Indicators for Investment Companies 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 investment firm 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. Investment firms 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 1
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. Lack of understanding of the client's reason for selecting this particular firm or branch to carry out the transactions. 2. Transactions or financial structures that lack economic reasons. 3. Transaction that seem to be inconsistent with the client s apparent financial standing or usual pattern of activities. 4. Transaction that appear to be out of the ordinary course for industry practice or do not appear to be economically viable for the client. 5. Transactions are unnecessarily complex for their stated purpose. 6. Obvious attempt by the client to evade or refuse attempts by the firm to establish personal contact. 7. Client does not want correspondence sent to home address. 8. Business relationships with legal entities not entered in publicly maintained registers or databases and from which no official certifications can be obtained. 2
9. 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. 10. The client requests discretion that goes beyond the customary scope. 11. Indications of judicially punishable acts by the client in Kuwait or abroad. 12. Client admits or mentions involvement or is known to be involved in criminal activities. 13. The client shows uncommon curiosity about internal systems, controls, internal policies and monitoring. 14. The client over justifies or explains the transaction or exaggerates in providing documents to prove its authenticity. 15. The client is nervous, not in keeping with the nature of the transaction. 16. The client attempts to develop close rapport with staff. 17. The client uses aliases and a variety of similar but different addresses. 18. The client offers money, gratuities or unusual favors for the provision of services that may appear unusual or suspicious. 19. The client has no employment history but makes frequent large transactions or maintains a high account activity. Specific indicators A. Customer Due Diligence Measures 1. The client provides doubtful, vague or misleading 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. 3
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. 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. 11. Unexpected or frequent change of the beneficial owner. 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 provides contact data that does not match the contact data (address, telephone number) of the client's permanent residence. D. Accounts and Transactions 1. Opening accounts with names very close to those of other established business entities. 2. Attempting to open or operate accounts under a false name. 3. Actual activity obviously and rapidly exceeds activity projected at the time of opening of the account. 4. The structure of the client's business relationship with the firm lacks an economic rationale. 5. Early repayment of a loan or installments before they are due. 6. Client and other parties to a transaction have no apparent ties to the country where your firm is located. 7. 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
8. Accumulation of large balances that is inconsistent with the known turnover of the client s business. 9. Loans secured by obligations from offshore firms with difficulty to verify the validity of such obligations. 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. 5