What Are The 4 Warning Signs Of Money Laundering?

You always need to be on the lookout for money laundering, but do you know what the most common warning signs are?

This list isn’t comprehensive, but it contains four common warning signs you should be aware of.

1. Unusual Clients

You might have some clients that you can’t understand why they’re coming to your business. For example, they might not have a geographic connection to your location, or ask you to carry out work that’s not the typical type of retainer you have.

If you’re not sure why they’ve decided to use you or why they’re asking for the type of work they are, it can raise some red flags, and you may need to keep an eye on these clients.

You can mitigate this risk by carrying out Customer Due Diligence checks which highlights these issues.

If the client refuses to answer the questions you’re asking them, you should treat this with caution.

2. An Unusual Source of Funds

If you’re looking at a client’s transactions and thinking, “This doesn’t look right”, compared to what you know about them, it should start to raise some red flags for you.

Does the client have a large amount of cash or private funding that you can’t understand based on what you know about them?

It might be appropriate for you to ask for documentary evidence of where the funds have come from, such as:

  • Bank statements
  • Recent business accounts
  • Other documents supporting an action, such as a house sale

While this might work in most circumstances, it can be tricky to account for cash in this way because it might not be reflected in any of these. When this happens, you need to ask yourself two questions:

  1. Is this consistent with what you know about the client?
  2. Does the information make you suspect criminal activity or criminal property involved?

3. Sudden Changes to Instruction

In a fast-paced environment, deals may fall through, and your client’s instructions may change with little notice.

However, you need to ask yourself whether these changes could result from criminal activity; rather than, for example, a couple buying a house having a change of heart.

If you can’t find a clear explanation for the change, or if there are no other warning signs, you should ask questions such as:

  • Are the changes designed so you don’t ask too many questions before accepting the money?
  • Does the falling through of the property deal mean the initial instructions were a ploy to get money into the client’s account?

4. Unusual Transactions

Money laundering is often made up of unusual transactions. There are three main ways in which a transaction may be unusual:

  1. Your firm doesn’t normally handle transactions of this type
  2. Your understanding of the client doesn’t account for this type of transaction happening
  3. The type of work the client is undertaking doesn’t make sense for their position

While these transactions may have an explanation, you need to make sure that the explanation is enough to discount it from criminal activity.

Where next?

The long and short of it is, if anything doesn’t seem to fit in, you need to be investigating it and asking for proof. This isn’t limited to just transactions, but identity too.

Always ask yourself the questions, “am I confident I know the answer”, and “how confident am I that the answer is correct”.