What Transactions Can Alert Your Bank and Be Treated as Potentially Suspicious?

At times, you may experience situations where your online purchase is rejected or your bank refuses to send money to a friend. What could be the cause?

One possibility is that your account has been restricted for financial monitoring reasons. Banks are required to review customers’ transactions by applying specific standards and then send unusual transaction reports to the relevant authorities. How can you prevent such issues, and what types of account transactions might be seen as suspicious by banks?

How FATF monitors suspicious banking transactions

The rules for identifying any suspicious bank activity follow international standards. It is the wrong belief that each country has its own regulations in the above sphere. The Financial Action Task Force (FATF) is an important global organization that fights money laundering and terrorism financing. It has been creating these rules since 1989 when it was started by the G7.

FATF has made 40 recommendations that are known all around the world. They help prevent money laundering and terrorism financing. Every FATF member state and other jurisdictions that want to follow the global rules shall obey them. The recommendations are amended from time to time. They are used to make policies for identifying suspicious transactions on bank accounts in almost all countries.

One of the most important recommendations is Recommendation 20 from FATF. Here’s what it instructs banks and other financial institutions to do:

• find and report any suspicious transactions that happen on their customers’ accounts
• have efficient systems to watch for suspicious transactions on accounts.
• be able to decline a transaction or wait before making a transaction on a bank account if there are valid reasons to think it’s related to money laundering or terrorism financing.

Learn how banks verify your identity and residential address when you open an account with them.

National monitoring of suspicious transactions on bank accounts

Each country has its own regulations and rules on how to identify suspicious transactions on bank accounts. These rules align with international standards and recommendations from FATF. The criteria for identifying suspicious transactions may vary based on factors such as the country’s financial system, the level of risk related to suspicious transactions in money laundering and terrorist financing, and the legal practices adopted in that country.

Suspicious transactions on French bank accounts

In France, the law known as the Monetary and Financial Code a.k.a. Code Monétaire et Financier sets the rules for spotting suspicious transactions on bank accounts. Under the above law, banks and other financial institutions shall continuously keep an eye on their customers’ transactions and quickly report any activities or attempts that might be connected with money laundering or terrorism financing. Banks report these to a special organization called the Financial Intelligence Processing Unit (TRACFIN).

Banks in France have the power to stop or refuse a transaction if they have good reasons to believe it might involve money laundering or terrorism financing. The specific criteria for identifying suspicious transactions on bank accounts are explained in Decree No. 2009-874, which was published on July 16, 2009.

If you want to learn more about how the banking system works in France and the specific requirements for opening accounts, kindly check the above link.

Suspicious transactions on bank accounts in the US

In the United States, banks have a responsibility to report any suspicious transactions on their customers’ accounts. They report the said transactions to different authorities, including FinCEN (Financial Crimes Enforcement Network), as well as local law enforcement agencies like the FBI and HSI (Homeland Security Investigations).

The main way that banks report suspicious transactions is by using a form called SAR (Suspicious Activity Report). SAR was created as part of the Bank Secrecy Act (BSA) in 1970 to keep an eye on activities that are usually not recorded in other types of reports, like reports about currency transactions. Since 1996, SAR has been the standard form for reporting suspicious transactions in the US.

Suspicious transactions on German bank accounts

German banks report any suspicious transactions on customer accounts to the Financial Intelligence Unit (FIU), also known as the Financial Investigation Agency. This agency is authorized by the Anti-Money Laundering Act (AMLA) and is primarily responsible for receiving and reviewing reports regarding suspected instances of money laundering.

All banks, insurance companies, real estate agents, and other entities are obliged to quickly notify the FIU if they encounter any suspicious transactions on their customers’ accounts.

Curious to learn more about how you can open bank accounts in Germany?  Follow the link above!

Suspicious transactions on bank accounts in the UK

The National Crime Agency (NCA) in the United Kingdom keeps an eye on bank accounts to find suspicious transactions. They focus on fighting organized crime, like money laundering and terrorism financing. The NCA also acts as the Financial Intelligence Unit (FIU). They get reports about suspicious activity on bank accounts from banks and other financial institutions, and then analyze and share that information.

In the UK, HM Revenue and Customs has published special guides for different types of businesses. They help companies identify suspicious transactions on customers’ bank accounts. Here’s what the above guides include:

• accountancy sector guidance for money laundering supervision
• art market participants guidance for money laundering supervision
• estate and letting agency business guidance for money laundering supervision
• high value dealer guidance for money laundering supervision
• money service business guidance for money laundering supervision.

Don’t hesitate to learn more about how people live, make business, and manage funds on bank accounts in Great Britain. 

Banks’ role in identifying suspicious transactions on client accounts

Banks actively work to stop financial crimes. They have special teams that carefully watch over all transactions and spot anything suspicious. If needed, they get in touch with account holders to gather more details about specific transactions. If the given information is not enough or the client doesn’t respond, it is a standard practice to restrict access to the bank account in question.

Here’s the standard practice most banks follow to prevent financial crimes and discover suspicious transactions:

• Check customers thoroughly: Everyone who wants to use banking services shall fill out a Know Your Customer (KYC) form.
• Keep an eye on account activity: Banks use advanced software to watch transactions and find suspicious activities.
• Report suspicious activities: Laws require banks to follow specific steps to report transactions that seem suspicious.
• Use Anti-Money Laundering (AML) programs: Banks develop and use programs to fight money laundering. These programs have rules, procedures, and controls to find, stop, and report suspicious account transactions.
• Work with the police: Banks collaborate closely with law enforcement to fight financial crimes. They share information about account activity and cooperate to identify criminals.

To capture any suspicious activities, banks carefully watch over transactions from all customers, look for patterns, and pay attention to warning signs known as red flags. These signs are specific criteria and measures linked to suspicious account actions. Examples include strange transaction amounts or frequencies, transfers to risky jurisdictions or organizations, or payments involving new clients with no past banking history.

Types of suspicious transactions on client accounts that alert banks

Every country has its own laws and regulations that determine how to identify suspicious transactions on bank accounts. While some variations are possible, most banks and financial institutions use similar criteria to identify and report suspicious activities.

Large cash transactions

Banks carefully watch cash transactions that go over a specific limit. When large amounts of cash are deposited into an account, it can raise concerns about money laundering or other illegal actions, causing banks to stay alert.

Dropping or structuring

This is when people transfer a lot of money between different accounts in small amounts. They do it to avoid getting noticed by systems that watch for suspicious financial activity and to avoid appearing in different bank reports. With big transactions, banks usually ask for more paperwork, so individuals and companies employ these tactics to bypass the procedure and get around that.

Unusual or unexplained transactions

Banks find transactions suspicious if they don’t match the client’s financial profile or have a clear business purpose. For example, transferring money between a client’s accounts in different banks, countries, or currencies without a valid economic or legal reason, or paying for goods or services that don’t match the client’s business or interests (like a car parts company buying a lot of books) may raise suspicions.

The client’s financial profile shall be in line with the information provided in the KYC form. This includes details about their business type, why they opened the account, how often they make transactions, and how much money they handle. This information helps the bank’s compliance department understand the client better. This is why you should fill out the KYC form accurately, and it’s a good idea to seek expert help.

High-risk customer transactions

Banks have a responsibility to identify specific customers who are considered high-risk due to factors like their job, where they come from, or their past involvement in illegal activities. Below, you will find a couple of examples:

• People connected to countries, organizations, or individuals that are subject to international sanctions and pose a threat to global security and stability.
• Individuals in career fields with a higher chance of money laundering, such as lawyers, notaries, accountants, auditors, real estate agents, or luxury car dealers.
• People who live or do business in countries or regions where financial monitoring rules aren’t strictly adhered to, with high levels of corruption, or significant criminal activity.

Bank staff carefully monitor all transactions on the accounts of these individuals.

Transactions involving politically exposed persons

The above refers to transactions on the bank accounts of people in high-ranking government positions. These clients and their financial activities are continuously monitored and carefully examined by the bank’s compliance department.

Suspicious transactions on bank accounts: examples

Here are some suspicious activity examples that banks closely watch:

• Unusual transactions between different types of businesses that are not typical or don’t make any logical sense. For example, if a transportation company buys a large number of children’s toys.
• Money transfers that are uncommon and don’t match the patterns of similar businesses in the same area. For instance, if most companies in a region have monthly sales below USD 100,000, but one particular business consistently has transactions over USD 500,000 without having enough resources to support them.
• Regular wire transfers to the same accounts. Banks get suspicious when they see repetitive transactions like these.
• A sudden and significant increase in account activity that was previously inactive. If there’s a noticeable jump in monthly transactions, such as going from 10 to 50 or more, it raises concerns for bank staff.
• The absence of transactions that match a client’s profile. For example, if a person’s bank account doesn’t show payments for utilities or purchases that are typically associated with their account type.
• Depositing a large amount of money into an account and then quickly transferring it to other banks, often on the same day.
• Exchanging small bills for larger ones frequently or converting cash into different currencies.
• Depositing money from abroad into a bank account and then using bank cards to withdraw it without any other transactions that match the client’s profile.
• Avoiding contact with bank managers, ignoring requests for documents, and not responding to inquiries. For example, not providing updated information when asked or ignoring phone calls and emails.
• Reluctance to provide personal information when opening a bank account, providing minimal or false information on the application, or offering information that is difficult or expensive to verify.
• Multiple people make payments to the same account without giving enough explanation.
• Different companies use the same individuals for cash transactions or currency exchanges.
• Not using the full range of banking services available with the account.
• Having accounts in multiple banks in the same area primarily for consolidating funds and making transfers.
• Buying securities that don’t match a client’s usual investment portfolio or engaging in large or unusual cash transactions that involve securities.
• Clients ask for investment management or administration services (in foreign currency or securities) when the source of funds is unclear or doesn’t match their financial situation.
• Using trade finance instruments like letters of credit for transactions between countries that don’t align with the client’s business.
• Frequently requesting traveler’s checks, foreign currency bills, or similar instruments.
• Changes in an employee’s financial situation, such as sudden extravagant spending or no vacations for a lengthy time period.
• Changes in an employee or agent’s work, e.g., if a salesperson who used to only accept cash suddenly shows a noticeable or unexpected increase in performance.

Bank staff often come across transactions that raise concerns. The main issue is when the bank cannot clearly determine where the money comes from and why the payment is being made. If these 2 things are not explained and supported with proper documents, the risk that access to your account will be restricted is high.

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