By analysing customer behaviour to detect suspicious transactions, frontline staff in banks can help disrupt the flow of dirty money
Organized crime is a global challenge. To fund its operations it relies on funds raised through ransom for kidnapping, extortion, drug trafficking and funds transfers from one person to another across countries and continents. However, a single Suspicious Transaction Report (STR) can help stop this flow of illegal money, and help prevent the repercussions that financial crime causes. Frontline staff can serve as the first line of defence against such illicit transactions being passed through their organisation
The Financial Intelligence Unit - India (FIU IND) provides financial intelligence to assist law enforcement, revenue and national security agencies within the country to combat money laundering and terrorism financing. It also regulates entities that have obligations under the Prevention of Money-laundering (Amendment) Act, 2012 to establish anti-money laundering and counter-terrorism financing (AML/CTF) programs and to meet compliance obligations by reporting transactions suspected of being linked to money laundering, terrorist financing, criminal proceeds, drug trafficking or other serious criminal activities. These reports are an essential contribution to the development of the financial intelligence resources that are used by country’s law enforcement, revenue and national security agencies.
The STRs led to detection of black money. FIU disseminates the information in STRs to the law enforcement agencies. The feedback received by FIU IND indicates that the unaccounted money detected by the agencies was of Rs7,848 crore while the amount of assets seized, frozen and confiscated was about Rs195 crore within the country and abroad (source-FIU Director Report 2013-2014). The detection of huge amount of black money could be possible as the FIU received 61,953 STRs during 2013-14 as compared to a mere 31,731 STRs received during 2012-13. It shows about 100% jump in receiving the STRs. All banking, financial intermediaries, insurance companies, payment system operators and capital market operatives are required under PMLACT to submit STRs to the FIU.
Reporting entities can use indicators to recognise situations that may require scrutiny from an AML/CTF perspective. Indicators alone do not automatically evidence suspicious activity; nevertheless they should alert the AML/CTF official to activities that may require further examination and monitoring. Individual cases may show more than one indicator, if so, it suggests increased urgency to examine the transactions for suspicious financial or criminal activity. AML/CTF officials can also use the indicators for training staff and to develop consistent descriptions of behaviour to be included in a suspicious transaction report.
Most Frequently Observed Indicators
1) Large - Scale Cash Transactions
Criminals often accumulate large amounts of low-denomination notes as trades for illicit substances of goods are generally made in untraceable cash transactions. These criminals have to enter these notes into the banking system to give it a touch of legitimacy and realise the true value.
2) A Typical Or Uneconomical Fund Transfer To Or From Foreign Jurisdiction
Transfer of criminal funds brings several benefits to laundering operations. In a number of cases, fund transfers overseas with no supporting business explanation had been identified.
3) Unusual Business Activity or Transaction
Movements of funds that involve a loss or lower rate of return, without any visible compensating benefit for the customer may indicate that the business is more concerned with moving funds through the financial system, than with profitability.
4) Large And / Or Rapid Movements of Funds
Money launderers often try to ‘layer’ funds by switching between several accounts in different institutions / jurisdictions in an attempt to confuse the audit trail. A legitimate businessman, however, would seek to minimise bureaucracy and bank charges.
5) Unrealistic Wealth Compared To Customer Profile
A number of cases include disclosures where individuals with little or no wealth / no employment pay large sums of money into accounts. Often these funds are directly derived from crime, or are being ‘looked after’ while the real criminal is being investigated by police.
6) Defensive Stance to Questioning
Inexperienced launderers may not be able to prepare a reasonable cover story concerning the origins of illegal funds. Generally, an ‘honest’ customer will always be willing to answer questions concerning his funds.
Money launderers and terrorism financiers remain on the lookout for new techniques which will obscure the origins of the funds and give apparent legitimacy to their activity. They will quickly embrace new products and technologies. AML/CTF officials should on a regular basis review their products, services and individual customers to ensure AML/CTF programs, processes and training match the changing levels of ML/TF risk.
Opportunities exist to identify money laundering at all stages of money transactions. The frontline staffs of banks increasingly play a bigger role in identifying and reporting suspicious transactions.
Nervous or uncooperative behaviour exhibited by customers such as avoidance of eye contact or reluctance to provide documents could trigger suspicion.
It is also known that introducing the illegal sale proceeds of small drug units into the financial system can be done through a bank teller. Money presented in unusual condition – for example, damp, odorous or covered with a substance – or multiple deposits of small notes indicating the unit price of illicit drugs should all raise concern.
For financial services staff, creating a STR can be a monotonous and tedious job, but dirty money supports the weapons purchases, bribes and other corrupt activities and a single STR can help stop this.
As a rule, suspicious transactions are mostly inconsistent with the normal behaviour pattern of the customer. By screening transactions for indicators, typologies and unusual activity, a suspicion of criminal activity may arise. A transaction may have many factors that do not raise suspicion when considered individually, but taken in its entirety may suggest criminal activity.
A large transaction may be considered suspicious if it does not fit with the customer’s financial profile. Comparing the transaction to previous account records might show this is unusual activity and may also suggest if any patterns indicating criminal activity exist.
Financial institutions must remain vigilant as criminals look for new ways to obscure their illicit activities. What constitutes a suspicious transaction or behaviour is unique to each financial institution and depends on their risk assessment and customer profile, and is not static. By analyzing customer behaviour to detect suspicious transactions that trigger a STR, frontline staff will help disrupt the flow of dirty money that supports drug-trafficking, weapons purchases, and other illegal activities that, ultimately, result in violence and serious crime.
(Saiyid (SSA) Zaidi
is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)