By the risk factors of cash transactions, you would have understood why AML measures are necessary for them. These AML measures enable an intense fight against cash transaction threats. You can also prevent possible money laundering and terrorism financing activities.

Such appropriate AML measures include KYC and CDD. Identifying UBOs is a critical element of KYC and CDD. So, make it a practice to identify the ultimate beneficial owners of cash transactions.

A UBO means an individual controlling, owning, or benefitting from an entity. They might not be the apparent owners, but they receive all the benefits or control the operations in the background. In the case of a cash transaction, it means the individual that benefits from the cash transaction.

Identifying UBOs of cash transactions helps figure out the actual person behind a cash transaction and check if they are sanctioned individuals, PEPs, or persons with criminal history. If there are any red flags around the UBOs, you can take a risk-based approach, conduct EDD and submit SAR/STR as per the facts of the case.

Since shell companies’ risk in money laundering is high, you must be vigilant about their activities. One way of doing that is learning about the red flags of customers’ illicit behaviour. These are the warning signs of suspicious transactions using shell companies. So, you must be aware of these red flags to spot suspicions at the right time and stop the transaction. These red flags include the following: 

1. Atypical directorship in companies  
2. Dubious addresses of companies 
3. Mass registration of many directors, shared names, or addresses indicates the involvement of many shell companies.  
4. Dormancy of a company for a few years and a sudden rise in presence with a spike in revenues 
5. Too young or too old beneficial owners like five years or more than 100 years 
6. Circular ownership of several companies with each other to hide beneficial ownership 
7. Dubious addresses as address proof of entities 
8. A mismatch between the company’s registration jurisdiction and the directors’ residency or nationality, specifically involving high-risk jurisdictions 
9. The home jurisdiction of the shell company is a sanctioned or terrorist country or one with weak AML and other regulatory controls 
10. Some odd financial anomalies 
11. Ultimate beneficial ownership is significantly different from the expected 
12. The company has not undertaken any real business activities 
13. The formal nominees mentioned for the company are nominated agents for many shell companies 
14. The nominees are generally the spouses, children, or relatives who do not contribute to the enterprise’s operations 
15. The shell company conducts many transactions, but none generates income 
16. It does not contribute to taxes, social benefits, and employee benefits 
17. One party is the origin and destination of financial benefits in the case of international funds transfer, or the transaction is between two different businesses, but they have the same registration address 
18. The unnecessary creation or involvement of representative offices or similar delegation services  
19. Cash transactions, different from the usual payment mode used  
20. Account signatory executes a large transaction but with no controlling interest in the assets or company 
21. Involvement of family members in business transactions with no legal business purpose 
22. Private third parties provide loans, but there is no supporting agreement, interest repayments, or collateral 
23. Doubtful and questionable relations between parties with no clear explanation by the customer 
24. Unusual transactions considering the client’s profile, business model, or previous transactions 
25. The origin and destination of transaction funds involve a foreign jurisdiction with no justified linkage with the client 
26. The business account used for a transaction is also used for personal transactions like buying assets or other reasons with no linkages to the client’s profile 
27. Involvement of two or more parties in a transaction with no apparent reason or legal rationale 
28. Finance from a lender – an individual or a company – without any commercial reason or justification 
29. Goods or services transacted do not correspond to the sender or receiver’s business profile 
30. The unwillingness of the party to disclose information on the transaction 
31. Transactions involving beneficiaries from offshore or high-risk jurisdictions 
32. Transactions with fake invoices having a shell company’s name as the seller of products 
33. Complex transactions with multiple layers of buying and selling 
34. Large volume or value transactions with other ghost companies 

With so many red flags and others, you must keep an open eye on all incoming and outgoing transactions. All these are obscuring the illicit behaviour of the transactions, which you must be aware of. It makes tracing of money laundering and criminals challenging for investigators. However, with proper AML measures and transaction monitoring, you can identify the legal, fair transactions from the illegal, unfair ones.  

The first action you can take is to be aware of the fact that high-net-worth individuals are risky for your business. It does not mean they will indeed cause money laundering or terrorism financing. However, the ML/TF risks are high. So, you must know the potential red flags or warning signs of HNIs’ money laundering activities. Some of these red flags are:

• Not cooperating in the KYC and due diligence process
• Providing wrong documents or missing out some information in the KYC process
• Engaging in financial transfers with unusual patterns, different from their usual transactions
• Unexplained or erratic customer behaviour while conducting financial transactions
• Using unrelated or unknown third parties in a transaction
• Financial activities that don’t align with the HNI’s business
• Sudden or unexplained large transactions to or from high-risk jurisdictions
• Providing incorrect information on identity, business, or transactions
• Too many transactions of buying and selling properties despite financial losses
• Linkages to business in sectors like gambling, weapons of mass destruction, or arms trade
• Frequent cross-border transactions in jurisdictions with no relation to HNIs’ business interests
• A high volume of cash transactions

If you are aware of these, you can take the right action. You can investigate the transaction further to confirm the particulars. If found suspicious, you can report it to the UAE FIU.

AML/CFT policy and procedures mandate the KYC refresh. Depending upon the local rules and regulations and the risk-based approach adopted by the regulated entity, the schedule for periodic review is predecided and triggered. For example, the organisation may have a policy to conduct re-KYC every year for high-risk customers, once every two years for medium-risk customers, and once every three years for low-risk customers.