Red Flags Indicating Employee Complicity in ML, FT, and PF Activities
Red Flags Indicating Employee Complicity in ML, FT, and PF Activities
The UAE AML/CFT Law and AML/CFT Decision require regulated entities to screen their employees to ensure the integrity of their AML/CFT compliance framework. Employee involvement with illicit actors to further Money Laundering, Terrorism Financing, and Proliferation Financing (ML, TF, and PF) needs to be ruled out to ensure adequate AML/CFT Compliance through the identification of indicative red flags.
This infographic aims to equip Regulated Entities (REs) with the ability to identify their own employees who could be potentially involved in facilitating the entry of criminals into the legitimate financial system by being complicit with such illegal actors, also referred to as criminal associates in this infographic.
The word “Complicity” refers to the involvement of an individual, participating, aiding, encouraging, or facilitating another to commit a crime.
In the context of Regulated Entities, they must ensure that their employees are not complicit with any illicit actors who intend to channelise their proceeds of crime through RE’s business. Preventing insider help to curb money laundering is essential for Regulated Entities, as the presence of insider assistance can render the strongest AML/CFT control measures redundant.
RE’s must note that the insider complicity might often be a part of a Professional Money Laundering (PML) Organisation or Network (PMLO/PMLN), which plants their members as employees within unwitting businesses to further their illicit motives of money laundering, making it all the more important to identify and report such activity, if any, at the earliest.
Some of the red flags indicating employee, i.e., insider complicity, are discussed as follows:
Creating Counterfeit Records
Complicit employees may create false or counterfeit records of Customer Due Diligence (CDD) measures taken to disguise deficiencies in the Know Your Customer (KYC) information and documents of their criminal associates to avoid detection or scrutiny by other members of the AML compliance team. Examples of creating counterfeit records include:
False Compliance Trail:
By using fake or forged documents to make the AML compliance process appear complete, creating a fake sanctions screening report to facilitate terror financing, falsifying Customer Risk Assessment (CRA) outcomes to ensure that only simplified due diligence measures are taken to avoid Enhanced and Standard Due Diligence scrutiny through Sources of Funds and Sources of Wealth (SoF and SoW) or planting fake SoF and SoW to give false sense of legitimacy.
Avoiding Audit Scrutiny:
The primary purpose of insider complicity is to facilitate the furtherance of illegal activity through the RE, as well as to avoid audit scrutiny, which might uncover the underlying illicit activities of a complicit employee.
Wilfully Neglecting Ongoing Monitoring
When using an AML Compliance Software, such as those facilitating ongoing monitoring of business relationships, the complicit employee would deliberately and wilfully avoid, evade, or neglect opting for ongoing monitoring of customers who, in reality, are their Professional Money Laundering (PML) associates. This is done by:
Not Opting for Commencing Ongoing Monitoring:
The complicit employee would not commence ongoing monitoring, post onboarding of their PML associates, so as to avoid notifications and alerts on their profile, which might alert other non-complicit employees and require escalating the case for further scrutiny.
Deliberate Dismissal of Alerts as False Positives:
The complicit employee, upon coming across any ongoing monitoring or Re-KYC alerts, may deliberately dismiss such alerts as executed, or may label or classify screening alerts as false positives to avoid scrutiny or escalation.
Facilitating Structuring to Circumvent Regulatory Reporting
A complicit employee aids in structuring transactions through the employer’s business by assisting their criminal associates in routing funds through the RE in a manner that circumvents the RE’s internal controls designed for regulatory reporting. Structuring is done to avoid the filing of regulatory reports such as:
Suspicious Transaction Report (STR):
STRs need to be filed in the event of coming across any suspicious transaction. A complicit employee may help their criminal associates to launder funds through the RE by facilitating them to structure transactions in such a way that internal red flags and triggers are not raised, which necessitate the filing of STR.
Threshold-Based Designated Transactions, Such as Real Estate Activity Report (REAR) or Dealers in Precious Metals and Stones Report (DPMSR):
Overriding CDD Measures
Complicit employees can facilitate their criminal associates by overriding CDD measures installed within the RE. Some of the ways in which CDD checks are overridden are as follows:
Accepting Forged or Fake KYC Documentation:
A complicit employee can override CDD measures by accepting forged or fake documents pertaining to customer’s identity such as their passports or certificate of incorporation, date of birth or registration, details pertaining to beneficial ownership and SoF and SoW so as to mechanically tick-off the requirement of ID document collection, to facilitate the disguising the true identities of their criminal associates.
Collecting but Not Verifying ID Documents:
A Complicit employee may also aid their criminal associates by completing the requirement of ID document collection but completely skipping the verification of the same. This eliminates potential flags when ID verification reveals the elements of forgery, identity theft, impersonation, or any other form of ID fraud perpetrated by a criminal associate of the complicit employee.
Avoiding EDD and Resultant Reporting
In order to avoid the focused scrutiny involved in the EDD process, which might lead to the filing of SAR/STR to the FIU, the complicit employee may help their criminal associates evade EDD and reporting by manipulating their CDD information through:
Preventing SOF and SoW Verification:
If the SoF and SoW are diligently verified, it may lead the RE to uncover the truth about the criminal associates of the complicit employee, resulting in the filing of reports and criminal charges against the complicit employee themselves.
Preventing Case Escalation to AML Compliance Officer/MLRO and Senior Management for Approval and Scrutiny:
Another reason why complicit employees facilitate EDD avoidance is that customers subject to EDD require approval and scrutiny from the AML Compliance Officer/MLRO and Senior Management. Therefore, if the customer profile of a criminal associate is escalated for approval and scrutiny, it is highly likely that these officials will identify the complicity of the employee and potential fraud in the customer’s CDD process.
However, if the AML Compliance Officer/MLRO or Senior Management themselves are complicit, then the Independent Audit function could recognise their complicity during the AML audit process, leading to regulatory reporting and criminal action against such complicit officials.
Conclusion
Regulated Entities may have the best AML/CFT Framework, unified AML Software, risk-based controls, training and awareness strategies, and due diligence measures. However, the risk of ML/FT or PF activities through the Regulated Entity still remains, as employees or staff of the business could be complicit and involved with the illicit actors, facilitating the movement of proceeds of crime through the business.
Knowledge of employee complicity or involvement red flags can help regulated entities develop stringent employee screening and monitoring measures, which help safeguard the integrity of the regulated entity’s AML/CFT control measures.
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