High-value dealers prohibited from buying or selling goods with cash transactions of $10,000 or more.
Every business prides itself on knowing its customers. Understanding their needs, wants, and behaviours is the foundation on which a business grows.
Typically, customers who use the same products and services tend to behave in the same way, with similar patterns of transactions and activities. And when a customer is acting unusually, i.e. outside the expected pattern of behaviour, it’s easy for businesses to spot this.
For reporting entities captured under the AML/CFT Act, these unusual activities or transactions are called red flags. Red flags are important because they could be indicators of money laundering or other illegal activity. So, reporting entities have an obligation to monitor for, analyse, and report any formed suspicions to the Financial Intelligence Unit.
The FIU relies on suspicious activity reports, as businesses are in the best position to spot anything that is an indicator of crime for the FIU to follow up on.
How suspicions are formed and raised
- Staff, typically front-line, encounter potentially suspicious activity or transactions (also termed Red Flags).
- They conduct the transaction as usual and perform CDD.
- They alert their AML Compliance Officer of the potential suspicion in a reasonable timeframe.
- The Compliance Officer investigates the potential suspicion to see if it's warranted, and logs it in the Suspicions Register.
- If it is found not to be suspicious, it is marked as resolved.
- However, if they agree with the findings, a suspicion is formed. This is also logged in the Suspicions Register, and doing so puts the business in ‘safe harbour’.
- When a suspicion is formed it legally must be reported to the NZ Police via the GoAML platform within three business days.
- The police will then investigate further.
Recording and quickly resolving potential suspicions showcases good AML. It is evidence to your auditor and Supervisor that you are alert to unusual activity / transactions and are dealing with them effectively from a money laundering risk aspect.
Examples of red flags
Red flags are highly contextual to your business, its industry, risk profile, and the products/services it provides. For example, red flags for a small real estate company doing local sales could be different to red flags for a large real estate firm managing deals with international clients.
Some examples of red flags are:
- A client deposits funds into a trust account, and then requests that they are transferred to a third party.
- A client has made back-to-back property transactions that don’t fit their profile.
- A purchase is made entirely in cash.
- A client avoids face-to-face contact.
- Transactions are unusually complex.
The 5 key things to document with suspicious activity
Against each identified unusual transaction or activity, you should document 5 key things to demonstrate your review:
- Details of the nature and purpose of the transaction
- Information collected from the customer with regards to the transaction
- An overview of the investigation performed
- Reference to any relevant supporting documentation
- An explanation of why the transaction was/was not considered unusual or suspicious, and the actions taken
Where a suspicion is formed, details regarding when and why the suspicion is formed as well as reference to the reporting undertaken should be documented. Any information pertaining to SARs/STRs should be held in a confidential ‘need to know’ manner.
Important! Only relevant staff members should be aware that an Suspicious Activity Rerport / Suspicious Transaction Report has been filed (e.g. your Compliance Officer and Director). However, all staff should always be vigilant in assessing customer behaviour for potential suspicion.
Keep your business in safe harbour with AMLHUB
With a built-in suspicions register, AMLHUB makes it easy to keep track of any potential, formed, and lodged suspicions, and if any have been internally resolved.
- Keep track of patterns in your customer behaviour that could expose your business to risk
- Reduce the risk that your business will be used as a vehicle for money laundering
- Prove to AML auditors that you are actively managing your AML
See how easy it can be in a short web demo. Request yours today!