Indicators for money laundering and terrorist financing in transaction monitoring is an essential process for financial institutions. MLRO and the account opening team ensure that due diligence measures are applied for all the customers, including the high-risk category customers. Each account of a high-risk category customer shall be opened with such EDD and approval. Once such an account is opened, the compliance team must regularly monitor transactions initiated or incurred in such accounts.
When entering a business relationship, the MLRO checks whether the customer or the customer’s Ultimate Beneficial Owner of UBO is a PEP. Suppose the customer or UBO becomes or is found to be a PEP during the business relationship. In that case, the MLRO and relevant employees must take additional measures as quickly as possible such as establishing the source of wealth of a UBO, who is a PEP. In cases where it proves impossible to establish the source of the wealth, the MLRO and relevant employees must be able to demonstrate that it has made sufficient efforts to discover the source.
EDD measures mean obtaining more detailed information for the identification and verification of customers. For all high-risk category customers, including PEPs, in addition to basic KYC information, the EDD measures are applied where detailed information is asked from the customers, including the source of financing for proper identification and verification of the category of customers.
Indicators for Money Laundering and Terrorist Financing in Transaction Monitoring
Some of the ML/TF risk indicators which necessitate the performance of investigations are as follows:
- Complex structured financing transactions or collateral arrangements with private customer
- PEPs or customers conducting transactions involving PEPs
- Bank products and services that, by their nature, are susceptible to inappropriate use, such as back-to-back loans, large cash deposits, and commercial real estate activities
- Customers with transactions to/from countries that are subject to sanctions, including trade sanctions, free trade zones, offshore centers, tax havens, and countries that appear on the FATF watch list
- Customers with frequent, non-routine, complex treasury and private banking products and services
- Non-routine, cross-border payments by non-customers
- Correspondent bank accounts with banks in jurisdictions with weak laws to combat money laundering and terrorist financing
- The business relationship is conducted in unusual circumstances
- Customers that are residents in geographical areas of higher risk
- Legal persons or arrangements that are personal asset-holding vehicles
- Companies that have nominee shareholders or shares in bearer form
- Cash-intensive businesses
- The ownership structure of the company appears unusual or excessively complex given the nature of the company’s business
- The customer is a third-country national who applies for residence rights or citizenship in the member-state in exchange for capital transfers, purchase of property or government bonds, or investment in corporate entities in that member-state
- Transactions related to oil, arms, precious metals, tobacco products, cultural artifacts, and other items of archaeological, historical, cultural, and religious importance or of rare scientific value, as well as ivory and protected species
- Non-face-to-face business relationships or transactions
- New products and new business practices, including new delivery mechanisms and the use of new or developing technologies for both new and pre-existing products
- Countries subject to sanctions, embargoes, or similar measures issued by, for example, the Union or the United Nations
- Countries providing funding or support for terrorist activities or that have designated terrorist organizations operating within their country
- Countries identified by credible sources as having significant levels of corruption or other criminal activity
Transaction monitoring is an essential process for financial institutions to detect and prevent money laundering and terrorist financing activities. It is important for financial institutions to develop robust transaction monitoring programs that include a range of indicators and risk factors to effectively identify and prevent financial crime.