Effective financial crime compliance depends on the ability to identify the indicators of potential financial crime within the normal flow of business activity, before they develop into material events that require investigation and reporting. This article sets out the most significant red flags across the principal categories of financial crime that UK businesses face, as a practical reference for compliance teams assessing specific customers, transactions, or relationships.
Customer and Counterparty Red Flags
- A customer or counterparty that is reluctant to provide the identification and verification information required under the firm’s KYC procedures.
- Beneficial ownership information that is inconsistent, incomplete, or that points to a jurisdiction or structure associated with financial opacity.
- A customer whose stated business purpose is inconsistent with the transactions they conduct or the volumes they move.
- Politically exposed persons, or individuals connected to them, where the source of wealth or funds has not been adequately explained.
- A customer with adverse information in public sources, regulatory databases, or specialist screening tools that has not been adequately assessed.
Transaction Red Flags
- Transactions that are significantly larger or more frequent than the customer’s stated business would generate.
- Payments to or from jurisdictions that are on the FATF grey or black lists, or subject to specific sanctions measures.
- Round-sum transactions, or transactions structured just below reporting or authorisation thresholds.
- Payments described as loans, gifts, or investments that have the characteristics of layered criminal proceeds.
- Trade finance transactions where the goods, the pricing, or the commercial relationships between buyer and seller cannot be independently verified.
Behavioural Red Flags
- A customer or counterparty who is unusually insistent on speed, privacy, or the avoidance of standard due diligence procedures.
- An employee who is resistant to oversight, who takes unusual steps to conceal their activity, or whose personal financial position is inconsistent with their income.
- Third-party payments or instructions that do not appear consistent with the underlying commercial relationship.
What to Do When Red Flags Are Identified
Red flags require assessment, not automatic reporting. A structured assessment of each red flag, documented in the customer’s file, establishes whether the concern can be resolved by additional information from the customer or whether it warrants escalation to the MLRO for a decision about suspicious activity reporting. Bond Rees supports compliance teams in the investigation stage of this process: conducting the background investigation and transaction analysis that informs the MLRO’s reporting decision.
Compliance team facing a financial crime concern? Contact Bond Rees for expert investigative support.
