Should you always beware clients bearing cash?

Following on from our question for the trade finance sector a few weeks ago, this thread from Linked In is peppered with ideas from AML specialist from diverse jurisdictions and disciplines on suspicion.

This question is about a possible suspicion transaction in the insurance sector. Although there are red flags specific to ML in insurance, some of the advice here is general solid guidance on identifying suspicion and best practice reminders for anti-money laundering professionals in regulated entities.

A client approaches an insurance company and attempts to buy a policy with cash – $1m in $100 notes. Is this suspicious? Should the company report the attempt? Should they decline the transaction? Does this attempt breach AML rules?

Some basic information about the insurance company –

  • The insurance company typically receives cash payments for policies but there is an upper limit of US$20k.
  • The client was a new customer.
  • The policy in question is a high value savings plan.
  • The insurance company would be obliged to file a currency transaction report should it accept the business.
  • Insurance companies are subject to AML/CTF laws in this jurisdiction.

There are two possible scenarios here, which would lead the compliance officer to different conclusions. If the funds are from an illegal source, the new client is attempting to  integrate the funds into a system with less scrutiny than the banking system. If the funds are from a legal source the client may want to avoid payment of taxes. To indentify the true scenario, the compliance officer must assess the background before making a decision to report the attempted transaction or not.

As professionals, compliance officers need to make a quick initial assessment of the case. In this case, finding out why there is so much cash on the table would give a better idea of whether to decline, investigate further or accept.

What are the red flags in this scenario?

The responses from the thread highlighted diverse points for consideration. One respondent helpfully defined the red flags as:

  • Something a customer says or does.
  • Something about a transaction or an account.
  • An irregularity that may indicate the presence of some criminality or deception.

Respondents raised the following issues:

“In this case, the client is having trouble placing the cash in a deposit account; they are using the insurance account as a device.”

“New customer, with a large cash deposit like this, particularly if there is no or no good explanation of source constitutes a huge red flag.”

“What kind of business or person takes the risk of handling and shipping $1 million in cash?”

Plan of action and questions

Although we cannot be certain at this stage that this is money laundering, the specialists on the thread recommended a bank officer should:

  • Refer immediately to the firms policies about what is suspicious, when to report and to whom.
  • Flag the case for more enhanced due diligent treatment or continuous monitoring.
  • Further questions should be asked about the provenance of the funds.
  • Acquire documentary evidence to support the legitimate source of funds and source of wealth.
  • Have an immediate but well planned conversation (review of insurance application and available info) with the customer to determine why they are dealing in cash and if they intend to do it in the future.
  • Verify what the client said to determine if it makes sense.
  • Consider the source of funds given by the customer.
  • Compare that in any event to what is expected or usual for that customer.
  • Balance the risk/reward and almost immediately conclude that such a client brings much more risk than the risk associated to another client that would provide an equivalent reward.
  • Can any legitimate enterprise can accumulate that amount of cash to enable an individual to acquire an asset – in this case an insurance product.
  • This should be considered suspicious initially, even in cash rich jurisdictions.

What the law says

It appears that international standards on AML are followed in this insurance company’s jurisdiction. Variances in national law ask for different actions from the AML compliance officer. Here is how the respondents commented:

“The UK law obliges bank officers to report any suspicion of or reasonable grounds to suspect money laundering.”

“If this is a Hong Kong scenario, the law on suspicion reporting is quite clear. A report must be made to an authorized officer if a person ‘knows or suspects’ money laundering.”

“The crime of failure to report would be difficult to defend the argument of ‘reasonable grounds to suspect’ .”

Financial Crime Asia welcomes comments from readers on what questions they would ask, how they would handle this scenario and how you would prepare for the ‘immediate and well planned’ interview to find out the truth behind the cash transaction.

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