The Devil�s in the Details: AML & Small Suspicious Transaction Reports
Crime can make criminals a lot of money, money that they can use for violence, bribery and corruption. Organized crime is a global challenge, reliant on 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 financial crime causes.
In most countries, financial reporting entities are required 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 often the main information source authorities use to detect suspected offenses and identify that criminal activity is occurring through a transaction or series of transactions. Reports are analyzed for activities and patterns that may indicate wrong doing and are used by law enforcement to further investigations. Producing a STR can be onerous, but it is often the first indication that financial crime is occurring and can be a powerful tool against organized crime.
Transferring money across borders
To finance their global operations, criminals require the movement of funds across borders with methods that attract minimal scrutiny. Historically, criminals have utilized specific methods to add complexity or legitimacy to transactions, including using alternative remittance services and cash couriers.
Money launderers often target money remitters because there is often little or no physical movement of currency across borders, and there is little formal verification and record-keeping. Normally, money transfers take place by coded information being passed through couriers, letters or faxes, followed by telephone confirmation. Almost any document that carries an identifiable number can be used for this purpose. The launderer's chance of remaining undetected, or avoiding confiscation, is significantly increased because there is no recognizable audit trail.
In this case, an alert might be where a customer sends frequent wire transfers to foreign countries, that they have no connection with, or uses numerous agent locations for no apparent reason to conduct transactions. Similarly, the customer might instruct that funds are to be picked up by a third party on behalf of the payee.
There is also evidence that terrorists use traditional money transmission methods like Hawala to move funds between jurisdictions. Such transactions often involve transfers from the UK through a third country, further obscuring the funds’ intended destination.
These methods are commonly used by people from countries where these techniques are culturally entrenched. Associates or relatives of criminals are sometimes unwittingly brought into the circle of crime to help launder funds using methods acceptable in their own countries.
Many of these individuals are on global watch lists that warn when money is transferred to politically exposed persons, relatives, friends or close associates of those on sanctioned lists, or persons of special interest including people with fraud or drug trafficking convictions.
Frontline defenses
Opportunities exist to identify money laundering at all stages of money transactions. The frontline staffs of banks and credit unions increasingly play a bigger role in identifying and reporting suspicious transactions.
Nervous or uncooperative behavior exhibited by customers such as avoidance of eye contact or reluctance to provide documents could trigger suspicion.
We also know that introducing the illegal proceeds of selling multiple, small drug units into the financial system can be conducted with a bank teller. Money presented in unusual condition – for example, damp, odorous or covered with a substance – or multiple deposits of small bills indicating the unit price of illicit drugs should all raise concern.
For financial services staff, creating a STR can seem monotonous work. But dirty money supports the weapons purchases, bribes and other corrupt activities that a single STR can help stop.
Financial crime analytics
As a rule, suspicious transactions are often inconsistent with the normal behavior of that 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 together suggest criminal activity.
A large transaction may be considered suspicious if it does not fit with the client’s financial profile. Comparing the transaction to previous account records might show this is unusual activity and whether any patterns indicating criminal activity exist.
Financial crime analytics allow organizations to build on traditional anti-money laundering /counter-terrorism financing detection, alerts and reporting by adding fraud rules, analytics and visualization capabilities, and the ability to detect cross-channel or internal fraud and anomalous fraudulent behaviors. This reduces the risk by rapidly delivering enhanced due diligence.
Criminals will continue to seek out new opportunities, and we are already seeing a number of emerging risks such as pre-paid cards and electronic pre-paid accounts for online use; and alternative banking platforms, such as payment platform or virtual bank and digital currencies.
Financial institutions must remain vigilant as criminals look for new ways to obscure their illicit activities, What constitutes a suspicious transaction or behavior is unique to each financial institution or money service business, depends on their risk assessment and customer profile, and is not static. By analyzing customer behavior 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.
Jeff Frazier is the Senior Vice President Americas for Wynyard Group, a market leader in risk management and crime fighting software used in investigations and intelligence operations by government agencies and financial organizations. View Full Bio
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