Red Flags for Cash Transactions Linked to Terrorism

The use of cash and the banking sector has long been a concern in the fight against terrorism financing (FT). In recent years, financial institutions have been working to identify suspicious transactions and report them to the authorities. However, the complexity of cash transactions has made it challenging to detect FT.

Regulatory Framework

The CRR (Capital Requirements Regulation) restricts cash deposits and withdrawals, requiring financial institutions to be vigilant in monitoring their customers’ activities. The PMLFTR (Prevention of Money Laundering and Financing of Terrorism Regulations) obliges institutions to report suspicious transactions to the FIAU (Financial Intelligence Analysis Unit).

Cash-Related Red Flags

Our research has identified several red flags that may indicate cash transactions are linked to FT:

• Significant Cash Deposits: Customers who make large cash deposits without justification or in unusual denominations should be flagged.
  • Example: A customer deposits €10,000 in cash without providing a reasonable explanation for the large amount.
• Multiple Small Deposits: Repeated small cash deposits, even if individually not significant, can raise suspicions when made in quick succession or through different channels.
  • Example: A customer makes 5 cash deposits of €500 each within a short period, using different accounts and branches.
• Immediate Withdrawals: Deposits followed by immediate withdrawals, whether single or multiple, may indicate money laundering (ML) or FT.
  • Example: A customer deposits €1,000 in cash and then withdraws the entire amount immediately after.
• Large Cash Withdrawals: Withdrawals that are unusual for the customer’s normal banking activity, particularly if they involve significant amounts, should be queried.
  • Example: A customer withdraws €5,000 in cash without providing a reasonable explanation for the large amount.
• Third-Party Involvement: When a third party is involved in cash transactions, whether as a depositor or withdrawer, this may raise concerns about FT.
  • Example: A customer allows someone else to deposit or withdraw cash on their behalf without proper authorization.
• Unusual Customer Behavior: Customers who exhibit unusual behavior when interacting with financial institutions, such as frequent visits to different branches or using multiple accounts, should be monitored closely.
  • Example: A customer visits a branch every day for 5 days in a row to make small cash deposits.

Reporting Suspicious Transactions

When a financial institution detects a suspicious cash transaction, it must report it to the FIAU in accordance with the PMLFTR. The institution should also consider delaying or refusing to process the transaction pending further investigation and consultation with the authorities.

Conclusion

In conclusion, the use of cash and the banking sector is a critical area for combating FT. By being aware of these red flags and reporting suspicious transactions, financial institutions can play a vital role in preventing the financing of terrorism.