Guide: How to spot potential money laundering

May 31, 2022 Cyber Security, Hacks, Fraud Alerts, Risks, FinTech and Alternative Finance, Fintech International, Innovation and Resources No comments

The UK Law Society | Jan 20, 2022

Common warning signs

Despite criminals continually adapting to changing markets and opportunities, there are signs to look for which can alert you to possible money laundering. Whether you're a fee earner or a money laundering reporting officer (MLRO), recognising signs of money laundering is a continual challenge. This guide looks at common warning signs and how to respond to them.

Unusual and secretive clients

It’s important that you make fully informed and risk-based decisions on new clients and new types of business from both new and existing clients. To help assess the risk posed by new clients, you should try to understand why they chose your firm.

See: AML laws have failed

For example:

Why is a client who lives far from your firm contacting you in relation to a retainer which has no geographic connection to your firm?
Why is a client instructing you in a field or type of work you have not practised in before?
Why are foreign nationals, who are overseas residents, instructing your firm when you have no connection or profile within that country?
Your practice should have customer due diligence (CDD) procedures in place to identify clients.
If a client refuses to answer questions or give you information about themselves, you should consider whether this is suspicious.

Unusual transactions

Clients trying to launder funds will often try to carry out unusual transactions. The transaction may be unusual for:

your firm
your understanding of a client in their position
the type of retainer they’re undertaking

See: Ottawa to review Crypto, Stablecoins and CBDCs; Budget promises more financial cops

This may not be enough to give rise to a suspicion of money laundering, but it’s a warning sign that needs to be followed up.

Unusual source of funds

Regulation 28 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) requires you to scrutinise transactions to make sure that they’re consistent with your knowledge of the client.
Large amounts of cash or private funding, even if held in a bank account, may be a warning sign of money laundering.

Third-party funding

Third-party funding is a normal feature of many conveyancing transactions and other retainers. However, it can also be a way to layer criminal property.

Sudden changes in instructions

In challenging economic times and a fast-paced global economy, transactions can fall through and your client's instructions may change without warning.
Ask yourself whether there's a reasonable explanation for any changes to the retainer, for example the company goes bankrupt or a couple buying a home decide to divorce.

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