Financial Crime World

Identifying Red Flag Indicators for Customer or Counter-Party

When dealing with customers or counter-parties, particularly those connected to jurisdictions of proliferation concern, it is crucial to identify red flag indicators. A recent report highlights the importance of recognizing these signs to prevent potential risks.

Customer Behavior Red Flags

  • Customers who are vague about ultimate beneficiaries and provide incomplete information or resist requests for additional information.
  • Customers who use complicated structures to conceal connections to goods imported/exported, such as:
    • Layered letters of credit
    • Front companies
    • Intermediaries
    • Brokers
  • Freight forwarding/customs clearing firms listed as the final destination in trade documents.

Transactional Patterns Red Flags

  • Project financing and complex loans with unidentified end-users.
  • Transactions involving individuals or entities from countries of proliferation concern.
  • Transactions related to:
    • Dual-use goods
    • Proliferation-sensitive goods
    • Military goods (whether licensed or not)
  • Shipment of goods inconsistent with normal geographical trade patterns.

According to FATF Recommendation 7-FI, financial institutions must immediately freeze all assets of individuals and entities designated on the United Nations Security Council Resolutions lists for proliferation financing.

Duties of Private Sector Regarding Proliferation Financing

  • Conducting dedicated risk assessments for PF typologies and activities.
  • Mapping PF risks onto markets, customers, locations, and lines of business.
  • Taking enhanced measures to manage and mitigate products, services, customers, and locations prone to PF sanctions evasion.
  • Implementing Know-Your-Customer (KYC) procedures that reflect PF risks.

Reporting Obligations

  • Reporting persons must immediately effect a matching exercise when a party is declared as a designated person or listed as a linked person.
  • Reports must be submitted to the National Sanctions Secretariat and relevant supervisory authorities.

Suspicious Transaction Reports

  • Any information related to listed parties should be submitted to the Financial Intelligence Unit (FIU).
  • Reporting procedures are outlined in the Guidelines.

Contact Us

For further information or guidance on these matters, please contact the Financial Services Commission (FSC) at:

FSC House 54 Cybercity, Ebene 72201 Mauritius

Tel: +230 403 7000 Fax: +230 403 7172 Website: www.fscmauritius.org

The FSC urges licensees to remain vigilant and identify red flags during onboarding, internal disclosure, transaction review, and client ongoing monitoring. Transactions with or clients connected to high-risk countries for terrorist financing or proliferation should be reviewed more closely.