Anti-Money Laundering (AML) red flags are warning signs or indicators of potential money laundering or terrorism financing activities. They are used by financial institutions (FI's)and Designated Non-Financial Businesses or Professions (DNFBPs) to identify and report suspicious activities to the relevant authorities.
But don't be lulled into a false sense of security. Bad actors are always ahead of the game and know all the tricks of their trade and how to use compliance teams reliance on Red Flags to their advantage. Larger organisations should be aware of red flags and incorporate this understanding into a multi-dimensional risk approach.
Smaller organisations with limited compliance resources benefit from a more prescriptive approach included below.
Some common AML red flags include:
Unusual or Large Transactions: Transactions that are unusual or out of character for a customer, or large transactions that are inconsistent with the customer’s known activities or income levels.
Structured Transactions: Transactions that are structured in a manner that appears to be an attempt to evade reporting requirements or conceal the true nature of the funds.
Complex or Confusing Transactions: Transactions that are complex, confusing, or difficult to understand, and that appear to be an attempt to conceal the true nature of the funds.
Transactions with High-Risk Jurisdictions: Transactions involving customers or entities located in high-risk jurisdictions, or transactions that are associated with countries that are known to be associated with money laundering or terrorism financing activities.
Unusual or Unjustified Changes in Account Activity: Changes in account activity that are unusual or unjustified, such as large deposits followed by immediate wire transfers, or a sudden increase in the volume of transactions.
Unusual Source of Funds: Transactions that involve funds from an unusual or unknown source, or funds that cannot be traced back to a legitimate source.
Transactions with No Apparent Economic Purpose: Transactions that have no apparent economic purpose or that are inconsistent with the customer’s business activities.
Transactions with Politically Exposed Persons: Transactions that involve customers or entities that are politically exposed, such as high-ranking government officials or their family members.
Transactions Involving Shell Companies: Transactions that involve shell companies, which are companies that have no physical presence or operations and are used for the purpose of hiding ownership or assets.
AML red flags are warning signs of potential money laundering or terrorism financing activities. Financial institutions must be vigilant in identifying and reporting these red flags to the relevant authorities to help prevent illegal activities and maintain the integrity of the financial system.
Visit https://www.avidaml.com/ or email firstname.lastname@example.org to learn more or schedule a demonstration of Avid AML Compliance technology.
Avid AML can assist increase efficiency, improve accuracy, provide a better customer experience and reduce the cost of compliance.