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Staying Compliant & the Money Laundering Red Flags to Watch

Banks and other financial service providers can be put under the microscope by the Federal Government and Regulatory Agencies in a multitude of ways and face punishment with fines and penalties. But this can be avoided with the right protocol and attitude towards AML laws and regulations.

We’ve compiled a regulatory compliance checklist for you to conduct a self-check, as well as highlighted some case studies where financial institutions have failed to adhere to these rules, and the price they’ve paid, so you can recognize these mistakes. Finally, we’ve identified some ways that AML RightSource can help you identify and avoid these red flags and what solutions should be at the cornerstone of your due diligence processes.

Regulatory compliance checklist

There are several red flags to be aware of to mitigate risk, ranging from the ones your client can raise, as well as their business or their funding sources. To ensure you are not faced with any penalties, here are some of the red flags you need to watch out for and steps to take to address them.

The Client:

  • Conduct thorough customer due diligence to find out who the client is, who the beneficial owners are, and the sources and uses of the transactions
  • Ensure there are no irregularities in the due diligence process
  • Ensure the client is providing documentation, data, and information that match public records and do not appear to be falsified
  • Be aware if the client wants to conduct transactions at an unusually high velocity
  • Uncover parties such as beneficial owners or controlling parties that have not been divulged
  • Ensure that demographic information supplied matches public databases and the Client’s web footprint
  • Check their criminal and civil litigation history and associations with criminals and parties levied with civil penalties
  • Check their association with Politically Exposed Persons (PEPs)
  • Check if the client is in the press for any adverse media that could damage the reputation of the bank/FI or cause problems with transactions
  • Check if the client is paying unusually high legal fees with no explanation

Funding & The Business:

  • Ensure the funding sources are valid with no misleading information to any shareholders
  • Question a high velocity of transactions with no legitimate explanation
  • Check if they are immediately withdrawing funds from the business to a private account
  • Be aware of any attempts to hide or resist disclosure of parties or business owners
  • Check and validate the source of any assets paid in all-cash
  • Check that the parties in question are not sanctioned or in sanctioned jurisdictions
  • Check the transactions are consistent with the individual's occupation and socio-economic profile
  • Understand and validate the source of any large injection of capital or assets into the company or individual accounts
  • Validate any material private funding to the business
  • Question any unusual number of foreign bank accounts associated with the business
  • Question and validate if the business has an overly complicated ownership structure
  • Check that the business transactions are involved in countries where there is a high risk of money laundering or terrorist financing
  • Validate that no funds are being used for personal gain such as bribery or corruption


Which banks and FIs have fallen short of AML/KYC processes?

Bank Julius Baer: $79 million

The Case: The Swiss bank, Bank Julius Baer & co., agreed to pay $79 million in May 2021 following attempts to launder $36 million in bribes to FIFA soccer officials. The bribe was in exchange for broadcasting rights to soccer matches, including the World Cup.

In a statement from the Department of Justice, Acting Assistant Attorney General Nicholas L. McQuaid of the  Criminal Division said, “Today’s resolution sends a strong message to all banks and other financial institutions that if they knowingly misuse our financial system to hide their clients’ criminal proceeds or to promote a corrupt scheme, they will be held to account.”

Red Flag: Attempted bribery and money laundering

Learnings: Ensure all employees are adhering to anti-bribery and corruption practices, as well as having transparency across the business. Furthermore, any employees who conduct business with clients who have a high risk of corruption may need to undergo additional training and be kept abreast of the consequences of bribery and money laundering.

Intertrust Group: $4.2 million 

The Case: The Cayman Islands Monetary Authority imposed a $4.2 million anti-money laundering penalty on Intertrust, the largest fine they had ever issued. This was concerning inadequate due diligence measures, including not verifying sources, failing to obtain evidence of the purpose, and intended nature of business relationships, not conducting ongoing account monitoring, failing to identify beneficial owners, and finally, not implementing efficient risk management.  

Red Flag: Poor due diligence and breach of AML regulations

Learnings: Banks and FIs should make a concerted effort to ensure customer due diligence measures, source verification, and documentation of business relationships are obtained. There should be ongoing monitoring with consideration to any risk factors,

Robinhood: $70 million

The Case: In June 2021, Robinhood was fined $70 million in penalties for systemwide outages and misleading communications by the Financial Industry Regulatory Authority (FINRA). Robinhood was said to display a lack of due diligence when approving customers to place trades and conveyed misleading information. The platform went offline during some of the highest volume trading days in 2020, the fastest bear market in history, meaning clients were unable to trade.

In a statement by FINRA, Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement said, “Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later.”

Red Flag: Misleading or false information to clients and system outages

Learnings: Robinhood increased its customer support staff to close to 3,000, more than triple the number in March 2020, according to a report by CNBC. Financial institutions must remain compliant regardless of size, infancy, or niche.

DNB: $48.1 million

The Case: In May 2021, Norway’s largest bank DNB was fined 400 million Norwegian kroner, or $48.1 million, by Norway’s financial supervisory authority after inadequate compliance with AML rules and legislation. There were alleged shortcomings in due diligence and had not updated their policies to Norway’s latest money laundering laws.

Red Flag: Not keeping policies up to date with any new legislation or compliance practices

Learnings: DNB said it has since strengthened its efforts to combat money laundering. FIs but abreast of any new legislative changes to remain compliant.

Payoneer: $1.4 million

The Case: In July of last year, Payoneer, the FinTech start-up founded by Israeli entrepreneurs, was fined $1.4 million over more than 2,000 sanction violations. Payments were processed for parties located in Iran, Sudan, and Syria, according to the US Treasury Department.  

A statement by the Office of Foreign Assets Control (OFAC) at the Treasury Department, said that the aggravating factors were the fact that the firm “failed to exercise a minimal degree of caution or care for its sanctions compliance obligations.”

Red Flag: Conducting transactions with sanctioned jurisdictions or individuals

Learnings: Payoneer took action on improving its investments in technology and human resources to strengthen its compliance program. Banks and any other financial service providers must pay close attention to both sanctioned jurisdictions and sanctioned individuals when conducting any business.

How can AML RightSource help?

Problem: Conducting PKYC onboarding

Solution: Arachnys technology

For frictionless KYC onboarding and due diligence, you can turn to Arachnys technology to create fewer customer touchpoints, reduce the risk involved, and automated ongoing monitoring driven by AI. Streamline complex client data into a hierarchal compliance structure and reduce the manual workload compliance teams must undertake. The ongoing monitoring of customer data and perpetual KYC process can help raise client red flags, even if it is after the initial onboarding, to help maintain proper scrutiny of the relationship.

Problem: Conducting stringent due diligence processes

Solution: Blue Umbrella

An alternative solution for thorough 3rd party due diligence processes is Blue Umbrella’s software Status. This sophisticated and AI-driven technology is completely customizable to your workflow and seamlessly integrates with your existing tools. Status specializes in identifying any 3rd parties who could be susceptible to risk or corruption through deep research and complex data analysis. This can help strengthen and elevate your due diligence for your 3rd parties and be a cost-effective solution for your business.

Problem: Conducting automated AML processes

Solution: QuantaVerse platform

For businesses to carry out the plethora of transaction monitoring for their businesses and clients, it is a tall - and very costly – order with a vast amount of human effort. Often, we rely on traditional monitoring systems, which can generate a hefty number of false positives and miss the criminal activity. QuantaVerse uses artificial intelligence (AI) and advanced machine learning to fight financial crime, with three key components analyzed continuously, as well as staying abreast of financial regulatory updates or new law.

The sophisticated software assigns risk scores to each transaction and helps provide more data-driven Suspicious Activity Reports (SARs) as well as the investigative action that needs to be taken once the suspicious activity has been identified. With QuantaVerse, financial institutions can reduce their risk of heavy compliance fines or penalties, as well as making processes more efficient and reduce overall financial crime. Read the seven ways in which your AML Compliance Program can benefit from the advanced technology facilitated by QuantaVerse.

Overall, our range of advanced technology can help your business identify red flags which can save both time and money, enabling your compliance teams to be able to work more efficiently.

We can help your business not fall victim to these red flags with our range of solutions, simply explore here and get in touch.

Explore our QuantaVerse platform for automated AML processes to help consistent ongoing monitoring, or our Arachnys technology for intelligent KYC onboarding. For large enterprises wanting to automated and high-level technology as well as offering business continuity, visit Blue Umbrella’s Status platform.