Update 1: DNFBPs or the Next Wave of Gate Keepers Professionals
6 January 2018, By Bachir El Nakib
Abstract
Professionals such as lawyers, accountants, company secretaries and real estate agents who are under the category of Designated Nonfinancial Business and Professions (DNFBPs) are expected to comply with the requirements of FATF 40 Recommendation. FATF recommends that DNFBPs need to comply with five major recommendations (i.e. Recommendations 12, 16,17,20,24 and 25) to combat the prevalence of money laundering and terrorism financing. This includes the need to:
1) Conduct due diligent on their clients
2) Maintain proper records and documentation of related transactions for at least six years;
3) Submit a suspicious transaction report to the Competent Authority, who is in charge of Anti-Money Laundering regime of a country.
This study analyses the latest Mutual Evaluation reports of countries within the Asia Pacific Group (APG) to assess the level of compliance of the countries in pursuant to the compliance of DNFBPs and also analyze the characteristics of the compliance rating of the DNFBPs. In general, the findings show low level of compliance for these standards, implicating either lack of awareness or poor enforcement by the regulators.
1. Introduction
Money laundering is one of the biggest problems, which is difficult to curb. Profits generated by this activities cause a threat not only to public safety due to the economic power accumulated by number of criminal organisations but also the financial systems themselves and to economic development. Global money laundering imposes significant costs on the world of economy by damaging the effective operations of national economies and by promoting poorer economic policies (Thony, 2002). As a result, financial markets slowly become corrupted and the public’s confidence in the international financial system is eroded. Eventually, as financial markets become
increasingly risky and less stable, the rate of growth of the world economy is reduced.
Money laundering is often referred as financial crime that often involves a complex series of transactions and numerous financial institutions across many foreign jurisdictions. Besides the global phenomenon and international challenge, it is also extremely difficult to investigate and prosecute offenders of money laundering
due to the complex series of transactions (Buchanan, 2004). Money laundering involves 3 processes; which are placement, layering and integration.
Placement is where the cash are retained into the financial system or retail economy or are smuggled out of the country.
In layering, the track of the funds is being disguise by creating complex layers of financial transactions.
Lastly, the money is integrated into the legitimate economic and financial system and is adjusted with all other assets in the system. (Buchanan, 2004).
Efforts to launder money and finance terrorism have been evolving rapidly in recent years. Many efforts had been done in reducing the prevalence of these activities. But first, one need to understand that the money launderers apply these 3 steps by using a legitimate institution as a proxy to cover the movement of illegal proceeds and thus financing the terrorist activities (Kersten, 2003). Due to this, FATF had lay out some preventive measures to combat money laundering and financial terrorism especially focusing on the preventive measures for Designated Non-financial Business and Professions (DNFBPs). After all, prevention is better than cure. Traditionally, the financial sector is often seen as the gatekeepers of the Anti-money Laundering/Counter Terrorism Financing regime. Increasingly, governments and law enforcement agencies have recognised the importance of designated non-financial businesses and professions in the fight against money laundering and terrorism financing activities as they are the professions which encounter this kind of activities (Choo, 2014). Thus, it is crucial to understand the recommendations suggested to this group and also to see the level of compliance of the DNFBPs in the countries.
As in Internal Revenue Service in its website (Internal Revenue Service (IRS), 2013), shows some of examples of money laundering investigations written from public record documents in which the cases were prosecuted. One of the cases is about money laundering committed by lawyer (one of profession in DNFBPs). In April 2, 2014,
Derian Eidson, of Yorba Linda, a lawyer, was sentenced to 121 months in prison and ordered to pay a $200,000 fine in Sacramento, Calif. Eidson, a suspended member of the California bar, was convicted at trial on two counts of money laundering. According to court documents, Eidson was an insurance defense lawyer in 2001 when she met Steven Zinnel, a Sacramento businessman. The two concealed Zinnel's assets during his child support litigation and personal bankruptcy cases. In the course of the scheme, Eidson used her attorney client trust account to conceal funds. In addition, Zinnel and Eidson established a shell company, Done Deal, for the purpose of receiving distributions from Zinnel’s silent partnership in an electrical infrastructure company. Keeping Done Deal and the Done Deal bank account in Eidson’s name allowed Zinnel to conceal his ownership interest in the company from the bankruptcy court and family court. Zinnel was sentenced on March 4, 2014, to 212 months in prison for his role in the scheme. From these cases, although the lawyers had been entrusted to ensure legality of activities, they had misused their powers and gain benefit for themselves through illegal activities.
These case shows that it is crucial for the people to study on this group as the society could either manipulate the professionals’ position or the professional itself could misused their professions which is seen as professional and ethical to commit money laundering and terrorism financing. Findings of this study shows that most of the countries are still lacking in terms of identifying the ill-intent consumer, making a report in terms of suspicious transaction and also monitoring and supervising although in terms of moderning the transaction techniques they are quite updated. But still, there is a gap for the launderers to commit the illegal activities if it is not been captured wisely.
Literature Review
Money laundering activities brings harm to the world regardless which country involved in. It has been estimated that some 500 billion money is laundered through financial markets each year. Such huge amount of money could not be laundered without the involvement from third party such as accountants or other professions who use their expertise to create complex transactions to conceal the legal activity (Mitchell, Sikka, & Willmott, 1998). The lack of compliance with global AML/CFT standards in these countries' regulatory, financial, and legal systems that money laundering with or without any relationship to the financing of terrorism, would be relatively easy to achieve (Johnson, 2008).Some countries realized these risks and, therefore, adopted measures in an attempt to prevent the misuse of non-financial businesses and professions in money laundering and terrorism financing (MENAFATF, 2008). The group that have been listed under DNFBPs are casinos, real estate agents, dealers in precious metals, dealers in precious stones, lawyers, notaries, other independent legal professionals and accountants, trusts and company service providers.
The risk related to lawyers and accountants lie basically in the potential misuse of these professions in concealing the identities of the beneficiary owners of the transactions done through them. For example, establishment of companies or other complex legal arrangements (like trusts), as such services may conceal the link between the proceeds of the crimes and the criminals, execution of financial operations on behalf of customers, like cash deposit or withdrawal, foreign currency exchange operations, sale and purchase of shares, sending and receiving international money transfers and filing of fictitious lawsuits to obtain a judgment to legitimize the funds (MENAFATF, 2008). Meanwhile, offenders of money laundering and terrorism financing participate in real estate sectors and engage in a series of transactions designed to conceal the illicit source of funds; these transactions falls under the layering phase, where the offenders invest as tourists in order to acquire a legitimate appearance (integration phase) as well as buying and selling of real estate properties in fictitious names. An example of modus operandi for this group is where the money launderer announced price of purchase lesser than the real value of the property and then the sale is made at the real price, as the money launderer searches for a real estate seller who would cooperate with him, agree to declare the sale of the real estate property at a specific price (less than the real value of the real estate property) and accept to take the difference “under the table”. The money launderer buys for instance a real estate property worth USD 2 million at USD 1 million and pays secretly to the seller another million; then, he would sell the property at its real value of USD 2 million and it would appear that the seller achieved a profit of USD 1 million. This fund would falsely appear to be legitimate (MENAFATF, 2008).
On the other hand, money launderers tend to involve in transactions involving precious stones and metals since precious metals, particularly gold, has a high actual value and can be found in relatively small sizes, thus facilitating its transport, purchase and sale in several regions around the world. Gold also preserves its value regardless of its form whether it comes in the form of bullions or golden articles. Dealers are often interested in gold more than gems as it may be melted to change its form while preserving its value.
Diamonds can also be traded around the world easily as the small size of diamond stones and their high value facilitate their concealment and transport and make it one of the most gems and jewels with the risk of being misused as a money laundering means. In some cases, it was noted that diamonds are used as a means to finance terrorist acts and groups.
Gold is used in money laundering operations whether it is acquired in an illicit manner (like theft or smuggling) where it constitutes proceeds of a crime and is therefore deemed to be an illicit fund, or is used as a money laundering means through the purchase of gold against illicit funds (MENAFATF, 2008). Gambling in casino takes place in cash, which encompasses high risks that gamblers may use them in ML since they give money launderers a ready justification for obtaining a fortune with no legitimate source. Casinos are misused in ML operations in the first phase of ML (placement) where the intended-laundered-funds are transformed from cash money into cheques by the money launderer purchasing chips. The money launderer will later request repayment through a cheque drawn on the account of the casino.
It is worth to study this group as it is found that apart from the main financial sectors, designated non-financial sectors and high-risk customers involved businesses are also vulnerable for money laundering, such as non-financial designated business and professions, and politically exposed persons (Ai, 2012). In recommendation of FATF, countries should require DNFBPs to identify, assess and take effective action to mitigate their money laundering and terrorist financing risks (FATF Financial Action Task Force, 2012). Presently, there are four main recommendations under preventive measures on DNFBPs.
The FATF Recommendations set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction. Countries have diverse legal, administrative and operational frameworks and different financial systems, and so cannot all take identical measures to counter these threats.
Information on updates made to the FATF Recommendations
| Date / FATF Plenary | Type of amendments | Sections subject to amendments | ||
| February 2013 | Alignment of the Standards between R.37 and R.40 |
Insertion of the reference that DNFBP secrecy or confidentiality laws should not affect the provision of mutual legal assistance, except where the relevant information that is sought is held in circumstances where legal professional privilege or legal professional secrecy applies. |
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| October 2015 | Revision of the Interpretive Note to R. 5 to address the foreign terrorist fighters threat | Insertion of B.3 to incorporate the relevant element of United Nations Security Council Resolution 2178 which addresses the threat posed by foreign terrorist fighters. This clarifies that Recommendation 5 requires countries to criminalise financing the travel of individuals who travel to a State other than their States of residence or nationality for the purpose of the perpetration, planning, or preparation of, or participation in, terrorist acts or the providing or receiving of terrorist training. Existing B.3-11 became B.4-12. |
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| June 2016 | Revision of R. 8 and the Interpretive Note to R. 8 | Revision of the standard on non-profit organisation (NPO) to clarify the subset of NPOs which should be made subject to supervision and monitoring. This brings INR.8 into line with the FATF Typologies Report on Risk of Terrorist Abuse of NPOs (June 2014) and the FATF Best Practices on Combatting the Abuse of NPOs (June 2015) which clarify that not all NPOs are high risk and intended to be addressed by R.8, and better align the implementation of R.8/INR.8 with the risk-based approach. |
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| October 2016 | Revision of the Interpretive Note to R. 5 and the Glossary definition of 'Funds or other assets' | Revision of the INR.5 to replace “funds” with “funds or other assets” throughout INR.5, in order to have the same scope as R.6. Revision of the Glossary definition of “funds or other assets” by adding references to oil and other natural resources, and to other assets which may potentially be used to obtain funds. |
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| June 2017 | Revision of the Interpretive Note to R.7 and the Glossary definitions of “Designated person or entity”, “Designation” and “Without delay” |
Revision of the INR.7 and consequential revisions of the Glossary definitions of “Designated person or entity”, “Designation” and “Without delay” to bring the text in line with the requirements of recent United Nations Security Council Resolutions and to clarify the implementation of targeted financial sanctions relating to proliferation financing.
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| November 2017 | Revision of the Interpretive Note to Recommendation 18 |
Revision of INR.18 to clarify the requirements on sharing of information related to unusual or suspicious transactions within financial groups. It also includes providing this information to branches and subsidiaries when necessary for AML/CFT risk management. |
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| November 2017 | Revision of Recommendation 21 | Revision of R. 21 to clarify the interaction of these requirements with tipping-off provisions. |
Designated non-financial businesses and professions (DNFBPs) have, wittingly and unwittingly, long been conduits for money laundering, terrorist financing and other criminal activity. The use of DNFBPs to facilitate activities such as bribery and corruption and tax crimes has recently become a higher priority on international and domestic political agendas. The role of some types of DNFBP in tax avoidance and evasion schemes has also been highlighted recently, not least by the Panama Papers. It can also be argued that the non-inclusion of DNFBPs in anti-money laundering/counter-terrorism financing (AML/CFT) regimes has long placed a disproportionate burden on those businesses that have been subject to AML/CFT regimes. The non-inclusion of DNFBPs also hampers a country's ability to put in place a comprehensive, proportionate and effective AML/CFT regime based on all money laundering and terrorist financing risks.
2.1. Recommendation 12
the customer due diligence and record keeping requirements set out in Recommendations 5, 6, and 8 to 11 apply to DNFBPs in the following situations when customers engage in financial transactions equal to or above the applicable designated threshold and when they engage in any cash transaction with a customer equal to or above the applicable designated threshold. It is also apply to situation where when they prepare for or carry out transactions for their client concerning the buying and selling real estate, managing client money and other assets (FATF Financial Action Task Force, 2012).
Customer Due Diligence (CDD) is very crucial to prevent money laundering and terrorism financing. A transaction across border without supervision has opened the opportunity for criminals to commit crime. The institution that failed to monitor and supervise their customer who uses their services may lead them into trouble. CDD mainly focuses on practical issues such as exchanges in supervisory information, cross border inspections to improve the supervisory coordination and enable country to exercise consolidated supervision. This is to prevent information on customer accounts from being misused by cross border entities (Freeland, 2003). There still remain loopholes maintaining secrecy laws that hinder international cooperation and some private actors have failed to implement preventive measures such as Customer Due Diligence (CDD). All of the above failures and weaknesses hamper the effectiveness of the AML/CFT regime against money launderers and terrorists (Verdugo, 2008).
2.2. Recommendation 16
is about suspicious transaction reporting. Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities described in Recommendation 12(d).
Countries are strongly encouraged to extend the reporting requirement on to the metals and dealers in precious stones where they should be required to report suspicious transactions when they engage in any cash transaction with a customer equal to or above the applicable designated threshold. Trust and company service providers should be required to report suspicious transactions for a client when, on behalf of or for a client, they engage in a transaction in relation to the activities referred to Recommendation 12(e).
Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege (FATF Financial Action Task Force, 2012). If they failed to acknowledge the suspicious transaction, the law will punish them under active concealment (Hall, 1995). Since the number of cases in money laundering is increasing, by having a proportion routine and suspicious report, it could lower the number of cases (Levi, 2002). Study by Chaikin (2009) stated that the FATF ratings of a country's compliance with international standards are objective, expert driven and consistent in application, but are limited as performance measures as they ignore the costs of anti-money laundering and STR measures. Besides that, evaluation of national STR systems is limited because of lack of reliable statistics on the extent of money laundering. Though there is a significant increase in the STRs filed, the impact of money laundering and terrorism financing is neither realized in terms of money laundering related convictions nor confiscations (Viritha, Mariappan, & Haq, 2015). There is a need to study in depth of this STR in order to cater the whole concept of DNFBPs.
2.3. Recommendation 17, 24 and 25
This recommendation is focused on the regulations (sanctions), supervision and monitoring guidance. Countries should ensure that there is a range of effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, available to deal with natural or legal persons that fail to comply with AML/CFT requirements. Sanctions should be applicable not only to financial institutions and DNFBPs, but also to their directors and senior management (FATF Financial Action Task Force, 2012).
The use of sanctions in recommendation 17 could help the country in effectively curbing money laundering and terrorism financing. The effective rules and sanctions could benefit country to fully meet the compliance (Masciandaro, 2004).
Recommendation 24 is about supervision where effective systems for monitoring and ensuring their compliance with requirements to AML/CFT is used. This should be performed on a risk sensitive basis. This may be performed by a government authority or by an appropriate self-regulatory organization, provided that such an organization can ensure that its members comply with their obligations to AML/CFT (FATF Financial Action Task Force, 2012). Money laundering could distort economic data and also policy making. By having the supervision measures, it could help to induce the confident in financial markets (Quirk, 1997).
Meanwhile, recommendation 25 is about monitoring guidance. The competent authorities should establish guidelines, and provide feedback which will assist financial institutions and designated non-financial businesses and professions in applying national measures to AML/CFT, and in particular, in detecting and reporting suspicious transactions (FATF Financial Action Task Force, 2012).
2.4 Recommendation 20
Recommendation 20 is about other NFBPs and modern secured transactions. It is about the least used of cash transactions (Laundering, 2006). It is believed that the minimum use of cash could prevent the money laundering activity from occur. Some of the countries are replacing the cheque with modern secured retail payment instruments, automated direct debit and debit transfer and electronic bill payment systems. This is because most of money laundering activities rely mostly on cash. Large cash transaction could lead to potential money laundering (Senator et al., 1995).
First: Risks Related to DNFBPs.
ML/TF operations, whether executed though the financial sector or DNFBPs, are undoubtedly connected to several risks and negative effects. Hereinafter are some aspects of the risks of misusing DNFBPs in ML/TF operations and potential forms of such misuse:
1- Lawyers and accountants
The risks connected to lawyers, accountants (as independent professions) and some other professions in the ML/TF field lie basically in the potential misuse of these professions in concealing the identities of the beneficiary owners of the transactions done through them. Therefore, countries are required to impose certain obligations on these categories to combat ML/TF, when they carry out the stated activities in the FATF 40 Recommendations (See the second item in this paper). The services offered by lawyers and accountants, which may be misused in ML operations, include the following:
- · Establishment of companies or other complex legal arrangements (like trusts), as such services may conceal the link between the proceeds of the crimes and the criminals. − buying and selling of real estates, as the transfer of the real estate ownership is used to cover the illicit funds transfer (layering phase of ML)2 or the final investment of the proceeds passed through laundering operations (integration phase).
- Execution of financial operations on behalf of customers, like cash deposit or withdrawal, foreign currency exchange operations, sale and purchase of shares, sending and receiving international money transfers.
- Filing of fictitious lawsuits to obtain a judgment to legitimize the funds.
2- Real estate agents
ML through the real estate sector is considered a traditional way of ML, especially in cash-based societies. ML through real estates may have several forms:
· Engaging in a series of transactions designed to conceal the illicit source of funds; these transactions may be classified as of the layering phase.
· Investing in tourist complexes in order to acquire a legitimate appearance (integration phase)
· Buying and selling of real estate properties in fictitious names.
· The announced price of purchase is less than the real value of the property and then the sale is made at the real price, as the money launderer searches for a real estate seller who would cooperate with him, agree to declare the sale of the real estate property at a specific price (less than the real value of the real estate property) and accept to take the difference “under the table”. The money launderer buys for instance a real estate property worth USD 2 million at USD 1 million and pays secretly to the seller another million; then, he would sell the property at its real value of USD 2 million and it would appear that the seller achieved a profit of USD 1 million. This fund would falsely appear to be legitimate.
3- Dealers in precious stones and metals
The risks of misusing the dealers in precious stones and metals are due to the fact that precious metals, particularly gold, attracts money launderers, as it has a high actual value and can be found in relatively small sizes, thus facilitating its transport, purchase and sale in several regions around the world. Gold also preserves its value regardless of its form whether it comes in the form of bullions or golden articles. Dealers are often interested in gold more than gems as it may be melted to change its form while preserving its value.
· Diamonds can also be traded around the world easily as the small size of diamond stones and their high value facilitate their concealment and transport and make it one of the most gems and jewels with the risk of being misused as a ML means. In some cases, it was noted that diamonds are used as a means to finance terrorist acts and groups.
· Gold is used in ML operations whether it is acquired in an illicit manner (like theft or smuggling) where it constitutes proceeds of a crime and is therefore deemed to be an illicit fund, or is used as a ML means through the purchase of gold against illicit funds.
Second: AML/CFT international requirements in relation to DNFBPs.
The FATF issued four Recommendations, 12, 16, 24 and 25, on DNFBPs to help countries impose the necessary controls on these businesses. The interpretative notes of these Recommendations include the following general information:
- Recommendations 5-16, 21 and 22 provide that financial institutions and designated non-financial businesses and professions should take certain actions. These Recommendations require countries to take measures that oblige financial institutions and designated non-financial businesses and professions to comply with each Recommendation. The basic obligations under Recommendations 5, 10 and 13 should be set out in laws or regulations, while more detailed elements in those Recommendations, as well as obligations under other Recommendations, could be required either by laws, regulations, or other enforceable means.
- To comply with Recommendations 12 and 16, countries do not need to issue laws or regulations that relate exclusively to lawyers, notaries, accountants and the other designated non-financial businesses and professions so long as these businesses or professions are included in laws or regulations covering the underlying activities.
- The Interpretative Notes that apply to financial institutions are also relevant to designated non-financial businesses and professions, where applicable.
Hereinafter are the texts of the aforementioned recommendations:
Recommendation 12
The customer due diligence and record-keeping requirements set out in Recommendations 5, 6, and 8 to 11 apply to designated non-financial businesses and professions in the following situations:
· Casinos – when customers engage in financial transactions equal to or above the applicable designated threshold.
· Real estate agents - when they are involved in transactions for their client concerning the buying and selling of real estate. )
· Dealers in precious metals and dealers in precious stones - when they engage in any cash transaction with a customer equal to or above the applicable designated threshold.
· Lawyers, notaries, other independent legal professionals and accountants when they prepare for or carry out transactions for their client concerning the following activities:
o buying and selling of real estate; - managing of client money, securities or other assets;
o management of bank, savings or securities accounts;
o organisation of contributions for the creation, operation or management of companies;
o Creation, operation or management of legal persons or arrangements, and buying and selling of business entities.
Trust and company service providers when they prepare for or carry out transactions for a client concerning the activities listed in the definition in the Glossary.
Recommendation 16
The requirements set out in Recommendations 13 to 15, and 21 apply to all designated non financial businesses and professions, subject to the following qualifications:
· Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities described in Recommendation 12(d). Countries are strongly encouraged to extend the reporting requirement to the rest of the professional activities of accountants, including auditing.
· Dealers in precious metals and dealers in precious stones should be required to report suspicious transactions when they engage in any cash transaction with a customer equal to or above the applicable designated threshold.
· Trust and company service providers should be required to report suspicious transactions for a client when, on behalf of or for a client, they engage in a transaction in relation to the activities referred to Recommendation 12(e). Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.
Recommendation 24
Designated non-financial businesses and professions should be subject to regulatory and supervisory measures as set out below:
· Casinos should be subject to a comprehensive regulatory and supervisory regime that ensures that they have effectively implemented the necessary AML/CFT measures. At a minimum:
o casinos should be licensed;
o competent authorities should take the necessary legal or regulatory measures to prevent criminals or their associates from holding or being the beneficial owner of a significant or controlling interest, holding a management function in, or being an operator of a casino
o Competent authorities should ensure that casinos are effectively supervised for compliance with requirements to AML/CFT.
· Countries should ensure that the other categories of designated nonfinancial businesses and professions are subject to effective systems for monitoring and ensuring their compliance with requirements to AML/CFT. This should be performed on a risk-sensitive basis. This may be performed by a government authority or by an appropriate self-regulatory organisation, provided that such an organisation can ensure that its members comply with their obligations to AML/CFT.
Recommendation 25
The competent authorities should establish guidelines, and provide feedback which will assist financial institutions and designated non-financial businesses and professions in applying national measures to AML/CFT, and in particular, in detecting and reporting suspicious transactions.
Forth: List of Examples to help some DNFBPs Identify Unusual Transactions.
1) Lawyers
o Appointing a lawyer in financial or commercial transactions and requesting the concealment of the client’s name in any of these transactions.
o The client resorts to lawyers to create companies, particularly international business companies, from outside the country (offshore) in a way that shows that the objective of creating the company is to conceal the illicit source of the funds.
o The client resorts to lawyers to invest in the real estate market while the purchase or sale prices are not commensurate with the real estate market value.
o The client requests, upon hiring a lawyer to incorporate a company, to transfer/deposit the incorporation fees or the capital to/in the bank account of the lawyer through multiple accounts that he has no relation to without a reasonable justification.
o The lawyer manages investments portfolios, in countries allowing such conduct, and receives instructions form the customer to make buying/selling transactions that has no clear economic reason.
2) Accountants
o The client’s disinterest in incurring losses or realizing extremely low profits in comparison with persons engaged in the same business, persisting in pursuing his activities.
o High volume of foreign transfers from/to the client’s accounts or the increase of the revenues and cash amounts he obtains in a sudden manner that is not commensurate with his usual incomes without any justification. Client’s receipt of cash money or high value cheques, which do not suit the volume of his work or the nature of his activity, particularly if they come from certain people who are not clearly or justifiably connected to the client.
o Unjustified amounts or deposits in the client’s accounts whose origin or cause is difficult to identify.
o Disproportionate amounts, frequency and nature of transactions carried out by the customer that are not commensurate with the nature of his business, profession or known and declared activity, particularly if these transactions are carried out with suspicious countries that are not connected to his apparent business domain.
o Repeated large-amount cash transactions including foreign exchange transactions or cross-border fund movement when such types of transactions are not commensurate with the usual commercial activity of the client.
3) Real estate agents
o Buying or selling real estate property at a price not commensurate with its actual value, whether by increase or decrease, in comparison with the market prices or the prices of similar real estates in the same area.
o Repeated buying of real estate properties whose prices do not suit the buyer’s usual capacity according to the information available on him or as expected from him (due to the nature of his profession or business), which causes doubts that he is carrying out these transactions for other persons.
o Trying to register the real estate property at a price less than the actual value or the amount that will be paid, and pay the difference “under the table”.
o Client’s disinterest in inspecting the real estate to check its structural condition prior to the completion of the purchase operation.
o Client’s disinterest in verifying the legal status of the real estate property he intends to buy.
o Purchase of a number of real estate properties in a short period of time without expressing any interest in their location, condition, costs of repair and otherwise.
o Sale of the real estate property directly after buying it at a price less than the price of purchase. Client’s disinterest in putting his name on any file that may relate him to the property, or use of different names when submitting purchase offers.
o Buying real estate properties in the name of another person who is not clearly or justifiably connected to the client.
o Replacing the buyer’s name shortly before the completion of the transaction without sufficient or clear justification.
o To arrange the financing of purchase transactions, partially or in full, through an unusual source or an offshore bank.
4) Dealers in precious stones and metals (jewelers and gold merchants)
o Client’s purchase of jewels of high value without selecting any particular specifications or with no clear justification.
o Client’s purchase of jewels whose high value does not correspond to what is expected from him (upon the identification of his profession or the nature of his business).
o To regularly purchase high value commodities or large quantities of a specific commodity in a way that does not suit the usual deals carried out by the client or the usual pattern of the business he pursues or his income or appearance.
o Attempt to recover the amount of new purchases without a satisfactory explanation or when the client tries to sell what he recently bought at a price that is much less of the purchasing price.
o Attempt to sell high value jewels at a price much less than their actual or market value.
o Client’s willingness to pay any price to obtain jewels of extravagant amounts without any attempt to reduce or negotiate the price.
5) Notaries
o Client’s desire to create or buy a company that has a suspicious objective, does not realize profits or does not seem to be connected to his usual profession or related activities without being able to submit sufficient explanations to the notary.
o When the client sells assets or real estate properties repeatedly without realizing any profit margin or submitting a reasonable explanation in this respect.
o The client who creates or wishes to create different companies in a short timeframe for his own interest or the interest of other persons without reasonable financial, legal or commercial grounds.
o The client’s use of another person as a facade to complete the transaction without any legitimate financial, legal or commercial excuse.
General examples
- Connected to customers
o The customer has an unusual comprehensive knowledge of ML issues and the AML Law if he points out, for instance, directly or indirectly, that he wishes to avoid being reported.
o Attempt to divide the amounts of any operations below the applicable designated threshold of reporting to the competent authorities regarding ML/TF suspicion if such threshold exists.
o The client’s raising the issue relating to the “cleanness” of the transaction, stating that it does not comprise ML or unnecessarily elaborating in justifying the transaction showing an unusual interest in the internal policies, controls, regulations and supervisory procedures.
o When the client has accounts with several banks or has lately established relationships with different financial institutions in a specific country without clear grounds, particularly if this country does not apply an acceptable AML/CFT system.
o The client is reserved, anxious or reluctant to have a personal meeting.
o The client uses different names and addresses.
o The client requests or seeks to carry out the dealings without disclosing his identity.
o The client refuses to submit the original files particularly those related to his identification.
o The client intentionally conceals certain important information like his address (actual place of residence), phone number or gives an inexistent or disconnected phone number.
o The client uses a credit card issued by a foreign bank that has no branch/headquarters in the country of residence of the client while he does not reside or work in the country that issued this card.
- Connected to transactions
o Cash transactions where banknotes with unusual denominations are used. • Unusual transactions in comparison with the volume of the previous transactions or the activity pursued by the client.
o Unnecessarily complex transactions or those that do not seem to have an economic feasibility.
o Transactions that comprises a country that does not have an efficient AML/CFT system, that is suspected to facilitate ML operations, or where drug manufacturing or trafficking are widespread.
References:
1- Financial Action Task Force (FATF) 40 Recommendations on AML.
2- The Special 9 Recommendations on CFT
3- Interpretative notes to the 40 recommendations and the Special 9 Recommendations
4- AML/CFT Methodology 2004.
5- FATF typologies reports.
6- Money laundering typologies report 1997-1998
7- Money laundering typologies report 2001-2002
8- Money laundering typologies report 2002-2003
9- Money laundering typologies report 2003-2004
10- Money Laundering Indicators,
11- Guidance on the Risk-Based Approach to Combating Money Laundering and Terrorist Financing, High Level Principles and Procedures, FATF, June 2007.
12- RBA Guidance for Real Estate Agents, FATF, June 2008.
13- RBA Guidance for Dealers of Precious metals and dealers of precious stones, FATF, June 2008.
14- RBA Guidance for Accountants, FATF, June 2008