Suspicion: a feeling or belief that someone has committed a crime or done something wrong (Cambridge dictionary)
Among the obligations imposed on professionals in the fight against money laundering and countering the financing of terrorism is the obligation to report suspicious transactions (read more here).
Thus, when entering into a business relationship or when establishing the client’s risk profile or even during the business relationship, the professional subject to AML obligations shall pay attention to certain criteria that may give rise to a suspicion as to the legitimacy of the client’s activities.
Suspicion arises from a doubt which leads the professional to question the legality of the origin of the funds or the legality of their use. In practice, it is difficult not to have a subjective approach to the notion of suspicion. However, this process, which may lead to a suspicious transaction report, shall be the result of objective and methodical reflection.
It is reminded that an isolated suspicion alone does not necessarily trigger the obligation to report. However, the professional shall be vigilant.
If there are one or more clues giving rise to a doubt, it will be essential to carry out a rigorous check to assess whether the doubt is justified in the light of the transactions and the professional’s knowledge of the client.
If the doubt persists, it is imperative to inform the Cellule de Renseignement Financier (Financial Intelligence Unit) as soon as possible by means of a suspicious transaction report.
Money laundering (or attempted money laundering) can affect a bank, a company’s services provider (domiciliation agent, fiduciary, business center…), a lawyer or an estate agent. It is therefore impossible to enumerate all the criteria that may apply, as each sector of activity has its own specificities.
It is also worth noting the ingenuity and great capacity of launderers to adapt to new situations. Unfortunately, they are often a step ahead of law enforcement practice, which shall adapt to their changes.
The following list of warning criteria is not exhaustive. These criteria are examples that each professional will have to assess according to its situation and the risks to which it is exposed. The path from suspicion to a suspicious transaction report is based on an analysis of different criteria.
Warning criteria regarding vigilance measures
- difficulty or impossibility to obtain information, failure to answer questions;
- information collected on the client and/or beneficial owners and/or the transaction is incomplete and/or inaccurate;
- the identity of a natural or legal person is false;
- legal documents that should normally be provided are missing or have been falsified;
- anomalies in the documents submitted as proof of the origin of the funds, the identity of the natural or legal persons or the economic consistency of the transaction (e.g. absence of the registration number in the trade and companies register, false salary slips, false identity documents, etc.);
- the refusal or inability of the client to produce evidence of the origin of the funds.
Warning criteria regarding a transaction
- a commercial transaction is unusual (i.e. an unnecessarily complex legal arrangement in relation to the proposed transaction);
- absence of economic justification for a transaction (in the case of a transfer of ownership, a clearly undervalued, overvalued or inconsistent price is applied);
- insufficient consistency between the family, economic or social situation of the client and/or the economic beneficiary and the economic conditions of the transaction;
- the transaction lacks consistency or simple justification;
- the transaction is an unusual operation for the client and/or economic beneficiary in relation to its normal activities;
- the transaction affects a fraud-sensitive sector;
warning criteria relating to funds
- the origin of the funds is unknown;
- there is a significant use of cash payments;
- the recipient of the funds requests cash or uses multiple accounts without explanation;
- in case of participation of third parties in the transfer of funds (either in credit or in debit) without justification of the legal link that could legitimise this intervention for the benefit of the client;
- a payment is made from or to financial institutions, companies or persons residing (i) in a country with privileged taxation, (ii) in a country known for its political instability or the development of certain types of trafficking, (iii) in a country considered to be at risk;
- in the event of payment by an individual of funds unrelated to her or his activity or known financial situation;
- in case of cancellation of a transaction and the subsequent request for to return of funds to an account other than the issuing account.
Warning criteria relating to clients or beneficial owners
- the final recipient of the funds is unknown or is concealed;
- the behaviour of the client and/or beneficial owner is unusual;
- the use of interposed natural or legal persons acting only in appearance on behalf of third persons;
- difficulty of identifying beneficial owner(s) and the links between the origin and destination of funds due to the use of different accounts;
- the use of complex corporate structures and legal and financial arrangements that make management and administration mechanisms non-transparent;
- the client and/or the economic beneficiary are represented by an intermediary;
- the client and/or the beneficial owner reside in a country considered to be a risk country;
- the client or the beneficial owners are politically exposed persons (PEPs) or PEPs related persons;
- the client (i) is active in sensitive sectors or activity or (ii) resides in a country considered to be at risk;
- the presence of a third party at the client’s side, whose behaviour tends to suggest that he is the real beneficiary of the transaction.
Financial sector alert criteria
- the existence of large and/or irregular transactions related to professional activity on personal/private accounts;
- the finding of inconsistency(s) between the volume of activity (e.g. on the basis of annual accounts) and the movements on bank accounts;
- the existence of movements on bank accounts that are inconsistent or whose volume changes drastically without justification (from low activity to high movements);
- the performance of financial transactions that are inconsistent with the client’s usual activities or profile;
- the payment or receipt of commissions from/to foreign companies with no commercial activities or substance or no link between the counterparties and whose purpose appears to be (re)invoicing without economic justification;
- the presence of a legal entity established in a country considered as risky or non-cooperative (e.g. lack of FATCA/CRS reporting);
- the presence of a legal entity in which numerous statutory changes have taken place over a short period of time without apparent justification (several changes of (i) address of the registered office or (ii) board members , etc.);
- the use of companies or legal structures located in a jurisdiction considered risky or non-cooperative;
- the use of complex arrangements without economic or asset justification;
- Inconsistency in the information available to the professional regarding the client’s tax residence;
- inconsistent or false documentation provided in relation to a legal entity (invalid VAT or tax identification number);
- the client’s refusal to provide tax compliance documentation;
- the tax compliance documentation is questionable because it was drafted by a person close to the client and there would be a potential conflict of interest.
If you would like more information on any of the above, or have any other questions, please do not hesitate to contact us.
During a legal consultation, all the elements of your case can be considered and the exchange from client to lawyer will take place in order to analyse your legal situation in a concrete and confidential manner.