Suspicious transaction in banking; “A grenade or a loaf of bread from the skies”

INTRODUCTION

“Not guilty on until proven guilty in a court of competent jurisdiction”. This is a common statement in various spheres of the legal fraternity and also in any community where justice takes centre stage of events. However, that statement brings me to a very important aspect of Compliance thus “suspicious or unusual transactions” as customers strike acquaintances with their financial institutions through transactions. A transaction may seem suspicious or “guilty” but such conclusion cannot be drawn until it has been proven to be a bad transaction (fraudulent). Suspicious or Unusual transaction is discussed in this write-up in the context of money laundering, counter terrorist financing, and the proliferation of weapons of mass destruction.

The article looks at the meaning of Suspicious transaction, detection and handling of suspicious transactions as prescribed by Anti money laundering act and regulation. It identifies and describes some factors that hinder detection of suspicious transaction by financial institutions. The article finally makes suggestions to overcome the hurdles that impede the detection suspicious transactions by financial institutions. In addition, the author introduces readers to his own construct of a Suspicious Transaction Grid that can aid in the simulation process to determine whether or not a transaction is suspicious. The objective of this article is to remind and educate bank staff on the tenets of handling Suspicious transactions.

SUSPICIOUS OR UNUSUAL TRANSACTION DEFINED

According to the 1.17 (a) of the Bank of Ghana and Financial Intelligence Centre AML/CFT& P Guideline for Banks and Non-Bank Financial Institutions in Ghana, July 2018. (herewith referred to as BoG and FIC Guideline, July 2018) under section 1.17 (a) defines Suspicious Transaction as “as one which is unusual because of its size, volume, type or pattern or otherwise suggestive of known money laundering methods. It includes such a transaction that is inconsistent with a customer’s known legitimate business or personal activities or normal business for that type of account, bank product or that the transaction lacks an obvious economic rationale.”

There are no hard and fast rules as to what constitutes suspicious activity, financial institution employees should watch for activity that is not consistent with a customer’s pattern of regular business. In short, suspicious or unusual transaction can happen at every touch point of the customer and/or employee with the bank. Indeed, it can exist in every facet of banking.

THE ROLE OF FINANCIAL INSTITIONS IN DETECTING AND HANDLING SUSPICIOUS TRANSACTIONS

Under Sections 32, 33, 34, 35 and 36 of the Anti-Money Laundering Regulations, 2011 (L.I 1987) have the following to say;

32. (1) An accountable institution shall pay special attention to transactions that

(a) are complex,

(b) involve unusually large sums of money,

(c) have unusual patterns, or

(d) have no apparent or visible economic or lawful purpose.

      (2) An accountable institution shall in furtherance of sub-regulation (1)

(a) examine the background and purpose of the transactions specified,

(b) record the findings in writing within twenty-four hours, and

(c) forward the findings to the Centre.

33. (1) An accountable institution shall make a suspicious or an unusual transaction report regardless of

(a) the amount involved, or

(b) whether the transactions are thought to involve tax matters, if the person making the report has reasonable grounds to believe that the transaction is being made to avoid the detection of money laundering.

Procedure for reporting a suspicious or an unusual transaction

 Regulation 34 of the Anti-Money Laundering Regulations, 2011 (L.I 1987) has it that;

34. (1) Where an employee of an accountable institution receives information in the course of business as a result of which the employee knows, suspects or has reasonable grounds to believe that a person is engaged in money laundering, the employee shall disclose the information

to the anti-money laundering reporting officer.

       (2) The anti-money laundering reporting officer shall consider the report in the light of relevant information available to the accountable institution and determine whether the contents of the report give reasonable grounds for knowledge or suspicion of money laundering.

       (3) Where the anti-money laundering reporting officer determines that the report gives rise to reasonable suspicion of money laundering, the anti-money laundering reporting officer shall inform the superior of the anti-money laundering reporting officer.

       (4) The accountable institution shall make a report to the Centre within twenty-four (24) hours after the knowledge or suspicion in a specified format by FIC.

Now under section 30 of the Anti-Money Laundering Act, 2008 (Act 749)

 (3) A person who makes a suspicious transaction report shall not

(a) disclose the contents to another person, or

(b) reveal the personal details of the officer of the Centre who receives the report to another person.

(4) A person who receives a suspicious transaction report shall not

(a) disclose the contents of the report to a person not authorised to know the contents of the report, or

(b) disclose the personal details of the person who made the report to another person.

(5) A person who makes a suspicious transaction report shall disclose the contents where

(a) the person is required by law to disclose the contents,

(b) it is to carry out the provisions of this Act,

(c) it is for legal proceedings, or

(d) it is by an order of a Court.

The law offers protection against civil or criminal liability for the person (s) who reports suspicious transactions in good faith. This is clearly stated under section 32 of the Anti-Money Laundering Act, 2008 (Act 749) as a “A person who makes a suspicious transaction report under section 30 is not liable for the breach of a restriction on disclosure of information imposed by contract or by any law if the person reports the suspicion to the Centre in good faith.”

THE ROLE OF FINANCIAL INTELLIGENCE CENTRE IN HANDLING SUSPICIOUS TRANSACTIONS

Anti-Money Laundering Regulations, 2011 (L.I 1987) spells the role of FIC in respect of handling the Suspicious Transactions reported by accountable institutions.

35. (1) The Chief Executive Officer of the Centre shall receive suspicious or unusual transaction reports.

      (2) The Centre may receive a suspicious or an unusual transaction report

(a) verbally,

(b) in written form,

(c) by telephone,

(d) by electronic mail, or

(e) by other means of communication.

Record of a suspicious or an unusual transaction report

36. (1) The Chief Executive Officer of the Centre shall, on receipt of the suspicious or unusual transaction report

(a) make a written record of the report,

(b) record the report on a computer system or an electronic

device capable of being used to store information, and

(c) acknowledge receipt of the report.

Anti-Money Laundry (Amended) Act, 2014 (Act 874)

Section 36 of Act 749 Amended-Continuation of transactions;

(2) If the Centre considers it necessary based on the seriousness or urgency of the case, the Centre may order the suspension of a transaction for a period not exceeding seven working days.

The Chief Executive Officer of the Centre may apply to the court within 7 working days after transaction has been suspended for issuance of a freezing order. This freezing order if successful allows the Centre one year to conduct full investigation into the substance of the report.

(3) The person affected by the suspension shall be informed within forty-eight (48) hours of the suspension and may seek redress from the court.

WHAT HINDER THE DETECTION OF SUSPICIOUS TRANSACTIONS BY FINANCIAL INSTITUTION.

In real life, no system is 100% perfect. This stands to reason that no matter how systems, processes and procedures are made tight, some suspicious or unusual transactions slip through and are not detected. The question of who must detect suspicious transaction or unusual transaction has remained unanswered for a while. The answer remains that, since suspicious transactions can happen in every part of a financial institution, then every staff holds the responsibility of detecting a suspicious transaction. The drive in getting all staff ready to be able to detect suspicious transactions must be spearheaded by the Compliance Department, Internal Audit and any other supervisory department or units. Although there are a lot of factors that hinder the detection of suspicious transactions, the following are very paramount.

For company leadership and compliance teams, communication is a strategy-level agenda topic. In the past, management of financial institutions did not get involved in communicating the compliance message, but now nearly every CEO will talk about ethics and compliance in fora ranging from radio or TV interview, staff durbars, internal communication circulars, to Board meetings, to investor relations communications and other public events. Still, internally, managers and trainers face an uphill battle in communication across complex organizations. There must be routine thorough training on the respective compliance function of financial institutions and “Red Flags” for all staff. For training to be relevant to departments with varying responsibilities or a dispersed workforce, it needs to be relevant to the business and cultural issues those employees face. Training budget for compliance must be approved on time to ensure early training of staff to be able to bring them on the same pedestal or ahead of compliance trends. Frontline staff who come face-to-face with customers must be up to the task.

After poor communication and training the next obvious factor is poor monitoring. Obvious in the sense that if staff are not communicated to or trained on how to detect suspicious transaction, then they will not be able to do any meaningful monitoring. A crucial element of a suspicious transaction detection program is monitoring transactions and activities. According to the Association of Certified Fraud Examiners’ (ACFE) 2014 Report to the Nations, monitoring accounts is one of the top three methods of detecting unusual transactions. Monitoring places a check on policies, procedures, records and actions, and highlights when they are not being followed, or when they need to be updated. Routine monitoring aids compliance teams to continually improve their anti-money laundering framework. It also provides a significant deterrent effect. When employees (or third parties) know they will be monitored, they are more likely to comply.

In some instances, management of financial institutions do not lend their full support to Internal Audit, Compliance Department and supervisory units. This stems from the fact that some Management and senior staff of financial institutions have a faint idea of the compliance function and so they behave like antibodies that fight the system that protects them. These departments end up not having the basic requirements that must aid them to detect suspicious transactions even in simple and complex transactions. 

WAY FORWARD

Financial institutions can detect suspicious or unusual transactions through monitoring and customer due diligence of existing and new customers. Through proper due diligence at on-boarding and continuous monitoring on the part of financial institutions. Monitoring can be done through automation and manual means. It is ideal for financial institution to combine both and not stick to only one.

Financial Institutions must develop or acquire automated monitoring tools to monitor all transactions aimed at detecting suspicious transactions. Automated monitoring tools in the sense that, as volumes increase manual method of monitoring become ineffective.

In addition, for an automated monitoring tool to be effective it has to be built around the parameters that make transactions suspicious in that way the system will be able to sniff out the suspicious transaction with an insignificant margin of error.

Training of staff to be able to detect suspicious transactions is of great essence. Staff may be at post with state of art equipment mounted but without training all efforts will equal zero.

Again through routine and spot checks by mandatory and supervisory units or departments like Compliance, Internal Audits and in some cases External Audits can bring to fore some of these unusual transactions.

Another important avenue of soliciting for suspicious transaction information is through “Whistleblowing or Tipoff”. Every financial institution must have a Whistleblowing Policy that seeks to unearth fraud, give first-hand information on suspicious transaction and protect the identity of the whistle blower(s) as much as possible.

The Suspicious Transaction Grid

Suspicious transactions can be divided broadly into two perspectives, that is to say customer identity and customer activity. Either ways or both if defective can make a transaction suspicious or unusual.  So when we say customer’s identity (individual, entity, vessel) springs suspicion when that customer’s name is on any of the sanctioned list, adverse publication, convicted of a crime (ex-convict), politically exposed, foreigner etc. Customer banking activity can become suspicious by timing/frequency, amount (too small and too huge), patterns, no apparent or visible economic or lawful source/purpose of funds, location. That, which is inconsistent with a customer’s known legitimate business or personal activities or normal business for that type of account,

The Suspicious Transaction Grid has been designed by the author to aid or guide staff of financial institutions in classifying transactions. A quick description of the grid;

1.      Good Transaction: there is consistency in customer’s identity as well as the customer’s banking activity. (Good Identity + Good Activity)

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2.      Suspicious Transaction: there is inconsistency in the customer’s banking activity as against a genuine customer identity. (Good Identity + Bad Activity)

3.      Suspicious Transaction: the customer’s identity is inconsistent but the customer’s banking activity is genuine. (Bad Identity + Good Activity)

4.      Suspicious Transaction: both customer identity and banking activity are all inconsistent. (Bad Identity + Bad Activity)

False positive

In simple terms a transaction is said to be false positive in money laundering when at a glance it looks suspicious of money laundering but an in-depth analysis reveals it to be genuine. A transaction can look suspicious when customer’s profile changes but the financial institution does not have such an update ahead of transactions. A typical example is when a customer opens an account at the time when he was a student. Many years along the line he graduates and he’s employed in firm that pays well or becomes a hyper successful entrepreneur. Obviously his income streams and patterns will change using the same account. If the customer’s profile (Know Your Customer-KYC) is not updated with the bank, the bank will always suspect the customer and his transactions.

 

CONCLUSION

Every fraud or money laundering or the attempt of either of them never happened without early warning. There are always signs that can trigger suspicion. Early detection is key in the fight against money laundering, counter terrorist financing and the proliferation of weapon of mass destruction. All staff of financial institution must be equipped in all aspects of their work to be able to detect suspicious transaction. Always identify and verify as well to be entirely convinced a transaction is genuine.

 

Author: Kwame Asante

The author has worked over a decade in various capacities as a banker. This article represents the views of the author and has nothing to do with his employers. For enquiries on this article kindly contact the author through email: guyjysus@yahoo.com

 

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