What are two red flags that indicate money laundering or financial terrorism?

A company service provider in Country A sets up a corporate structure for a client from Country B, which is known for corruption. The corporate structure includes a holding company in Country A with a bank account in one of the international banks located there.

During on-boarding, the client’s wealth was estimated at $7 million. Shortly thereafter, the client’s father became president of Country B. During a routine client review two years later, it was identified that client’s wealth had grown to $510 million.

What are two red flags that indicate money laundering or financial terrorism? (Choose two.)
A . The client is from a country known for corruption.
B. The substantial growth in wealth during a short period of time.
C. The client is a family member of a PEP from a country known for corruption.
D. The holding company is in Country A with a bank account in one of the international banks.

View Answer

Answer: A,C

Explanation:

High-risk: The risks here are significant, but are not necessarily prohibited. To mitigate the heightened risk presented, the financial institution should apply more stringent controls to reduce the ML/FT risk, such as conducting enhanced due diligence and more rigorous transaction monitoring. Countries that maintain a reputation for corruption or drug trafficking are generally considered high-risk. High-risk customers may include politically exposed persons (PEPs) or certain types of money services businesses or cash-intensive businesses; high-risk products and services may include correspondent banking and private banking.