Indicators for Banks to Assist in Identifying Suspicious Transactions

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1 Indicators for Banks to Assist in Identifying Suspicious Transactions A suspicious transaction may involve several factors that may on their own seem insignificant, but when analyzed may raise suspicion that it involves proceeds of crime or funds related or linked to or to be used for money laundering or terrorism financing. A suspicious transaction report should be filed when a transaction or a group of transactions raise questions or apprehension or give rise to discomfort or lack of understanding of the transaction purpose or the nature of account transactions. The context in which a transaction occurs is a significant factor in assessing suspicion. This will vary from business to business and from one client to another. The bank and its employees should evaluate transactions in terms of what seems appropriate and is within normal practices in its particular line of business, and based on its knowledge of the client. The fact that transactions do not appear to be in keeping with normal industry practices may be a relevant factor for determining whether there are reasonable grounds to suspect that the transactions are related to money laundering or terrorist activity financing. Blanket explanations provided by the client (contracting party or beneficial owner) regarding the background of transactions in need of clarification are not sufficient as not every explanation provided by the client can be accepted at face value. Banks must verify the plausibility of every explanation provided to the extent possible. If the transaction is understandable and is not a source of discomfort, this should be documented accordingly. If the clarifications indicate that the transactions or fact patterns are suspicious, the reporting obligation pursuant to article 12 of the AML/CFT law is triggered. In all cases, an assessment of suspicion should be based on a reasonable evaluation of relevant factors, including the knowledge of the customer s business, financial history, background and behavior. Also, it could be the consideration of many factors not just one factor that will lead to a conclusion that there are reasonable grounds to suspect that a transaction may be connected to money laundering or terrorism financing. All circumstances surrounding a transaction should be reviewed. The following indicators may be helpful in determining whether or not a transaction is suspicious. By themselves, the individual criteria may not trigger a suspicion and trigger the reporting obligation under Article 12 of the AML/CFT Law. But the coincidence of several criteria and/or the lack of plausible explanations may indicate a suspicion and thus trigger the reporting obligation. The following list of indicators is not exhaustive: General indicators 1. Transactions involving a withdrawal of assets shortly after they have been deposited with the bank. 2. The client has only vague or unconcerned knowledge of the amount and currency of a transaction.

2 3. Lack of understanding of the client's reason for selecting this particular bank or branch to carry out the transactions. 4. Transactions resulting in significant activity on an account which was previously mostly dormant. 5. Transactions or financial structures which are inconsistent with the bank's experience of the client and the purpose of the business relationship. 6. Transactions or financial structures that lack economic reasons. 7. Transaction that seem to be inconsistent with the client s apparent financial standing or usual pattern of activities. 8. Transaction that appear to be out of the ordinary course for industry practice or do not appear to be economically viable for the client. 9. Transactions are unnecessarily complex for their stated purpose. 10. Unexpected or frequent change of the beneficial owner. 11. Unexpected or unjustified change of the bank. 12. Unexpected or frequent change of client contact details. 13. The client repeatedly uses an address but frequently changes the names involved. 14. The client willfully provides false, misleading, missing or vague information or fails to provide the information and documents necessary to show the business relationship and the activity concerned and explain the source and destination of the money and purpose of the transaction. 15. The client receives transfers from a country with crime rates known to be high (e.g. widespread corruption, terrorism, and major drug production) or that are considered to be high risk countries, or makes transfers to such a country. 16. Obvious attempt by the client to evade or refuse attempts by the bank to establish personal contact. 17. Client does not want correspondence sent to home address. 18. Business relationships with legal entities not entered in publicly maintained registers or databases and from which no official certifications can be obtained. 19. When personal discussions are held, the client is always accompanied by other persons whose function is not apparent and who play a role in the design of the business relationship. 20. The client provides contact data that does not match the contact data (address, telephone number) of the client's permanent residence. 21. Major project transactions for which the bulk of funding is said to be secured by investors who are not further specified. 22. The client requests discretion that goes beyond the customary scope. 23. Closing accounts and opening new ones in the client's name, or in the name of other persons close to them. 24. The client appears to have accounts with several financial institutions in one area for no apparent economic need. 25. The client requests receipts for cash withdrawals or deliveries of securities which in effect never took place or which were followed by the immediate deposit of such assets at the same institution. 26. The client requests payment orders to be executed with incorrect remitter's details. 27. The client requests that certain payments be routed through the bank s accounts instead of the client's own accounts.

3 28. Request by the client to accept or record in the accounts loan collateral which is inconsistent with economic reality, or grant fiduciary loans for which notional collateral is recorded in the accounts. 29. Indications of judicially punishable acts by the client in Kuwait or abroad. 30. Client admits or mentions involvement or is known to be involved in criminal activities. 31. The client shows uncommon curiosity about internal systems, controls, internal policies and monitoring. 32. The client over justifies or explains the transaction or exaggerates in providing documents to prove its authenticity. 33. The client is nervous, not in keeping with the nature of the transaction. 34. The client attempts to develop close rapport with staff. 35. The client uses aliases and a variety of similar but different addresses. 36. The client offers money, gratuities or unusual favors for the provision of services that may appear unusual or suspicious. 37. The client has no employment history but makes frequent large transactions or maintains a high account activity. 38. The client runs large credit card balances. 39. The client visits his safety deposit boxes immediately before making cash deposits. 40. The client wishes to have credit and debit cards sent to international or domestic destinations other than his or her address. 41. The client has numerous accounts and deposits cash into each of them with the total credits being a large amount. 42. The client frequently makes deposits to the account of another person who is not an employer or family member. 43. The client s access to their safety deposit boxes unusually increases in light of their past access. 44. Third parties make cash payments or deposit cheques to a client s credit card. 45. The client has frequent deposits identified as proceeds of asset sales but assets cannot be substantiated. 46. The client acquires significant assets and liquidates them quickly with no explanation. 47. The client acquires significant assets and encumbers them with security interests that are not economically reasonable. A. Customer Due Diligence Measures Specific indicators 1. The client provides doubtful, vague, misleading, false or missing identification information. 2. The client produces seemingly false identification or identification that appears to be counterfeited, altered or inaccurate. 3. The client refuses or is reluctant to produce personal identification documents. 4. The client only submits copies of personal identification documents. 5. The client wants to establish his identity using something other than his or her personal identification documents. 6. The client s supporting documentation lacks important details such as a phone number. 7. The client inordinately delays presenting corporate documents. 8. All identification presented is in foreign language or cannot be verified for some reason. 9. All identification documents presented appear new or have recently been issued.

4 10. Lack of cooperation by the client in identifying and verifying the identity of the beneficial owner in accordance with Article 5 of the AML/CFT Law. B. Cash transactions 1. The client starts conducting frequent cash transactions in large amounts when this has not been a normal activity for the client in the past. 2. The client frequently exchanges small bills for large ones. 3. The client uses notes in denominations that are unusual for the client, when the norm in that business is much smaller or much larger denominations. 4. The client presents notes that are packed or wrapped in a way that is uncommon for the client. 5. The client makes cash transactions of consistently rounded-off large amounts 6. The client frequently purchases traveler s cheques, foreign currency drafts or other negotiable instruments with cash when this appears to be outside of normal activity for the client. 7. The client cashes cheques for large sums, including traveler s cheques. 8. The client exchanges a larger amount of small-denomination banknotes (foreign and domestic) for large-denomination banknotes. 9. The client asks to hold or transmit large sums of money or other assets when this type of activity is unusual for the client. 10. The stated occupation of the client is not in keeping with the level or type of activity (for example a student or an unemployed individual makes daily maximum cash withdrawals at multiple locations over a wide geographic area). 11. The client exchanges significant amounts of money without crediting a client account. 12. An occasional client asks for a transfer abroad without there being an apparent legitimate reason. C. Bank accounts 1. Opening an account in a branch outside the local service area of the client s work or residential address. 2. Opening accounts in other people s names to use them as a transacting front. 3. Opening accounts with names very close to those of other established business entities. 4. Attempting to open or operate accounts under a false name. 5. Actual activity obviously and rapidly exceeds activity projected at the time of opening of the account. 6. Establishment of multiple accounts with no apparent valid reason. 7. Account with a large number of small cash deposits and a small number of large cash withdrawals. 8. Use of loan facilities that, while normal in international trade, is inconsistent with the known activity of the client. 9. The structure of the client's business relationship with the bank lacks an economic rationale (large number of accounts at the same institution or under different currencies, frequent transfers between accounts, excessive liquidity, etc.).

5 10. Granting of security by third parties who have no obvious close affiliation to the client. 11. The client attempts to make transfers to another bank without supplying complete details of the beneficiary. 12. Accepting transfers from other banks when the name of the remitter has not been supplied. 13. Repeated transfers of large amounts of money abroad with instructions that the sum be paid to the beneficiary in cash. 14. Funds are being deposited into several accounts, consolidated into one and transferred outside the country. 15. A large number of different individuals make different deposits into a single account. 16. Early repayment of a loan or installments before they are due. 17. Use of pseudonym or numbered accounts to carry out commercial transactions for trading, commercial, or industrial projects. 18. Multiple transactions are carried out on the same day at the same branch but with an apparent attempt to use different tellers or different branches in remote areas. 19. The client requests to establish several accounts with different master numbers without a plausible reason. D. Foreign Transactions and Transactions related to offshore business activity 1. Client and other parties to the transaction have no apparent ties to the country where your bank is located. 2. Transaction crosses many international lines without a valid economic or financial reason. 3. Transactions involving a country with crime rates known to be high (e.g. widespread corruption, terrorism, and major drug production) or that are considered to be high risk countries from a money laundering and terrorism financing standpoint. 4. Cash deposits followed within a short time by wire transfers, especially to high risk countries. 5. Transaction involves a country known for banking secrecy and weak legal frameworks governing corporate activity. 6. Accumulation of large balances, inconsistent with the known turnover of the client s business, and subsequent transfers to overseas account(s). 7. Loans secured by obligations from offshore banks with difficulty to verify the validity of such obligations. 8. Loans to or from offshore companies with difficulty to verify the activity or the actual existence of such companies. 9. Offers to transfer high-amount deposits from an unknown source to be sent or guaranteed by an offshore bank. 10. Transactions involving an offshore bank that is probably a shell bank, whose name may be very similar to that of a major financial institution. 11. Unjustified wire transfers by client on an in-and-out basis. 12. Use of letter-of-credit and other method of trade financing to move money between countries when such trade is inconsistent with the client s business.

6 E. Indicators of terrorist financing 1. Persons, companies, or organizations involved in the transaction are affected by targeted financial sanctions pursuant to Article 25 of the AML/CFT Law. 2. Transactions involving unregistered humanitarian organizations. 3. Frequent change of persons authorized to manage a certain account (authorized persons, beneficiaries, beneficial owners, etc.). 4. Frequent change of address, telephone number, account holders or authorized persons. 5. Information or indications of connections to known fundamentalist persons, organizations, or institutions. 6. Information or indications of support for fundamentalist publications or actions. 7. Instructions by non-profit organizations for transactions that are unusual for their business model and known flow of payment transactions. 8. Transaction involves beneficiaries of aids from non-profit or charitable organization who do not seem to belong to the adequate social fabric or unable to carry out an economic activity. 9. Accounts where deposits are made or transfers are received from non-profit local or foreign entities, especially if these entities are in countries known for terrorism support. 10. High-amount donations especially from foreign entities into the account of a non-profit entity especially in the absence of a clear relation between both parties. 11. Transfers directed towards beneficiaries from countries linked to terrorist activities. 12. Individual accounts receiving high-amount transfers from an unknown source for which the declared purpose would be to cover their living expenses. 13. The use of cards to withdraw money from an ATM by a group of beneficiaries that have no apparent relationship with the account holder. 14. The gathering of two or more persons who are not related when using a pin code and withdrawing money from an ATM.