The Federal Financial Institutions Examination Council has identified “red flags” of potentially suspicious activities that may indicate terrorism financing or money laundering. The goal is to assist banks in identifying and reporting instances of suspected terrorism financing, money laundering and fraud.
The FFIEC’s examples of potentially suspicious activity that may indicate terrorist financing are primarily based on “Guidance for Financial Institutions in Detecting Terrorist Financing,” provided by the Financial Action Task Force. FATF is an intergovernmental body whose purpose is to develop and promote policies, both at national and international levels, to combat money laundering and terrorist financing.
According to the FFIEC, the following are examples of potentially suspicious activities that may indicate terrorism financing:
Activity inconsistent with the customer’s business
• Funds are generated by a business owned by people of the same origin or by a business that involves people of the same origin from higher-risk countries (e.g., countries designated by national authorities and FATF as noncooperative countries and territories).
• The stated occupation of the customer is not commensurate with the type or level of activity.
• People involved in currency transactions share an address or phone number, particularly when the address is also a business location or does not seem to correspond to the stated occupation (e.g., student, unemployed or self-employed).
• Regarding nonprofit or charitable organizations, financial transactions occur for which there appears to be no logical economic purpose or in which there appears to be no link between the stated activity of the organization and the other parties in the transaction.
• A safe deposit box opened on behalf of a commercial entity when the business activity of the customer is unknown or such activity does not appear to justify the use of a safe deposit box.
• A large number of incoming or outgoing funds transfers take place through a business account, and there appears to be no logical business or other economic purpose for the transfers, particularly when this activity involves higher-risk locations.
• Funds transfers are ordered in small amounts in an apparent effort to avoid triggering identification or reporting requirements.
• Funds transfers do not include information on the originator, or the person on whose behalf the transaction is conducted, when the inclusion of such information would be expected.
• Multiple personal and business accounts or the accounts of nonprofit organizations or charities are used to collect and funnel funds to a small number of foreign beneficiaries.
Foreign exchange transactions are performed on behalf of a customer by a third party, followed by funds transfers to locations having no apparent business connection with the customer or to higher-risk countries.
Other potentially suspicious transactions
• Transactions involving foreign currency exchanges are followed within a short time by funds transfers to higher-risk locations.
• Multiple accounts are used to collect and funnel funds to a small number of foreign beneficiaries, both people and businesses, particularly in higher-risk locations.
• A customer obtains a credit instrument or engages in commercial financial transactions involving the movement of funds to or from higher-risk locations when there appear to be no logical business reasons for dealing with those locations.
• Banks from higher-risk locations open accounts.
• Funds are sent or received via international transfers from or to higher-risk locations.
• Insurance policy loans or policy surrender values that are subject to a substantial surrender charge.
To learn more about the FFIEC’s red flags for terrorism financing and money laundering, read http://www.ffiec.gov/bsa_aml_infobase/pages_manual/olm_106.htm.