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Money laundering Money laundering & terrorist financing ‘red & terrorist financing ‘red

flags’ flags’

Earleen Moulton Manager, Market Conduct

Compliance

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Why Canada?

• Canada is an attractive territory: – Stable currency and economy– Large, mostly unprotected border– High volume of business transactions and

exchanges with the U.S.

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Why are financial products a target?

• Many possibilities in terms of investment

• Liquidity

• Transferability and ease of making transfers

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What is a suspicious transaction?

• Definition:– Financial transaction that you have reasonable

grounds to suspect is related to a money laundering or terrorist financing offence

• Consider:– No monetary threshold– Can include several factors, which on their own, are

insignificant, but together, can raise suspicions– Taken out of context, are unusual business practices– Now must report attempted transactions, too

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“Attempted” Suspicious Transactions

• An attempted transaction is more difficult to define than one which has actually happened, so you need to be more proactive in your thinking when it comes to this kind of activity

• A good rule of thumb- if a client is asking about the possibility of doing something which seems suspicious, even if it does not proceed, it should be reported

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Potential product ‘red flags’

• Universal life insurance

• Non-registered annuities or investments

• Mortgages

• Whole life insurance

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Red flags related to client behaviour

• The client does not want to receive mail at home• The client is unusually curious about in-house

systems, controls and policies• The client is overly insistent in justifying the

transaction• The client tries to have a close relationship with you• The client offers money, a tip or special favours for

the services that could seem unusual or suspicious

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Red flags related to the parties to the transaction

• Politically exposed foreign persons (PEFP)

• Beneficial Owners

• Client Is “Not Physically Present”

• Third party as owner, payer or payee

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Transaction ‘red flags’

• International transactions/transfers

• Single large premium

• The transaction is unnecessarily complex or disadvantageous

• Premature surrender/policy cancellation

• Payment of premiums by a third party or from multiple sources

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Transaction ‘red flags’

• Significantly accelerated financing of a policy

• Apparent unintentional overpayment, especially if the refund is for a third party

• Use of an insurance product as a bank account

• Early surrender of the policy• The client makes payments using money

orders

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Real cases

Premium deposit of $1million into 2 single-premium policies

• Early surrender resulting in a loss of 40% of the initial assets

• Goal: avoid paying creditors during a fraudulent bankruptcy

Major deposits into 4 universal life policies • Originating from Latin America and Eastern

Europe• Goal: launder money from sale of drugs

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What have we learned….

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Which of the following scenarios would you identify as suspicious? Select 2 choices

A) Large sums of money are regularly transferred to a couple of accounts in another country by members of a registered charity. The transactions appear in keeping with the humanitarian relief projects conducted by the organization

B) Within a month, a client sends several money transfers just under the reporting requirement of $10,000 to two individuals at the same location in a country of concern

C) Funds are generated by a business in Germany that is owned by a citizen of Sweden

D) An individual reportedly earns $35,000 a year but had a turnover of $35,000 in his account

« B and D »

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True or false?

Since terrorist funding can come from legitimate sources, contributors might not know that the money they are giving is being used to support terrorist activities.

« True »

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Select two of the following that will help you recognize a suspicious transaction.

A) Know the nature of your customer’s business

B) Know when a transaction makes little business sense

C) Know how to maintain customer records

D) know when to comply with law enforcement agencies

« A and B »

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Out of the following scenarios, identify which two are suspicious:

A) A customer receives large incoming wire transfers on behalf of a foreign client, and is reluctant to provide an explanation

B) A business provides information regarding its previous banking relationships, officers and location

C) A customer asks if he wire transfers $7500 in the morning and $2500 in the afternoon, does he still have to report the transactions

D) A customer suddenly repays a problem loan with money she inherited

« A and C »

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Which two of the following scenarios would you identify as suspicious?

A) You are a bank manager and a client who is a factory manager introduces two company managers to you who would like to open commercial bank accounts.

B) You have written an application for life insurance and the client provides payment in the form of 18 money orders totaling $9,088 that range from $88 to $1,000. The 25-year old client does not have a checking account.

C) You are doing a wire transfer for a client but when you ask where the recipient lives, the client replies: “I do not know where this person is located.”

D) You discover that a client has been withdrawing small amounts of funds that are automatically deposited into his account to send via an informal

value transfer system to his family in India.

« B and C »

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How to evaluate your suspicions

• Knowledge of:– the client’s business– his financial history – his past investment behaviour

• Does the transaction raise questions or give rise to discomfort, apprehension or mistrust? 

• Trust your gut!

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What to do if you believe you are dealing with a suspicious transaction?

• Complete the report to FINTRAC, even if the transaction is only attempted

• Process the transaction as usual

• Do not warn the client that you are submitting a report