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Complex Structures: The New Frontier in Money Laundering Prevention

As financial institutions navigate the ever-evolving landscape of money laundering prevention, one aspect has emerged as a crucial consideration: complex structures. These intricate arrangements can provide criminals with the perfect cover to launder funds, making it essential for firms to stay ahead of the curve.

High-Risk Sectors

Cash-intensive businesses are notorious hotspots for money laundering activity. From casinos to real estate transactions, these industries require special attention when assessing risk. According to Section 5.6.1.3 of the LSAG guidance, firms must identify higher-risk sectors and implement appropriate measures to mitigate the associated risks.

Politically Exposed Persons (PEPs)

Firms must be vigilant when dealing with PEPs, as their connections can create heightened risks. Regulation 35(1) of the MLRs mandates firms to implement robust risk management systems to identify and mitigate these risks. FG 17/6, the FCA’s guidance on identifying PEPs, serves as a valuable resource for firms.

Sanctions

Firms must remain aware of countries subject to sanctions, which can have significant implications for transactions. Designated persons or entities require special handling, and firms must ensure compliance with OFSI’s guidelines.

Unusual Transactions

Criminals often employ complex structures to conceal the source of funds. Firms must be cautious when dealing with unusually large or complex transactions, scrutinizing their legitimacy and economic purpose. Sections 5.6.2.1 and 5.6.2.3 of the LSAG guidance offer valuable insights into identifying high-risk jurisdictions.

Conclusion

Complex structures are an increasingly common challenge for financial institutions. By understanding the risks associated with cash-intensive industries, high-risk sectors, PEPs, sanctions, and unusual transactions, firms can better equip themselves to prevent money laundering and maintain their integrity in the face of evolving criminal tactics.

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