Money launderers' core objective is to legalize dirty, illegal money. Many banks use money that has entered the accounts of legal or physical individuals and then has been converted into other banks in the country or abroad by the banking system. This is usually accomplished by entering illegal money through transfers to escape the legal duty to notify the bank. Banks are among the most well-known financial institutions and organizations in the money laundering scheme, and their position is vital. Banks have a legal duty to follow the rules of the Anti-Money Laundering and Other Proceeds of Crime and Terrorist Finance Laws that have a protocol for detecting irregular transactions made by banks and their obligation to notify Financial Intelligence Units.
If banks suspect money laundering involving large sums of money, they must file reports on any illegal transactions. The reports come from a number of organizations that notify government officials of cash transfers that may include consumer theft, drug smuggling, organized crime, and other criminal activities. Specific forms of cash withdrawals, for example, are widely known as suspicious acts.
Banks, being the backbone of the financial sector, need a sharp eye to detect illegal transactions. Banking AML policies, like those of all other organizations, are influenced by the FATF's policy. Employees on the front lines are skilled in anti-money laundering tactics and are allowed by law to detect illegal activities. Banks could hire employees with the aim of improving anti-money laundering policies. AML enforcement officers are a kind of security specialist.
What Do Banks do When They Encounter Suspicious or Illegal Activity?
If banks suspect account holders are engaging in criminal activity, they have the authority and right to freeze accounts. Following incidents like the September 11 terrorist attacks, banking laws become more comprehensive to crack down on illegal activities that transact their business through financial institutions.
Banks regularly track accounts for illegal activities such as money laundering. Large amounts of money obtained by illicit activity are deposited in bank accounts and passed around to appear as though they came from a reputable source. Banks also freeze accounts due to suspicions of terrorism funding.
Filing a Suspicious Activity Report
Suspicious Activity Reports, or SARs, are required to be filed by banks and other financial firms on all suspect transactions above a certain amount set out under the Bank Secrecy Act; in most cases, the notification is caused by any activity that is out of the ordinary for that specific bank account. Via the Financial Crime Enforcement Network's BSA E-filing scheme, SARs are filed online in a standard form.
A copy of the SAR and supporting documents relating to the recorded activity must be kept on file for five years by the company filing it.
What Are Suspicious Activities?
The US Department of Treasury's Financial Crimes Enforcement Network provides comprehensive guidelines about the kinds of financial activities that may cause a Suspicious Activity Report. Their advice effectively notes that any action that raises concern and includes funds above the target amount should be identified as suspicious activity. According to the guideline, the following are among some of the common suspicious activities:
- a lack of proof of legal, commercial practice, or even any commercial activities, by many of the parties to the transaction(s);
- unusual financial nexuses and exchanges between different types of businesses (for example, a food importer negotiating with a car parts exporter);
- money transfers that are uncommon and unusual concerning the volumes of similar businesses operating in the same location;
- transfers that are not proportional with the specified market form and/or purchases that are unusual and uncommon in comparison to the volumes of similar businesses operating in the same locale
- unusually high numbers and/or quantities of wire transfers, as well as wire transfer patterns that are repeated;
- a sequence of extraordinarily complicated transactions involving various accounts, banks, individuals, and jurisdictions, indicating layering activity;
- transactions carried out in bursts over a short period of time, especially in accounts that had been unused;
- money transfers and/or amounts of aggregate activity that are not compatible with the account's intended goal and the planned levels and forms of account activity provided to the financial institution when the account was opened;
- victims of accounts at international banks that have already been the focus of SAR documents ;
The Role of Banks on The Money Laundering Prevention System
The role of banks in money laundering detection is critical because bank workers are the first to learn about illegal activities and suspicious clients that have introduced dirty money into the financial system. For known suspicious transactions, banks are required to use the indicators. How well banks comply with regulatory requirements and obligations for irregular activity management and identification is primarily determined by their education and collaboration with Financial Intelligence Units. The early submission of reports about unusual transactions or suspicious activities is an essential part of the identification, clarifications, and proof of a crime that occurred in illegal proceeds being recovered, which are either used to prosecute offenders or deposited in the financial system for legalization. Early freezing of unlawful funds in bank accounts provides for confiscation, which benefits the offenders and makes crime impossible to prosecute.
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