Suspicious transaction indicators

Published date: 16.09.2004 14:58 | Author: Indikatori sumnjivih transakcija

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INDICATORS OF SUSPICIOUS TRANSACTIONS IN THE STOCK EXCHANGE BUSINESS


WHILE OPENING AN ACCOUNT

1. When a client expresses unusual request for the privacy protection, especially with regard to the data related to his identity, type of industry, assets or business.

2. When a client refuses or avoids showing the origin of funds for each transaction with the value exceeding 15.000 Euros or when there are grounds for suspicion that the funds were gained from illegal sources.

3. When an employee estimates that a client broke a transaction into several separate transactions in order to avoid identification.

4. When a client pulls from giving a payment order in order to avoid identification after he has been told in accordance with the law provisions that his identity should be checked.

5. When a client is not interested in the commission, other expenses and the risks to the transaction.

6. When a client conducts a transaction as an authorized person and he does not want to identify the entity in the name of which he conducts the transaction, especially if the entity resides and has the main office out of the Republic of Montenegro territory.

7. When a client cannot explain the nature of his business industry.

8. When a client has several accounts under the same name, or several sub accounts under different names for no particular reason.

9. When a client is from or has an account in the country, which has been identified as a risk country, because it does not apply the standards in the area of the detection and the prevention of money laundering.

10. When a client has been convicted for the criminal offenses involving the payment operations, the economic activities and discharging official duties.


WITH REGARD TO CONDUCTING THE TRANSACTION

1. The transaction a client wants to conduct is not in accordance with his financial status or the course of business.

2. Client shows interest in purchasing securities for large amounts without special analysis or broker's or investment manager's advice, and such a transaction does not have a clear financial purpose.

3. The transaction a client wants to conduct is not of a kind that he would be expected to conduct, because the transaction has unclear purpose and is conducted under unusual circumstances.

4. Client purchases securities from numerous accounts in the banks
where he previously deposited cash, especially if the funds were deposited in amounts which are slightly under the reporting threshold.

5. Client conducts transfers of monetary funds or securities from one account to other account, none of which is connected to the client.

6. Client's account shows sudden inflow of monetary funds, especially if
the client's account has previously been inactive, or deposits are not in accordance with his financial status.

7. Client's account shows inflow of monetary funds from the accounts in the countries which are risky because they do not apply standards in the area of the detection and the prevention of money laundering.

8. Client's account shows major inflow of monetary funds while the securities account does not undergo any changes.

9. Client attempts to create an image of real trade in securities, but instead he conducts fictitious or simulated trade in securities.

10. The proposed transaction is financed by the international wire transfer of money, especially from the countries without an efficient anti-money laundering system.



INDICATORS OF SUSPICIOUS TRANSACTIONS FOR BANKS


CASH TRANSACTIONS

1. Depositing or converting into another currency large amounts of small denomination bills into large denomination bills especially if it is outside of the normal course of business of the client.

2. Frequent deposits or large number of worn or damaged bills.

3. Single payment of a large sum of money on an account of an individual that is automatically withdrawn from the account.

4. Multiple deposits of small amounts on an account of an individual which are transferred to one account.

5. Paying taxes with large amounts of cash.

6. Repeated (consecutive) conversions of large amounts of money into foreign currency.

7. Purchasing financial instruments (securities, insurance policies) in large amounts for cash.

8. Client conducts cash transactions which are slightly below the legally determined maximum in order to avoid the reporting requirement.

9. Client conducts transactions which are unusual for him. .

10. Transaction involves non-profit or humanitarian organizations without an obvious economic purpose, or where there is no logical relation between the purpose of the organization and other entities involved in the transaction.


UNUSUAL CHANGES IN THE ACCOUNTS

1. Opening accounts for which the signature authority is given to persons that have signature authority in several firms, especially if the firms are related.

2. Opening accounts with the signature authority given to the persons that are neither family nor business related.

3. Opening accounts of legal entities on which deposits are made that are not in accordance with the scope of business of the client.
4. Transactions that are not economically justified.

5. Transactions related to payment operations in the country and abroad that are outside normal activities of the client with regard to the goods, amounts, business partners, scope of turnover, etc.

6. Frequent advance payments.

7. Providing illogical information about the transaction to bank officials.

8. Frequent ordering of traveler's checks, frequent issuing of letters of credit for large sums of money.

9. Single deposit of a large sum of money on an account of the client that has been inactive for a long time or payment on an account in an off-shore region.

10. Several persons conduct transactions on one account without good reason.

11. Flow of large sums of money from one account to another within a closed group of people.

12. Attempt to open an account under a false name.

13. Accounts on which several small sums of money are deposited and there is one time withdrawal of a large sum.

14. Transactions involving several accounts, some of which become inactive for a long time.


BEHAVIOR OF CLIENTS AND EMPLOYEES

1. Clients open accounts or conduct transactions in the branch offices which are not economically or geographically justified.

2. Clients conduct transactions through several accounts in several branch offices without the real economic or other reason.

3. Clients are nervous. They avoid answering questions related to the transactions. They assume a defensive posture. They are reluctant to provide identification. They provide false documents or data.

4. Transactions with large amounts of money conducted by public officials, clerks or employees or political exposed persons that are not in accordance with their income or position.

5. Client asks for assistance to complete the documents while opening an account or he can not provide the necessary information.

6. Client does not know or is unable or unwilling to provide information concerning the nature of the business or about the owners of the firm.

7. Documents do not show clearly the identity of owners and/or authorized persons to represent the firm.

8. Representatives of a business that is registered in territories of so called high risk countries or off-shore regions want to open an account.

9. Founders of the company are identified as suspicious by law enforcement or other sources.

10. There are valid reasons to believe that the submitted documents to open an account are forged or their authenticity can not be verified.

11. Client insists that a transaction is conducted promptly.

12. Client offers statements that the money is clean and that it is not laundered without being questioned in this regard.

13. Client refuses to show personal documents.

14. Client asks questions about certain facts, which point to his desire to avoid the reporting requirement.

15. Client shows only copies of his personal documents.

16. Client attempts to prove his identity using some other documents that are not usual personal documents.

17. Documentation of the client does not contain usual data such as phone number and address etc.

18. Personal documents of the client are new and recently issued.



INDICATORS OF SUSPICIOUS TRANSACTIONS FOR CUSTOMS ADMINISTRATION


IMPORTER/EXPORTER/GOODS

1. The business has previously committed Customs violation.

2. The business was founded recently and conducted substantial import/export operations over a short period of time.

3. The business uses services of a suspicious shipping or transport company.

4. The business is known to have financial problems.

5. The business is not specialized for trade but only occasionally conducts trading.

6. The business that is specialized in importing or exporting products from certain countries changes the source of procurement or destination of his products.

7. The business chooses to change location of the Customs examination.

8. Goods are imported from a country known as the source or transit country for narcotics.

9. The business is not registered in the Customs register.

10. Goods are imported or exported in an usual or indirect manner.

11. The value of goods are similar to or lower that the transport costs?

12. The number of the seal does not agree with the number written in the customs documentation.

13. The seals are either impossible to identify or they are perfectly clear.


TRAVELLER / VEHICLE

1. There is a failure to properly declare currency or goods to Customs authorities in accordance with the law.

2. The appearance of the traveler is not in accordance with the purpose of the stated travel.

3. If traveling by public conveyance there is a one way ticket.

4. Traveler is using a leased vehicle.

5. Driver is extremely cooperative or offers information without being asked.

6. The traveler's passport has recently been issued.

7. The traveler always uses the same flight or schedule.

8. The traveler gives a vague or incomplete explanation of the purpose of the travel and the date of return?

9. The travel destination is known for being a source location for narcotics or other illegal activities.

10. There any indication of modification remodeling or changes to the vehicle that may signal secret compartments.



INDICATORS OF SUSPICIOUS TRANSACTIONS FOR THE TAX ADMINISTRATION


CASH CONTRARY TO REALIZATION

1. It is used in accounting for large enterprises while selling goods (services). Transaction is usually conducted, turnover is reported even if no payment was made at all. The same pattern is used for business expenditures. Activities with legal appearance through which cash could be sent to the business account are for example: food market business, restaurants and hotels, bars, night clubs, etc. For example, it also happens that individual payments of daily earnings are conducted even when the industry is not performed.


KEEPING RECORDS ON SUPPLIES

2. Accounting on cash is usually combined with supplies. Keeping records on supplies belongs to the system based on realization. Each abnormal increase or drop of figures related to the supplies should be examined.


BALANCE SHEET (ASSETS, FUNDS, LIABILITIES AND CAPITAL)

3. Balance sheet represents the reflection of the value of the capital that is engaged in certain business, loans, as well as data as to who the creditors are, retained profit that represents business pre-history of the company, assets engaged in that business, etc. It should be determined who participates in the ownership and loans. There is always suspicion in case the balance sheet is not in accordance with the tax returns.


METHODS OF LIVING COSTS AND THE METHOD ON NET VALUE AND DEPOSITS IN THE BANKS

4. How much money does the taxpayer spend, where did he earn the money and what does he do for living? If he cannot prove that the assets were paid from the business revenues, then there are other sources of funds. If the total bank deposits exceed the reported turnover and the taxpayer cannot prove where the money came from, the reason to conduct examination appears immediately. In general, whenever the source of funds cannot be proved the examination should be conducted.


CASH

5.Turnover gained in cash has tendency to be used for the new investments, or for personal needs, and the next step would be to send the money back to a firm from which it can be used without raising suspicion, i.e. that the source of money can be explained easily.


RECEIVABLES

6. Balance due, especially a large one, should be examined. This refers particularly to the buyers that are not related to certain business. This usually reveals some private activities that have been conducted through that business.


LIABILITIES TO CREDITORS AND SUPPLIERS

7. Loan given by a shareholder to a firm is shown as payable loan. It is always suspicious when capitalized firms, which have inappropriate status of basic funds according to the balance sheet, convert loans into share capital.


EXAMINING TURNOVER ON THE ACCOUNT

8. Was cash recorded in the turnover and was cash deposited in the banks together with the checks? If not, check the account in the banks due to potential unusual transactions, check the goods that was taken for personal use and whether those amounts were included in the total turnover.


BAD DEBT

9. Examine major and unusual items in the accounts (write-off) and check whether they were previously reported as revenues. In case of writing off from the account of a shareholder, taxpayer or foreigner that is subject to examination, examination should be obligatory.


TRAVEL EXPENSES AND ENTERTAINMENT EXPENSES

10. Are they business oriented or in favor of a shareholder or an
employee? Are expenses for purchasing luxurious commodities related to business needs or in favor of the owner?


TRANSACTIONS WITH CONNECTED PERSONS

11. Compulsory examination, especially with large firms that have their own accessory companies located in foreign countries. Also, if the funds are obliged to be transferred to other persons, it is particularly important to examine firms whose the owners of which are both directors or clerks, because there are transactions between two parties (owner and firm) and it should be examined whether they are treated in accordance with "arms length transactions" i.e., under the reasonable conditions as if the parties involved in the transaction are not connected at all.


INDUSTRY MARGINS

12. Use of substantially lower or substantially higher margin than
normal for the industry.


HIGH RISK LEGAL ACTIVITIES (RELATED TO THE BANKS CONTRACTS ON FORFEITING, FACTORING, ETC.) AND THE FINANCIAL DERIVATIVES (FUTURES, OPTIONS AND SIMILAR CONTRACTS)

13. High Risk activities are included in the list because the bank with
claims enters into the risky situation while collecting debt from the third person (person liable to perform the obligation assigned) forfeiting, or the firm in case of factoring. Payment of claims does not depend on the bank or the firm, but on an uncertain event that was not known when the contract was signed. They are used mostly while delivering equipment (export) or constructing a building, so called turn key operations.



INDICATORS OF SUSPICIOUS TRANSACTIONS


Legal and natural persons, business organizations, and entrepreneurs engaged in a trade or business as listed in Article 3, Items 2, 3, 6, 7, 8, 9 and 10 of the Law on the Prevention of Money Laundering


1. Client arrives at business with a significant amount of cash to conduct transactions.

2. Client business transactions are not consistent with his known income or assets.

3. Client is vague as to source of income or cash proceeds used in business transactions.

4. Client admits or indicates that source of income or cash proceeds are from illegal sources.

5. Business has information that client may be involved in illegal activities.

6. Client requests to pay in installments to avoid cash reporting threshold levels.

7. Client requests that no report for cash transaction be made or refuses to conduct transaction after discovering report is required.

8. Transaction with client is not in keeping clients normal business practices.

9. Client wants to purchase assets or conduct business in the name of a nominee such as an associate or a relative (other than a spouse).

10. Client does not want to put his or her name on any document that would connect him or her with the business transaction.

11. Client inadequately explains the last minute substitution of the names to use in the transaction.

12. Client negotiates to conduct business for market value or above asking price, but request to record a lower value on documents, paying the difference under the table.

13. Client pays substantial down payment in cash and balance is financed by an unusual source or offshore bank.

14. Client purchases assets, particularly real estate, without inspecting it.

15. Client purchases assets or makes investment in real estate in a short time period, and seems to have few concerns about the location, condition, and anticipated repair costs, etc.



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