INDICATORS OF SUSPICIOUS TRANSACTIONS

NFIU/EFCC

Defining Risk
Compliance risk is a combination of regulatory and reputational risks Regulatory risk is the risk that the procedures implemented by the entity to ensure compliance to relevant statutory, regulatory and supervisory requirements are not adhered to and/or are inefficient and ineffective Reputational risk is the risk that the entity might be exposed to negative publicity due to the contravention of applicable statutory, regulatory and supervisory requirements and/or providing a service that does not comply with fit and proper industry standards

Where Is Our Risk

A banks risk profile

is determined by several factors; Geography Customer base Transactions offered Do Bank A and Bank B have the same risk profile?

Bank A: Based in

Lagos providing private banking services to top political officials. Bank B: Based in Gombe offering savings accounts to small scale traders and farmers.

Where Is Our Risk (contd.)

Money Laundering Risk

Geographical Risk

Customer Risk

Services Risk

Where Is Our Risk (contd.)

First step is identifying money laundering risk facing the

firm, taking into account its customers, products and services, delivery channels and geographical profile and assessing their probability and impact if they occur. Banks collect information about customers, then file them away!! Information should be used to build a profile of the customer and assess level of risk. Identify high risk customers at account opening;
Is the customer in a high risk occupation, does the customer

operate a high risk business, does the customer require high risk services. the customer.

Verify, verify, verify. Customers do lie and you are liable.

Do you have the correct address, does the account activity fit

Build a base-line. Scrutinize existing accounts to establish

what is normal especially for high risk activities.

Does this customer fit the general pattern for his peers.

Where Is Our Risk (contd.)

Customer A opens Customer B opens a

and account an say he manufacturers industrial chemicals, a site visitation indicates that his operational address is in a residential area. Is this normal?

salary account as a civil servant, however, he frequently receives international wire transfers. What do you do?

Where Is Our Risk (contd.)

Measure levels of risk for

customers and transactions by developing a set of metrics. How many high-risk customers and transactions are normal for the institution given the geographical profile? How many customers are considered high-risk, normal or low-risk? What type of transactions are considered high-risk? The risk profile is arrived by taking these factors into consideration.

Customer A routinely makes

transactions just below the reporting threshold. Customer Bs accounts has a high frequency of deposits by different individuals. Signatories on corporate account owned by ABC Corp. are changed frequently. Customer D makes significant and frequent deposits and withdrawals into a savings account. Are any of these suspicious acts?

Where Is Our Risk (contd.)

Are high risk customers engaging in high risk

transactions? Identifying such correlations is essential to identifying risk. Banks should conduct periodic reviews of customers, transactions and look for correlations.

Where Is Our Risk (contd.)

A bank must monitor its customers activities. Monitoring

must be commensurate with the identified risk. Processes must be tailored to specific risks. Applying the same AML controls to all customers is simply not time or cost effective. Do you apply the same CDD procedures to a politician operating a private banking account as a petty trader operating a savings account? Staff training to deal with risk should also be tailored. Customer facing staff will need greater training on identifying suspicious transactions and behaviour than backoffice staff. Banks will need to be proactive in protecting themselves from threats. Identifying trends and vulnerabilities will allow the bank to modify its risk mitigation processes. A risk based approach allows the bank to tailor its approach. It is not about new tools and processes but about using existing tools in the most effective way. 9

High Risk Jurisdictions : Geographical Risk

Customers or transactions from countries

that pose a high risk;

Countries subject to UN sanctions Countries identified as having high levels of

corruption or other criminal activity (Transparency International Corruption Perception Index, Financial Action Task Force Non-Cooperative Countries and Territories List) Countries identified as providing support for terrorist activities.
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High Risk Customers

Some occupations and businesses pose a higher

level of ML risk;

Politically Exposed Persons (PEPs) Cash intensive businesses such as casinos, currency

exchange, money transfer agents Non-cash intensive businesses that generate substantial amounts for certain transactions. Non-governmental and non-profit organisations especially in poorly regulated environments Dealers in high-value items such as estate agents, jewellers etc Accounts run or operated by gatekeepers such as accountants, lawyers especially where the identity of the beneficial owner is not properly identified
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High Risk Transactions

Certain products and services should be

considered high risk;

New and innovative services, especially where

the identity of the owner may not be properly identified such as electronic banking products International and cross-border banking services Private banking services Products and services designed to preserve the anonymity of the customer or to avoid identification and detection
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Risk Based Management of ML Risks

Banks must exercise some degree of judgement

in determining the level of risk posed by customers. Some variables which may determine the perceived risk include;

Levels of assets; unusually high levels of assets or

unusually large transactions compared to what is expected from customers with similar profiles. The level of oversight to which the customer is subjected. A customer from a jurisdiction with weak AML controls (e.g country on FATF NCCTs list). Public listed companies may pose a lower ML risk. Duration of relationship. Customers with long-standing relationships generally pose a lower risk. The use of intermediaries or other structures such as shell companies indicate a higher level of risk
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Covering All The Bases: Risk Mitigation

Risk mitigation is about choosing the right

measure to control risk and applying these measures. Involves risk monitoring by putting in place appropriate systems and keeping up to date with changes to customer risk profiles. Documenting the process and ensuring the integrity of the process are essential.

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Covering All The Bases: Risk Mitigation(contd.)

Banks are required to develop and

implement controls to mitigate the ML risk from customers and transactions considered to be high risk. The bank should at the minimum consider implementing;
Increased levels of due diligence Escalation of approval for the establishment of

business relationships to management Increased monitoring of transactions. Greater frequency of reviews

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INDICATORS OF SUSPICIOUS TRANSACTIONS

Although suspicious transaction is subjective,

a combination of the under listed indicators will give us a lead to fish out suspicious transactions.

INDICATORS OF SUSPICIOUS TRANSACTIONS

Large - scale cash transactions Rapid off shore transfer of funds immediately

they are deposited Unrealistic business proceeds compared to clients profile Unusual funds inflow into customers account

INDICATORS OF SUSPICIOUS TRANSACTIONS

Cross-border travel to undertake simple

transaction (frequent demand for TCs) Settlement of Bad and Doubtful Debt by third parties or without waiver request Over/Under Valuation of Insured Assets

INDICATORS OF SUSPICIOUS TRANSACTIONS

Unsatisfactory explanation by customer on

account activities Re-activation of dormant account with huge amount Unusual and complex method of purchasing financial instruments Atypical account turn over compared to clients profile

INDICATORS OF SUSPICIOUS TRANSACTIONS

Deposits at various branches the same day

for no logical reason Having Numerous safe deposit Boxes at various Banks/Branches Questionable rationale of underlying business relationships Frequent demand for cash exchange of small denominations for higher ones

INDICATORS OF SUSPICIOUS TRANSACTIONS

Attempt to avoid disclosing the actual

sender/beneficiary of funds Attempts to avoid identifying final beneficiaries of accounts (Trust/Nominees) Unsatisfactory explanation for business to be undertaken Complex and odd settlement for goods and services (Payroll etc)

INDICATORS OF SUSPICIOUS TRANSACTIONS

Large and/or rapid movement of funds Possible client or his associates in relation to

previous crimes Atypical or uneconomical fund transfer to or from foreign jurisdiction Customer having many similar account type with no justification

INDICATORS OF SUSPICIOUS TRANSACTIONS

Last minute alteration on funds movement

instructions Huge investments in low profit yielding Money Market Instruments (TBs, CPs, etc) Discounting of liquid assets at well below prevailing market rates High volume of split transaction or frequency which is unjustifiable or unrealistic

INDICATORS OF SUSPICIOUS TRANSACTIONS

Taking various Insurance cover for the same

Asset with different Insurance Firms Transactions which do not have any economic justification or lawful objectives High credit turn over when the business is not that lucrative When Customer is in the habit of issuing dud cheques

INDICATORS OF SUSPICIOUS TRANSACTIONS

Customer is introduced by a sister branch or

head office and customer avoids contact with the branch Where customer engages in business he is not registered to undertake Frequent transfer of funds to or from border towns or branches

INDICATORS OF SUSPICIOUS TRANSACTIONS

Customers source of fund is mainly from

foreign country without justification Minors account with high volume of transaction involving huge sums Account operated on credit basis for a very long time and having huge credit balance

INDICATORS OF SUSPICIOUS TRANSACTIONS

Accounts with so many connected and

remittance accounts without reasonable justifications Where customer frequently requests for extensions and Amendments on Established Letters of credit without reasonable justification

INDICATORS OF SUSPICIOUS TRANSACTIONS

Where the customer ignores unutilized L.C

balances Presentation of fake documents for Bank facility Where customers identification is discovered to be fake Where customer is acting as an agent and refuses to disclose the identity of the Principal

WHAT YOU SHOULD DO IF YOU DECIDE TO CARRY OUT A SUSPICIOUS TRANSACTION.?

Seek information from the customer as to the

origin and the destination of the funds, the aim of the transaction and the identity of the beneficiary. Draw up a written report as quick as possible. Ensure that the bank is not exposed to risk, in the carriage of the transaction. Take appropriate action to prevent the laundering of the proceeds of a crime or an illegal act. Send the report timely to the NFIU.

INDICATORS OF SUSPICIOUS TRANSACTIONS

THANK

YOU
NFIU