Following up on our last post about types of goods that can likely land you in trouble and ways that you could be inadvertently putting your business at risk, this week we dive into the topic of the types of people you need to watch out for when conducting business.
First and foremost, a caveat. Heightened due diligence or watching out for certain types of people does not automatically mean that these groups are 'up to no good' or even that you suspect them of any malfeasance. It's just that certain types of customers and behaviors are associated with a higher risk of criminal or prohibited activities. Looking out for these things is commonly known as Anti Money Laundering and the Countering Financing of Terrorism (google AMLCFT, in case you're in the mood for some light reading).
The Three Musketeers of AMLCFT
Money Launderers
How to spot a money launderer is a million-dollar question - sometimes quite literally. The process involves large sums but is often broken into many smaller random transactions to avoid detection. It's important to watch for patterns of unusually large, unusually small, or unusually frequent transactions. Someone making 32 remittances of $9988 a month to various foreign accounts is worth a closer look. Chances are they're just paying sales commissions or something else legitimate but assuming all-is-well is never advisable.
Sometimes the transactions stick out because they make no sense e.g. a software company buying $200,000 worth of coffee machines (instead of just 2-3 units for their pantry) or a car dealership suddenly buying a series of residential properties. Other times, you'll spot a series of transactions that make absolutely no economic sense like funds moving in sequence between a group of business bank accounts without any goods or services ever exchanging hands.
Sometimes the transactions are confusing or too difficult to explain like the value of an artwork, antiquities, or gemstones. Specialists can professionally appraise even the most abstract of items, and you'll often find that legitimate buyers and sellers have such documentation to back up their transactions. Meanwhile, money launderers love to hide ill-gotten gains inside other otherwise legal transactions. Like getting $2 million into the country by 'selling' a mediocre painting worth barely a few thousand dollars to a 'buyer' in another country.
Terror Groups and Extremists
This group is a little more about the where (physical location) and the who (names) than the what. Just stopping short of being discriminatory based on a country of origin, there are some areas of the world that need special attention before engaging in trade. These are usually specific states or regions (not the whole country) which are known to be controlled by terror groups. While you're unlikely to sell directly to, say, the Taliban, you could very well end up dealing with one of their trade middlemen in a neighboring area to where they operate. In this example, stop and take a second look at all shipments you send to Afghanistan. Similarly, know your geography and ensure you double-check the identities of all recipients located in towns or countries bordering hot zones.
Zooming in on names (people, groups, companies, and ships) which you should avoid at all costs - luckily sanctions lists are publically available at the treasury websites of all major governments. Bookmark the ones for the UN, US, and the UK especially as most international programs are based on these three lists. Doing business with someone in or close to one of these hot zones? Why not spend a few minutes keying in all the company, recipient, and vessel names you have related to that sale. The peace of mind is well worth the extra effort. Just be sure to save the outcome of your checks in case you need it later during an investigation.
Politically Exposed Persons & Close Associates
Politically Exposed Persons (PEP) are the trickiest of the three categories, namely because most of the people flagged in this category aren't actually up to no good, and are simply on the list because of their 'potential' to be involved in or facilitate some form of corruption. Let's take say the president of an international food and medical aid charity - she/he is probably a really decent person and really does honest work helping the downtrodden. However, consider if that person had criminal intent or was being used by an organized crime syndicate, they'd be able to move large sums of 'aid money' in and out of hot zones sourced from an opaque pool 'anonymous donations' - a financial crime investigative nightmare in the making. This goes double for heads of government ministries and ambassadors who control specific licensing approvals. Finding a PEP usually isn't more than a web search away, people in prominent positions tend to get covered by the media or at very least are listed on public record due to their jobs.
The concept of relatives and close associates (RCA) comes in here because oftentimes in the past when a corrupt official funnels money, to avoid detection by using the financial accounts, companies, and addresses of those closest to them to avoid detection or asset declarations. This is why it's always good advice to be wary of an awesome business opportunity coming from 'the cousin of the crown prince' of <insert obscurely named country here>. Because even if it isn't a scam, you could be dealing with a legitimate PEP/RCA and that too legally requires more due diligence than usual.
Are You Really Supposed to be Able to Identify them?
The academic answer is always a flat 'yes', but in real-world practice, it's more of a 'maybe'. It boils down to if it was reasonable to expect you to have known who your customer or counterparty was. This hinges entirely on the scope and scale of your transactions.
When in the business of trading goods and services, it's important to distinguish between casual retail transactions (selling a pack of chewing gum) and large trade transactions (selling a 40-foot shipping container of chewing gum). The larger and more complex the transaction, the higher your responsibility for due diligence. However, if you're in the business of transfer of funds (payment operations, remittance, or merchant processing) or stored value (wallets, commodities, precious metals, and investments) then the answer is always a resounding yes!
Remember if you're simply in retail, you can always get in touch with your payment processor to obtain a summary of what your obligations are to stay on their platform or even if they're doing some screening on your behalf. And when in doubt, you can get in touch with us at DiCoRm for a quick chat and an assessment of your screening and transaction monitoring needs.