Which red flags would be an indicator that activity is connected to a corruption/bribery typology?

An analyst reviews an alert for high volume Automated Clearing House (ACH) activity in an account. The analyst’s initial research finds the account is for a commercial daycare account that receives high volumes of large government-funded ACH transactions to support the programs. The account activity consists of checks (cheques) made payable to individual names in varying dollar amounts. One check indicates rent to another business.

An Internet search finds that the daycare company owner has previous government-issued violations for safety and classroom size needs, such as not having enough chairs and tables per enrollee. These violations were issued to a different daycare name.

Simultaneous to this investigation, another analyst sends an email about negative news articles referencing local child/adult daycare companies misusing governmental grants. This prompts the financial institution (Fl) to search all businesses for names containing ‘daycare’ or •care’. Text searches return a number of facilities as customers at the Fl and detects that three of these businesses have a similar transaction flow of high volume government ACH funding with little to no daycare expenses.

Which red flags would be an indicator that activity is connected to a corruption/bribery typology? (Select Two.)
A . Large checks issued to various individuals with the memos noting "gift", "thank you", "favor"
B . Negative news found on the customer related to government-issued violations for safety
C . Checks issued to an unrelated entity referencing "rent" and "utilities" in the memos
D . Multiple daycare locations with no active business operations or related account activity
E . The same beneficial owner owning several daycare centers in different locations

View Answer

Answer: A, B

Explanation:

The red flags that would be an indicator that activity is connected to a corruption/bribery typology are large checks issued to various individuals with the memos noting “gift”, “thank you”, “favor” (A) and negative news found on the customer related to government-issued violations for safety (B).

These red flags suggest that the customer is involved in paying or receiving bribes or kickbacks to or from government officials or other parties in exchange for favorable treatment or contracts. These red flags are consistent with some of the indicators of corruption/bribery identified by ACAMS1, such as:

Payments made to or from third parties that are not directly related to the business Payments made to or from high-risk jurisdictions or sectors

Payments made with vague or incomplete descriptions or justifications Negative news or reputation of the customer or its associates

The other options are not as relevant or indicative of corruption/bribery as options A and B. Checks issued to an unrelated entity referencing “rent” and “utilities” in the memos © could be a legitimate business expense or a sign of other types of fraud or money laundering, such as tax evasion or shell company schemes. Multiple daycare locations with no active business operations or related account activity (D) could also be a sign of other types of fraud or money laundering, such as embezzlement or front company schemes. The same beneficial owner owning several daycare centers in different locations (E) could be a normal or legitimate business practice, depending on the size, location, and profitability of the centers.