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Top 9 Customer Risk Indicators For Anti-Money Laundering Compliance

Banks and other financial businesses have an important job. They must help stop people from using money for illegal activities like terrorism or drug crimes. To do this, they need to watch customers for signs. Some signs are more serious than others. Paying close attention to these signs can help catch illegal money and keep the financial system safe. 

Let’s take a closer look at the top 9 risk signs financial companies should watch out for with customers.

  1. Geographical Risk

Some areas of the world unfortunately have higher rates of corruption, crime, and illegal money activities. Today, many experts see parts of Africa, Eastern Europe, Asia, and Central and South America as higher-risk geographical regions. Reports show money laundering in Central America has doubled over the last 5 years. When a customer or their business partners are located in or send money to these riskier parts of the world, banks need to be extra careful. Banks might need to inquire further or obtain additional evidence regarding the use of the money.

  1. Politically Exposed Persons (PEPs) 

People who work in government or politics, known as PEPs, can sometimes present higher risks for money laundering. This is because certain roles in high risk sectors, such as law enforcement, or government spending, provide opportunities for corruption. Banks must be very careful when PEPs open accounts, conduct business or involve their relatives. They may need to get approval from top executives. That’s because sometimes PEPs or their families hide money gained while in office. One of the most important things financial institutions need to check is to prevent corrupt money from entering the system.

  1. Complex Ownership Structure

When a company or business is set up confusingly, it might be a clue that it’s involved in AMLScreening. Criminals often use complex setups with many layers of ownership to hide their activities. Business experts are noticing that these complicated international setups are becoming more common. For instance, recent UN reports suggest that over 30% of hidden companies around the world might be involved in shady activities. Shell companies, known for their complicated ownership where one company owns another, are especially risky. Banks need to be very careful with these kinds of companies because it’s hard to find out who owns them.

  1. Unexplained Wealth

A suspicious transaction means the possession of huge money or valuables by a client, disproportionate to his known or declared income or business. An unexplained large amount of wealth is said to be suspicious due to the possibility of being a product of criminal or underground activity. like engagement in dangerous businesses. It has been estimated that criminal profits not reported exceed 5% of GDP in some countries. During verifying customers, banks have to look for the disparity between visible assets and the income of an individual.

  1. Cash-Based Businesses

Some of the high risk industries that use the service are money transmitters. Money laundering risks are on the rise during the pandemic, with lockdowns causing even more underground cash. If not followed, transactions of such large volumes of physical money could be a conduit for illegal profits. The financial institutions, including casinos or gold dealers, are calling for robust checks on clients moving large sums of cash.

  1. Third-Party Payments

Transactions with any third party, not being the account holder, entail greater precaution because such transactions may have been conducted to conceal something. Banks should establish who third parties are, and know their function and role. They must make efforts to verify the goal of a transaction in order not to allow conducting money laundering with the help of third-party payment arrangements.

  1. Vulnerable Activities

UN reports indicate that arms manufacturing is one of those business sectors in which corruption is highly prevalent and money is being handled illegally. Customers or payment recipients who engage in high-risk industries, like the arms manufacturing industry, pose more AML risk and, therefore, more due diligence is required. Financial institutions must understand the roles of customers in the respective sectors. High-risk sectors prevent engaging in schemes that are considered illegal.

  1. Suspicious Activity

Transaction patterns, like frequent small transfers under-reporting limits, or moving funds quickly through many accounts, could be red flags associated with trying to avoid scrutiny. Financial institutions are obligated to ask questions about any behaviour that seems to camouflage the origin of money or activities. Some deceptive practices, such as structuring, are even illegal. Reporting questionable activity helps national authorities address concealed money laundering.

Detect Suspicious Activity Using Customer Risk Factors

Careful monitoring of customer  AML risk indicators is crucial for financial institutions to comply with anti money laundering regulations and protect the integrity of the global financial system. The nine key risk indicators discussed provide a framework for identifying suspicious activity during both the customer onboarding stage and ongoing account monitoring. 

While no single indicator confirms illegal activity is occurring, understanding factors like geographical location, wealth inconsistencies, complex ownership structures, and unusual transaction patterns can help compliance teams focus their limited resources on high-risk customers. Are you tired of problems? Our experts are here to help you. Click now for quick answers.

Syed Qasim

Syed Qasim ( CEO IQ Newswire ) Is a highly experienced SEO expert with over three years of experience. He is working as a contributor on many reputable blog sites, including MoralStory.org, NyBreaking.com, Stephilareine.com, Theinscribermag.com