a. What are the red flags which might indicate money laundering activity and or terrorist financing in

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Question:

a. What are the red flags which might indicate money laundering activity and or terrorist financing in this case?

b. What are the potential risks and threats that the Bank may be faced with in this situation?

c. What actions should the Compliance Officer have taken?

John is the Compliance Officer of ABC bank Limited. He is responsible for meeting with new prospective clients and gathering all required information before the commencement of business relationship.

A new client, Peter, was introduced by an existing client Derek. Peter claimed himself as a trader in garment. John went through the ‘Know Your Customer’ (KYC) documents required for the onboarding, explained the bank’s policies and procedures to be followed. He requested Peter to provide all documents by the end of the week.

Peter dropped off at the bank with some documents, but upon review, John found that he had only provided a few documents. John emailed Peter a list of missing documents and a new deadline for submission. Peter replied that he was in a hurry to Country X where is notorious for drug dealing, to sign a contract with a big garment buyer there and requested John to proceed with the account opening first, and he would come back next week for the necessary documents.

John prepared all the required forms for signing. Peter came back from Country X and left John a USD cheque with substantial amount issued by a casino in Country X for account opening, but he still omitted to bring the pending documents required to complete the KYC and Due Diligence procedures. John checked with Derek who referred Peter to the bank and found out he did not know him that well.