Money Laundering Red Flag Indicators: Recognising Suspicious Behaviours

Hundreds of billions of ‘dirty’ dollars are laundered through financial institutions every year, so it’s important that you are aware of the red flag indicators that accompany this illegal activity. ‘Dirty’ money is money that has been criminally-derived, such as from the profits of drug and gun sales. The process of money laundering converts these ‘dirty’ funds into ‘clean’ money using the following three steps:

• Placement. Placement is the process of introducing ‘dirty’ money into the financial system. Night deposits, ATM deposits, exchanging money for cashier’s checks or larger bills, and smuggling cash out of the country, are all examples of placement. Placement is vital for money launderers as it helps to mask ‘dirty’ funds with ‘clean’ money and provide legitimacy to the funds.
• Layering. Layering is the process of using several financial transactions to separate funds from an illegal source. Methods of layering include; moving funds between various onshore or offshore accounts and using complex financial transactions.
• Integration. Integration is the process of reintroducing laundered money back into lawful trade, by providing explanations for the ‘dirty funds’ that appear to be legitimate.

Banks and financial institutions are vital to the money laundering process. It can’t happen without passing the money through a financial institution in at least one of the three stages. Therefore, it’s important that those working in the financial sector know what to look out for. We have outlined the top ‘Red Flag’ indicators to help you identify when money laundering might be taking place.

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Money Laundering Red Flags

Money laundering is damaging in many ways. Not only does it allow criminals to hide the proceeds of their illegal activities, it can also destroy the economy, harm honest taxpayers and pose many risks to your business.  Allowing money laundering to take place through your business can leave you prone to challenges in managing your assets. Liquidity problems could arise as large sums of laundered money often disappear without notice. You might also face hefty legal costs if enforcing authorities discover that you’re facilitating a money laundering operation.

You should be aware of the following behaviours that indicate a customer might be undertaking money laundering:

• Unusual transactions or activity compared to their normal dealings.
• Unjustified large cash deposits or constantly large balances.
• The use of large amounts of cash to purchase cashier’s checks or money orders.
• Unwillingness or avoidance of providing information about their business. This could be concealing owner information, beneficial business partners or who their client is.
• Inconsistent information such as multiple tax IDs or unverified documents.
• Complex financial transactions that are designed to conceal the source and ownership of the funds.

By being vigilant and looking out for any red-flag indicators, you will help to protect your business from the risks of money laundering.

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What To Do If You Suspect Money Laundering

You should immediately report any suspicious activity or transaction to your company’s nominated officer. The role of a nominated officer is to:

• Receive reports of any suspicious activity or transaction.
• Assess the reports and determine if there is, or could be, any evidence of terrorist financing or money laundering.
• Complete a Suspicious Activity Report for any suspicious activity or transaction and submit it to the National Crime Agency.
• Request a defence for the money laundering offence from the NCA, and ensure that no more illegal transactions are carried out.

Your manager must appoint a temporary nominated officer for you to report any concerns to, whenever the nominated officer is absent.

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Anti-money laundering efforts are important in attacking illegal and terrorist activity as it begins to enter the financial system. Money laundering has a disastrous effect on a country’s economy, as well as being damaging to the government and social well-being. Therefore, it’s vital that you know the signs and are constantly watching out for any red-flag indicators. 

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