Rule 2(1)(g) of PMLA-2002 defines suspicious transactions as: A transaction whether or not made in cash which, to a person acting in good faith- (a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or (b) appears to be made in circumstances of unusual or unjustified complexity; ...
Red flag indicators are warning signs indicating a suspicious act of money laundering or terror financing. Businesses and federal authorities actively monitor KYC/AML red flags and monitor the suspected customers or business entities to clarify their suspicion.
Any transaction or dealing which raises in the mind of a person involved, any concerns or indicators that such a transaction or dealing may be related to money laundering or terrorist financing or other unlawful activity.
Red flag indicators in the nature of a retainer can arise when a transaction is unusual in many ways, such as its size, nature, frequency, or manner of execution. A suspicious customer may appear very disinterested in the outcome of a retainer or ask for shortcuts or unexplained speed in completing a transaction.
The report identifies 42 'Red Flag Indicators' or warning signs of money laundering and terrorist financing. It is important to be aware of, and act properly upon, red flag indicators that a transaction may be suspicious.
Unusual transactions
Firms should look out for activity that is inconsistent with their expected behavior, such as large cash payments, unexplained payments from a third party, or use of multiple or foreign accounts. These are all AML red flags.
The customer makes or receives payments for goods in an unusual manner (for example using cash, cheques issued abroad or precious metals, even though direct payment transfers are the norm in the sector).
Presenting false information or misusing insignia, documents, and/or identification to misrepresent one's affiliation as a means of concealing possible illegal activity. A state bureau of motor vehicles employee discovered a fraudulent driver's license in the possession of an individual applying to renew the license.
What Is Flagging? In fraud, flagging is an automated or manual process performed by fraud prevention software and/or fraud analysts. Organizations are alerted to suspicious, potentially fraudulent transactions, which can then be flagged for further investigation and manual review.
A red flag is a warning or an indication that the stock, financial statements, or news reports of business pose a possible issue or a threat. Red flags can be any undesirable characteristic which makes an analyst or investor stand out.
A cash deposit of more than $10,000 into your bank account requires special handling. The IRS requires banks and businesses to file Form 8300, the Currency Transaction Report, if they receive cash payments over $10,000. Depositing more than $10,000 will not result in immediate questioning from authorities, however.
Customer Due Diligence: Banks perform customer due diligence (CDD) to identify and verify the identity of their customers. This process helps to ensure that the bank's customers are legitimate and not involved in any criminal activities.
Once potential criminal. More activity is detected, the STR must be filed within 30 days. If more evidence is needed – such as identifying a subject involved – an extension not to exceed 60 days is available. Finally, STR filings must be kept for five years from the date of the filing.
Here's an example: suppose you run a bank and you don't have a transaction monitoring plan in place. In that case, it means that suspicious transactions may occur before anyone ever notices, which might cause a noticeable loss in funds from a customer's account.
AML/CFT risks are primarily incorporated within the Compliance or Legal risk category. AML/CFT risks can also affect multiple risk categories, including liquidity, strategic, operational, legal/compliance, reputational, and in some instances credit risk.
AML Checklist FAQ
AML requirements are set by governments to ensure businesses do not help money laundering. They include a form of identity verification, PEP and sanctions check, and transaction monitoring.
Suspicious Employee Activity
Employee activity can also signal an AML red flag, for example if an employee lives a lavish lifestyle that cannot be supported by their salary or an employee is reluctant to take a vacation.