Whenever we see a detective series, the dialogue we must listen to in every web series and movie is “Every criminal always leaves a footprint, following which police can capture them. 

and surprisingly, despite hundreds of years in the film industry, this dialogue still makes sense and is very much familiar to date. 

However, the criminal has tried many new techniques to avoid the detection process. Leaving clues is still a criminal's loophole. 

And that is even true when the criminal tries to launder the money. 

Many investigations have revealed that many red flags in money laundering activities indicate the financial crime is going to be done. 

If a financial institution, professionally handles them, more than 90% of money laundering activities could be detected in the first place. 

We can understand that the red flags could be different in different areas, states, and counties because of the industry and country regulations.  

Are the money laundering red flags helpful in combating and detecting money laundering activities?

Let's answer this question with the revelation. 

 In the year 2021-2022, the United Kingdom’s National Crime Agency (NCA) received over 573,000 SARs. and you know what surprising news is in it.  that 80% of such suspicious transactions were related to money laundering red flags.

 So, one can easily understand how valuable could be the red flags in fight against the money laundering. 

In this piece of writing, we will discuss the most common red flags of money laundering in financial institutions and what measures could be helpful in combating them. Let's find out.  
 
Top 5 Red Flags Every Financial Institution Should Watch Out For

1. Unusually Large Cash Deposits
When you notice that one of your clients has started depositing large amounts of cash or transferring to a jurisdiction with weakened AML regulations. Consider this as a red flag, especially in accounts that typically do not handle significant amounts of cash.

Let’s understand it with an Example: think about a small business that usually deposits a few thousand dollars a month. but one day from nowhere, he suddenly came and started depositing hundreds of thousands of dollars in cash. This dramatic increase is inconsistent with the business’s normal activity and could be a sign of money laundering.

2. Frequent Transfers Between Accounts
Another tactic that launderers use to move illegally obtained money from one place to another is to transfer the amount multiple times between the different accounts. And surprisingly, these accounts run across different jurisdictions.

This is part of layering in money laundering. At this stage, criminals break down large amounts, use different bank accounts, and make various transactions to hide the real source of money.

Example: if a customer regularly moves an amount between different accounts. Sometimes he uses the personal account, or business account under the name of another person. 

And sometimes he tries to obscure the ownership by moving the money to the offshore accounts. These patterns of activity could indicate an attempt to launder money from one place to another.

3. Transactions Involving High-Risk Jurisdictions
Financial Action Task Force and various other regulatory bodies have categorized the countries and states that are very weak in their AML efforts. And that is what makes the launderers happy to move money in such jurisdiction.

So if a person or business is making the transaction to a jurisdiction that is weak or famous for money laundering activities, this is a sign of money laundering. 

Because in the areas with less AML framework, detecting the money laundering crimes becomes more difficult.

For instance, if a company is regularly moving money into such jurisdiction without any proper business links, the transaction must be flagged and thoroughly investigated to check the legitimacy of these transactions.

4. Rapid Movement of Funds
The term smurfing is used for such a type of money laundering technique. Where the launderers suddenly deposit a large amount of cash by breaking it down into multiple accounts. And then they withdraw it. 

This is done multiple times to hide the origin of the illegitimate funds.

This technique, known as "smurfing," helps launderers break down large amounts into smaller, less noticeable transactions.

A person that came into the bank and deposited into an account a huge amount,  and then almost immediately withdrew or transferred to another account.  

What does it mean? Why did he withdraw the amount so quickly? This rapid movement suggests an attempt to obscure the money’s origin.

5. Use of Shell Companies
Shell companies are often established to obscure the ownership structure as well as the origin of the illegally obtained money. because these companies only exist in documents, and in reality, there are no operations, no employees, and no production of goods.

So when the business or individual makes payments to such companies. It means he tries to evade the tax or launder the money.

For example, A bank discovers that a newly established company with no physical presence or legitimate business activity is moving large amounts of money. 

This could be a shell company used for money laundering.  

 Incorporate the AML monitoring and screening solution to avoid reputational and financial damage.