Red Flags and Money Laundering Schemes
Money laundering schemes can vary widely. Federal action to curtail money laundering activities once focused heavily on identification and documentation of large currency transactions and on the use of money transfers, both through bank and non-bank money transfer systems, and other means of moving funds. Today, as money launderers become more sophisticated, all types of financial transactions are facing greater scrutiny.
When a single factor signals that a transaction is unusual and possibly “suspicious,” it is called a “red flag.” The following are examples of potentially suspicious activities, or “red flags” for both money laundering and terrorist financing. Although these lists are not all-inclusive, they may help MSBs and examiners recognize possible money laundering and terrorist financing schemes.
- Customers who provide insufficient or suspicious information.
- Efforts to Avoid Reporting or Recordkeeping Requirements.
- Funds transfers to or from high risk geographies.
- Activity inconsistent with customer’s business.
- Unusual Characteristics or Activities.
- Unusual patterns of transactions.
Management’s primary focus should be on reporting suspicious activities, rather than on determining whether the transactions are in fact linked to money laundering, terrorist financing, or a particular crime. Authorities with more complete information can take action to investigate further if warranted. Many situations may be found to be wholly innocent while yet others result in criminal prosecution. The MSBs responsibility is simply to identify potentially suspicious activity, make reasonable judgments, and report suspicious activity.