Victor Fredung, CEO, Shufti Pro
From large UK banks being probed for their Anti Money Laundering (AML) systems to skilled scammers being able to bypass UK AML checks, there is always a new story around money laundering. Despite the continued surge in AML fines, businesses are clearly still failing to successfully protect against it. As the UK reclassifies fraud as a National Security Threat, businesses need to become more progressive in their protocols to combat fraud.
To effectively combat money laundering, businesses must first become more attuned to its red flags. From secretive customers to suspicious transactions, understanding the top five red flags will ensure businesses can successfully identify money laundering tactics, but also reinforce the need to implement effective technology to fight against fraud.
Red Flag #1: Secretive customers
When it comes to opening a bank account, customers are put through numerous verification processes and safeguarding measures. These types of checks are imperative for financial institutions to ensure they’re compliant with regulations and to uphold their reputation. If a customer begins to display suspicious behaviour and fails to pass the various checks i.e does not provide documents or exhibits reluctance to submit personal data, it should be read as an instant red flag.
For financial institutions, the onboarding process is a vital stage to their customer relationship and is often where many banks end up falling short. An integral part of this includes checks, such as Know Your Customer (KYC), so businesses must not compromise themselves by skipping these vital steps.
Red Flag #2: ‘Smurfing’
Often, fraudsters will process various transactions in planned patterns to avoid triggering financial institutions to take legal action, also known as smurfing or structuring. Frequent suspicious transactions, occurring on a weekly or monthly basis can begin to raise questions about money laundering.
Large sums of money moving in and out of a customer account, particularly at a fast pace should begin to ring alarm bells for any financial institution. Fraudsters do this to disperse their illegal funds in an attempt to divert institutions from their origin. This can often be coupled with receiving money from blacklisted accounts or transactions from sanctioned countries.
Red Flag #3: ‘Money Mule’ or ‘The Smurfer’
The ‘money mule’ or ‘smurfer’ is someone who transfers money acquired illegally on behalf of someone else. In the banking world, this can look like a client who has multiple accounts, registered under the same name.
The Financial Action Task Force (FATF) states this is a top component in identifying and intercepting money laundering schemes. Implementing continuous and frequent verification checks for these types of clients is key to ensuring their transactions are legitimate and compliant with legal banking regulations.
Red Flag #4: Conversion to and from Digital Assets
Although digital assets, such as cryptocurrencies and NFTs, are becoming increasingly common and adopted on a much wider scale, financial institutions must remain vigilant.
While many innocent customers are curious and keen to explore the digital currency ecosystem, many fraudsters see these platforms as an advantage to them. This can often be seen in funds being deposited into an account and immediately converted into digital assets, which is usually done to confuse and break the money trail. The same can also be said for the reverse – from digital assets into fiat (GBP, EUR, etc.).
Even though this alone is not enough to indicate money laundering, being aware of this type of activity across accounts is key to detecting the first instances of suspicious activity.
Red Flag #5: Unregistered Locations and High-Risk Countries
Transactions across unregistered countries or sanctioned states should immediately be flagged due to the high-level threat and the potential risks they pose. If a client is receiving or sending money to unregistered locations with no reasonable explanation, it is advisable to swiftly restrict account access.
Similarly, prospective clients from high-risk countries need to be flagged and monitored as money laundering can be more common across them, for example in Andorra or San Marino. Whilst this shouldn’t be a complete deterrence from carrying out business with high-risk and third-world countries, it is important to do thorough verification checks and procedures, along with background screening, to ensure it is safe.
These are just a few of the top red flags to spot when it comes to money laundering, and there are many more. While it may not be possible for financial institutions alone to spot these trends and tactics, they can begin implementing successful and accurate screening protocols. Frequent use of verification technologies such as KYC and AML are vital in protecting organisations from customers attempting to launder money. For organisations to come on top in the battle against financial crime, these constant checks and protocols are imperative.
