What are suspicious transactions?
A common definition for a suspicious transaction is “a transaction that has ties to money laundering and terrorist financing.” If an organization has reason to suspect that a certain transaction is connected either to money laundering and terrorist financing, then it has the duty to report that transaction to the proper authorities. If an organization fails to detect a suspicious transaction, it may be subjected to heavy fines and penalties from the government. Thus, it is very important for an organization to conduct an analysis of every suspicious transaction.
Organizations, especially in the financial services industry, are expected to conduct suspicious transaction analysis. Many IT departments of financial institutions face a great deal of pressure to expose suspicious transactions. Suspicious transactions are among the top concerns of banks and financial institutions around the world. Some large organizations even go to great lengths such as employing many analysts to detect these suspicious transactions. However, some of them still get fined for failure to analyze suspicious transactions and report them on a timely basis.
What are the common indicators of a suspicious transaction?
In order to begin a suspicious transaction analysis, an organization has to know the indicators of a suspicious transaction. Although there are variations that depend on the applicable law in a certain place, there are common indicators of a suspicious transaction. These indicators are especially helpful if the organization has limited resources or is not large enough to hire many analysts.
- Frequent large cash transactions
Often, a person dealing with suspicious transactions makes frequent large cash transactions, either withdrawals or deposits.
- Suspicious pattern between transactions
There are also unusual patterns of transactions so that a keen observer can tell if the transactions are suspicious. For example, a period of significantly increased financial activity among relatively dormant periods should be an indicator.
- Structuring or smurfing
Structuring or smurfing is a common indicator of a suspicious transaction. Structuring means performing many transactions involving small values of money when a big transaction could have been made instead. This is commonly seen in incoming remittances from countries that use value-based reporting criteria. Meanwhile, shelf or shell companies can be an indicator of suspicious organizations. These are companies that actually have no assets but are being used as a cover or front.
- Refusal to explain or provision of an incredible explanation
If the financial organization doubts a transaction that a customer makes, it may ask the customer to explain his or her financial transaction. However, if the customer refuses to explain or provides an explanation that is not credible, then the organization can mark the particular transaction as suspicious. Financial organizations also have to be wary about currencies from countries which are commonly linked to international crimes such as drug trafficking and piracy.
- Financial activity does not match customer background
Another indicator is when the financial activity of a person is not commensurate with what is expected of him considering the information that he has provided to the organization. Banks require customers to provide their age, address, occupation, and type of financial activities. If the customer makes a transaction that is not necessarily expected of him and is unable to explain, then he may be making a suspicious transaction. As a precaution, organizations also have to be vigilant on countries or citizens of countries that are commonly associated with terrorist activities and money laundering.
These indicators are only a few of the tools a financial organization has at its disposal to detect suspicious transactions. The organization should also supplement the orientation of its employees with the additional training on suspicious transaction analysis as an added layer of protection. Raising awareness about suspicious transactions among its employees is important if the organization wants to make the suspicious activity identification system as effective as possible.