Money Laundering Red Flags
FINRA is very seriouswhen it comes to adequately managing “red Flags” and suspicious activity that may suggest money laundering. If a broker dealer detects a red flag, additional due diligence should be performed before allowing that particular transaction to proceed. Examples of “red flags” are described in NTM 02-21 below:

• The customer exhibits unusual concern regarding the firm’s compliance with government reporting requirements and the firm’s AML policies, particularly with respect to his or her identity, type of business and assets, or is reluctant or refuses to reveal any information concerning business activities or furnishes unusual or suspect identification or business documents

• The customer wishes to engage in transactions that lack business sense or apparent investment strategy, or are inconsistent with the customer’s stated business strategy.

• The information provided by the customer that identifies a legitimate source for funds is false, misleading, or substantially incorrect.

• Upon request, the customer refuses to identify or fails to indicate any legitimate source for his or her funds and other assets.

• The customer (or a person publically associated with the customer) has a questionable background or is the subject of news reports indicating possible criminal, civil or regulatory violations.

• The customer exhibits a lack of concern regarding risks, commissions, or other transaction costs.

• The customer appears to be acting as an agent for an undisclosed principal, but declines or is reluctant, without legitimate commercial reasons, to provide information or is otherwise evasive regarding that person or entity.

• The customer has difficulty describing the nature of his or her business or lacks general knowledge of his or her industry.

• The customer attempts to make frequent or large deposits of currency, insists on dealing only in cash equivalents, or asks for exemptions from the firm’s policies relating to the deposit of cash or cash equivalents.

• The customer engages in transactions involving cash or cash equivalents or other monetary instruments that appear to be structured to avoid the $10,000 government reporting requirements, especially if the cash or monetary instruments are in an amount just below reporting or recording thresholds.

• For no apparent reason, the customer has multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers.

• The customer is from, or has accounts in, a country identified as a non-cooperative country or territory by the Financial Action Task Force (FAFT).

• The customer’s account has unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity.

• The customer’s account shows numerous currency or cashiers check transactions aggregating to significant sums.

• The customer’s account has a large number of wire transfers to unrelated third parties inconsistent with the customer’s legitimate business purpose.

• The customer’s account has wire transfers that have no apparent purpose to or from a country identified as a money laundering risk or a bank secrecy haven.

• The customer’s account indicates large or frequent wire transfers, immediately withdrawn by check or debit card without any apparent business purpose.

• The customer makes a funds deposit for the purpose of purchasing a long-term investment followed shortly thereafter by a request to liquidate the position and transfer the proceeds out of the account.

• The customer engages in excessive journal entries between unrelated accounts without any apparent business purpose.

• The customer requests that a transaction be processed in such a manner to avoid the firm’s normal documentation requirements.

• The customer’s account shows an unexplained high level of account activity with very low levels of securities transactions.

• The customer maintains multiple accounts, or maintains accounts in the names of family members or corporate entities, for no apparent business purpose or other purpose.

• The customer’s account has inflows or other assets well beyond the known income or resources of the customer.

The above listed money laundering “red flags” are not exhaustive; however, an awareness and sample of red flags will assist broker dealer personnel can identify circumstances warranting due diligence. The appropriate “red flags” should be described in the written policies of your firm based on your businesses and product mix.

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