What Banks Look For ... Suspicious or Unusual Activity


FINANCIAL SERVICES DEPT.
global approach to finances

The Bank Secrecy Act of 1970 (BSA), also referred to as the Currency and Foreign Transactions Reporting Act requires U.S.A. financial institutions to assist U.S. government agencies in detecting and preventing money laundering.

Money laundering schemes can vary widely.
Federal action to curtail money laundering activities once focused heavily on identification and documentation of large currency transactions. More recently, anti-money laundering efforts have focused on the use of money transfers, both through bank and non-bank money transfer systems, and other means of moving funds. Today, as money launderers become more sophisticated, all types of financial transactions are facing greater scrutiny.

The following situations may indicate money laundering or other illegal activity. These lists are not comprehensive, but they may help MSBs recognize ways launderers and other criminals may try to use them to launder money.
Attempts to Evade BSA Reporting or Recordkeeping Requirements

Customers may try to keep their transactions just below the reporting or recordkeeping thresholds, such as:

A customer or group of customers who attempt to hide the size of a large cash transaction by breaking it into multiple, smaller transactions by, for example, conducting the smaller transactions-
-At different times of the day.
-With different MSB cashiers on the same day or different days.
-At different branches of the same MSB on the same or different days.

A customer or group of customers who conduct several similar transactions over several days, staying just under reporting or recordkeeping limits each time. For example, the customer may:
-Purchase money orders with cash just under $3,000 over several days.
-Purchase traveler's checks with cash just under $3,000 over several days.
-Initiate multiple money transfers to the same receiver, each transfer in an amount under $3,000, over several days.

A customer who is reluctant to provide information needed for a reporting or recordkeeping requirement, whether required by law or by company policy.
A customer who is reluctant to proceed with a transaction after being informed that a report must be filed or a record made.

A customer who breaks down a single large transaction into smaller transactions after being informed that a report must be filed or a record made.

A customer who presents different identification each time a transaction is conducted.

A customer who spells his/her name differently or uses a different name each time he/she initiates or receives a money transfer or purchases traveler's checks.

Any individual or group that bribes or attempts to bribe an MSB employee not to file any required reporting forms or not to create a record entry required by law or company policy.

Any individual or group that forces or attempts to force an MSB employee not to file any required reporting forms or create a record required by law or company policy.

A customer who receives payment of multiple money transfers that appear to have been purchased in a structured manner organized in a way to evade reporting and recordkeeping requirements.
-By the same send customer, each transfer in an amount just under $3,000 (or other relevant threshold).
-By multiple send customers initiated at one MSB location within minutes of each other, each transfer in an amount just under $3,000 (or other relevant threshold).

A customer cashing multiple instruments (money orders, traveler's checks, cashiers' checks, foreign drafts) that appear to have been purchased in a structured manner (e.g. each in an amount below $3,000).


Customers Who Provide Insufficient and/or Suspicious Information

Individual and business customers may try to evade providing required identification, such as:

*An individual customer who is unwilling or unable to provide identification or information.

*An individual customer who provides different identification or information each time he or she conducts a transaction.
-Different name or different spelling of name.
-Different address or different spelling or numeration in address.
-Different identification types.

*An individual customer without a local-address, who appears to reside locally because he or she is a repeat customer.

*A legitimate ID that appears to have been altered.

*An identification document in which the description of the individual does not match the customer's appearance (e.g. different age, height, eye color, sex).

*An expired identification document.

*An individual customer who presents any unusual or suspicious identification document or information.

*A business customer that is reluctant to provide complete information regarding: the type of business, the purpose of the transaction, or any other information requested by the MSB.

*A prospective business customer that refuses to provide information to qualify for a business discount (or other preferred customer program offered by the MSB).

Activity Not Consistent With the Customer's Business or Occupation
Look for examples of inconsistent customer activity, such as:

An individual customer conducts MSB transactions in large amounts inconsistent with the income generated by the individual's stated occupation.

A business customer engages in transactions that frequently use large bills when the nature of the customer's business activity does not justify such use.

An individual or business customer cashes large numbers of third party checks.

A customer makes cash purchases of money orders, traveler's checks, or other instruments inconsistent with the customer's business or occupation.

A business customer uses a means of payment inconsistent with general business practices (e.g., pays for MSB services with traveler's checks, money orders, or third party checks).

A business customer sends or receives money transfers to/from persons in other countries without an apparent business reason or gives a reason inconsistent with the customer's business.

A business customer sends or receives money transfers to or from persons in other countries when the nature of the business would not normally involve international transfers.

Suspicious Activity
A SAR must be filed by a covered MSB when the MSB knows, suspects or has reason to suspect that the transaction or pattern of transactions is suspicious and involves $2,000 or more. A suspicious transaction is one or more of the following:

Involves funds derived from illegal activity, or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity.

Is designed to evade BSA requirements, whether through structuring or other means.

Appears to serve no business or apparent lawful purpose, and the MSB can determine no reasonable explanation for the transaction after examining all available facts.

Involves use of the money services business to facilitate criminal activity.

All MSBs should have a system or procedure to ensure that SARs are filed when appropriate. When an MSB employee suspects a person is laundering money, conducting transactions to evade BSA requirements, or conducting a transaction that has no apparent lawful purpose and for which no reasonable explanation can be determined, or involves use of the money services business to facilitate criminal activity, the employee should report that activity to his/her manager or to the MSB compliance officer. Then, if the MSB determines that a SAR should be filed, it must file the SAR and keep a copy of it for five years. Any supporting documentation, such as transaction records, must be maintained with the copy of the filed form and also kept for five years from the date of filing the report.

What are "Funds Derived from Illegal Activity?"

The phrase "funds derived from illegal activity" means the monetary proceeds of a criminal act.

Example. A drug trafficker sells drugs to a user for $500. The money received from the drug purchaser, the $500, is proceeds of the drug sale and is "funds derived from illegal activity."

What is a transaction that "Is Designed to Evade BSA Requirements?"

Example. A customer conducting an $11,000 cash transaction attempts to bribe an MSB employee not to file a CTR.

What is a Transaction that "Serves No Business or Apparent Lawful Purpose?"

Some transactions may be conducted in such a way that they appear unusual or suspicious. However, additional facts, if known by the reporting business, might disclose a reasonable basis for what, at first, appears unusual or suspicious.

Example. A customer, a retired teacher, frequently sends and receives money transfers of more than $2,000 to and from many different people. The MSB might at first conclude that these transactions are suspicious because they appear to "serve no business or apparent lawful purpose" and because there does not seem to be a legal source for these funds. However, with more information, the MSB might conclude that a business purpose exists. For example, the retired teacher might be regularly using an Internet auction site to buy and sell antique jewelry.

What is a transaction that "Involves Use of the MSB to Facilitate Criminal Activity?"

Example. An MSB suspects that a customer is sending a money transfer in order to fund a terrorist organization.

It is important to note that size alone, such as a large cash transaction or money transfer, should not be a determining factor in the decision to file a SAR. Factors that should contribute to that decision, however, include the following: the size, frequency and nature of the transactions; the MSB's experience with the customer and other individuals or entities associated with the transaction (if any); and the norm for such transactions within the MSB's line of business and geographic area.

Red Flags
When a single factor signals that a transaction is unusual and possibly "suspicious," it should raise a "red flag."

Examples of Some Common Red Flags:
Customer ID or Information
Customer uses false ID.
Two/more customers use similar IDs.
Customer alters transaction upon learning that he/she must show ID.
Customer alters spelling or order of his/her full name.

Transactions Below Reporting or Recordkeeping Thresholds

Customer conducts transactions just below relevant thresholds:

Currency exchanges just under $1,000.
Cash sales of money orders or traveler's checks of just under $3,000.

Multiple Persons or Locations

Two or more customers working together to break one transaction into two or more transactions in order to evade the BSA reporting or recordkeeping requirement.

Customer uses two or more locations or cashiers in the same day in order to break one transaction into smaller transactions and evade the BSA reporting or recordkeeping requirement.

Overt Illegal Customer Conduct

Customer offers bribes or tips.
Customer admits to criminal conduct.

An MSB that correctly verifies and documents a customer's identity is more likely to recognize suspicious activity that should be reported.

Unusual Activities
An individual customer purchases products/services on a regular basis but seems neither to reside nor work in the MSB's service area.

A customer pays for MSB products/services using musty bills that have an unusual or chemical-like odor.

A customer pays for MSB products/services using money orders or traveler's checks without relevant entries on the face of the instrument. (e.g., for money orders with no payee, and for traveler's checks with no signature or countersignature).

A customer pays for MSB products/services using money orders or traveler's checks with unusual symbols, stamps or written annotations (such as initials) that appear either on the face or on the back of the instruments.

A customer purchases money transfers, money orders, traveler's checks, etc., with large amounts of cash when the MSB does not require payment in cash.

An individual or business customer asks to purchase traveler's checks or money orders in large bulk orders.

A customer purchases a number of money transfers, money orders, or traveler's checks for large amounts or just under a specified threshold without apparent reason.

A customer starts frequently exchanging small bills for large bills, or vise versa, when the customer does not normally use cash as a means of payment.

A customer sends and receives money transfers in equal amounts at or about the same time.

A customer receives a number of small money transfers and the same day, or within several days, initiates one or more send money transfers to a person in another city or country in about the same amount.

A customer sends or receives frequent or large volumes of money transfers to or from persons located in foreign countries, especially countries listed as non-cooperative jurisdictions.

A customer receives money transfers and immediately purchases monetary instruments prepared for payment to a third party.

Changes in Transactions or Patterns of Transactions

Be alert for changes in activity, such as:

Major changes in customer behavior, for example:
-An individual money order customer begins to make weekly purchases of money orders in the same amounts (when previously he or she only purchased money orders on pay day for rent, utilities, etc.).
-An individual customer begins to bring in large amounts of cash (when previously he or she cashed his or her paycheck to purchase instruments or transfers).

Sudden and inconsistent changes in money transfer send or receive transactions.

Rapid increase in size and frequency of cash used by a particular customer.

Employees

Watch out for employee behavior, such as:

An MSB employee whose lifestyle cannot be supported by his/her salary, which may indicate receipt of tips or bribes.

An employee who is reluctant to take a vacation, which may indicate he/she has agreed, or is being forced, to provide services to one or more customers in violation of law or company policy.

An employee who is associated with unusually large numbers of transactions in unusually large amounts, which may indicate he/she has agreed, or is being forced, to provide services to one or more customers in violation of law or company policy.

Situations like those described in this section often will be found, upon further examination, to be completely legitimate. By the same token, other situations not mentioned here might be suspicious if they are inconsistent with the normal activity of a particular customer or employee. As an MSB or MSB employee, you must make a reasonable judgment.