Unconventional Business Practices Raise Red Flags for Anti-Money Laundering Efforts

In an effort to combat money laundering and terrorist financing, authorities are increasingly scrutinizing unconventional business practices that may be used to conceal illicit activities.

Warning Signs of Unconventional Business Practices

• Clients who conduct their business relationships or request services in unusual or unconventional circumstances
  • Complex ownership structures
  • Instructions from unknown or inappropriate persons
  • Cash-intensive businesses
• Non-profit organizations (NPOs) not subject to monitoring
• Individuals or classes of transactions that take place outside the established business profile

Additional Red Flags

• The use of pooled client accounts, safe custody of client money or assets, and bearer shares without justification
• Services used to conceal beneficial ownership from competent authorities, such as:
  • Virtual assets
  • Anonymous means of payment
• Unusual payment methods, including:
  • Precious metals or stones
  • Delayed payments for assets or services delivered immediately

High-Risk Transactions and Relationships

• Transactions involving closely connected persons with inconsistent or irrational explanations
• Situations where a nominee is being used without apparent legal, tax, business, economic, or other legitimate reason
• Services that risk being used to assist money launderers, such as:
  • Advising on the setting up of legal persons or arrangements with complex ownership structures

Trust Companies and Service Providers (CSPs)

• CSPs offering services that risk being used to assist money launderers, including:
  • Advising on discretionary trusts with unclear beneficiaries
  • Setting up legal persons or arrangements with complex ownership structures
• Authorities urge CSPs to be vigilant in their due diligence and reporting requirements

Guidance from the Financial Action Task Force (FATF)

• FATF guidance on Trust Company Service Providers (TCSPs) highlights services that may be provided by TCSPs, which risk being used to assist money launderers, including:
  • Advising on discretionary trusts with unclear beneficiaries
  • Setting up legal persons or arrangements with complex ownership structures

Conclusion

By identifying and addressing these unconventional practices, we can better prevent money laundering and terrorist financing and keep our financial systems safe and secure.

Sources:

• FATF guidance on Trust Company Service Providers (TCSPs)
• Financial Action Task Force (FATF) website