fact that criminals disperse the money gained from the crime, by spreading it out, investing in businesses, dividing it up into many bank accounts and so on. These actions make it more difficult for the authorities to trace the money back to the crime.

Knowing what to look out for to spot the signs of money laundering is vital for all employees working within the regulated sector.

5 Signs of Money Laundering to Look out for:

Spotting the warning signs when it comes to money laundering could be make or break for a company depending on how fast you detect and respond to threats.

  1. 1. Reluctance to Provide Information
  • According to the Financial Action Task Force, the body set up to fight against money laundering, if the customer is secretive and evasive, then you should take it as a red flag.
  • It sounds obvious, but if they're reluctant to disclose any of information, data or documents that you need, you should avoid any business with them.
  1. 2. Incomplete or Inconsistent Information
  • Lowers Risk Group suggest accountants should be on the lookout for customers that use multiple tax IDs, documents that cannot be verified, and are difficult when it comes to the identification of partners and owners within the company.
  1. 3. Irregular Money Transfers and Transactions
  • Money changing hands in unusual ways should always raise concerns. Accountants in charge of onboarding new clients should be aware of funds transferred to and from "locations of concern", seeing it as a warning sign straight away.
  • The movement of money/assets when there doesn't seem to be a business relationship between the parties, or transactions between groups that differ in their commercial arrangements should be looked into further.
  • Unusually high turnover from cash-based businesses that are above average compared to similar-sized organisations in the same sector may also require further explanation because of their irregular figures.
  1. 4. Complex Group Structures
  • Criminal schemes are often pretty sophisticated. So if you notice a complex structure with no explanation behind it, look into it further.
  • Their complexity could be deliberately set up to confuse and obscure others, so they can get away with the layering and integration stages of money laundering.
  1. 5. Negative Reviews
  • This may seem too simple, but if there are bad reviews of the customer that you can find by simply searching the internet, chances are you should stay well clear. An everyday internet search could reveal information that could hint at unusual business activities.
  • By carrying out appropriate due diligence, following up any issues until resolved or reporting to the National Crime Agency when needed will protect your organisation's reputation as well as the UK economy.

How you can protect yourself –

Customer Due Diligence

This means making the effort to check out the people you're planning on doing business with to increase your security when it comes to business relations and reducing the chances of problems occurring in the future as a result.

If you fail to carry out due diligence checks, you could be used to facilitate money laundering, something that means you become tainted if the 'dirty' money moves through your business, whether you realise it or not.

Due diligence can't be ignored because it checks out the assets, liabilities, cash flow, and general financial management of the customer in question. It's win-win really because you either gain peace of mind before getting involved with them, or it saves you any problems caused by them in the future.

Internal controls and monitoring

The importance of efficient internal controls and monitoring systems cannot be stressed enough. They mean that the right people are alerted straight away so that they can take the right steps to prevent the threat from becoming anything more serious.

Some good controls are:

  1. Nominated officers are figures within a business that employees can report to, creating a clarity in the whole process of reporting and responding
  2. If you have a larger business, having a compliance officer can help maintain a consistent level of understanding across the whole workforce around the rules they should be following
  3. Providing senior managers with regular information on the risks in money laundering means that they're aware of their responsibilities and importance in the issue of AML
  4. Make sure your employees are clear on the problems they could face too, this can be dealt with through effective training
  5. Regularly updating AML policies, controls and procedures, as well as completing a policy statement that you stick to

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