AML awareness should not be a discrete activity within your firm. This is because the methods and techniques used by criminals to launder money may also be used by clients with legitimate means for legitimate purposes.
A behaviour or action that might alert you to the possibility of money laundering is known as a ‘red flag’ indicator. A list of these indicators was published in the Financial Action Task Force (FATF) report: Money Laundering and Terrorist Financing – Vulnerabilities of Legal Professionals in June 2013.
These red flag indicators should assist you in:
- applying a risk-based approach to your requirements of knowing who your client and the beneficial owners are
- understanding the nature and the purpose of the business relationship; and
- understanding the source of funds being used in a retainer
Where there are a number of red flag indicators, it is more likely that you should have a suspicion that money laundering or terrorist financing is occurring.
However, the mere presence of a red flag indicator is not necessarily a basis for a suspicion of money laundering or terrorist financing, as a client may be able to provide a legitimate explanation.