Guideline 2: Suspicious Transactions

March 24, 2003

5. Examples of Industry-Specific Indicators

   5.1 Industry-Specific Indicators 5.2 Financial Entities 5.3 Businesses who Send or Receive Electronic Funds Transfers 5.4 Businesses who Provide Loans 5.5 Life Insurance Companies, Brokers and Agents 5.6 Securities Dealers 5.7 Foreign Exchange Dealers and Money Services Businesses 5.8 Accountants 5.9 Real Estate Brokers or Sales Representatives 5.10 Casinos

5. Examples of Industry-Specific Indicators

5.1 Industry-Specific Indicators

In addition to the general indicators outlined above, the following industry-specific indicators may point to a suspicious transaction. Remember that behaviour is suspicious, not people. Also, it is the consideration of many factorsnot any one factorthat will lead to a conclusion that there are reasonable grounds to suspect that a transaction is related to the commission of a money laundering or terrorist activity financing offence. All circumstances surrounding a transaction should be reviewed, within the context of your knowledge of your client. 

Taken together, the general and industry-specific indicators that apply to your business may help you identify suspicious transactions. Depending on the services you provide, you may need information about indicators in more than one of the following sections. For example, if you are a financial advisor, you might sell life insurance products and securities. In this case, you would read the indicators in Section 5.5 (Life Insurance Companies, Brokers and Agents), as well as under Section 5.6 (Securities Dealers). 

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5.2 Financial Entities

Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators.

The following indicators are for your consideration if you are an institution that opens accounts and holds deposits on behalf of individuals or companies. This includes banks, credit unions, caisses populaires, trust and loan companies and agents of the Crown that accept deposit liabilities.

Personal Transactions

• Client appears to have accounts with several financial institutions in one geographical area.
• Client has no employment history but makes frequent large transactions or maintains a large account balance.
• Client makes one or more cash deposits to general account of foreign correspondent bank (i.e., flow-through account).
• Client runs large credit card balances.
• Client visits the safety deposit box area immediately before making cash deposits.
• Client wishes to have credit and debit cards sent to international or domestic destinations other than his or her address.
• Client has numerous accounts and deposits cash into each of them with the total credits being a large amount.
• Client deposits large endorsed cheques in the name of a third-party.
• Client frequently makes deposits to the account of another person who is not an employer or family member.
• Client frequently exchanges currencies.
• Client frequently makes automatic banking machine deposits just below the reporting threshold.
• Clients access to the safety deposit facilities increases substantially or is unusual in light of their past usage.
• Many unrelated individuals make payments to one account without rational explanation.
• Third parties make cash payments or deposit cheques to a clients credit card.
• Client has frequent deposits identified as proceeds of asset sales but assets cannot be substantiated.
• Client acquires significant assets and liquidates them quickly with no explanation.
• Client acquires significant assets and encumbers them with security interests that dont make economic sense.
  

• Accounts are used to receive or disburse large sums but show virtually no normal business-related activities, such as the payment of payrolls, invoices, etc.
• Accounts have a large volume of deposits in bank drafts, cashiers cheques, money orders or electronic funds transfers, which is inconsistent with the clients business.
• Accounts have deposits in combinations of monetary instruments that are atypical of legitimate business activity (for example, deposits that include a mix of business, payroll, and social security cheques). 
• Accounts have deposits in combinations of cash and monetary instruments not normally associated with business activity.
• Business does not want to provide complete information regarding its activities.
• Financial statements of the business differ noticeably from those of similar businesses.
• Representatives of the business avoid contact with the branch as much as possible, even when it would be more convenient for them.
• Deposits to or withdrawals from a corporate account are primarily in cash rather than in the form of debit and credit normally associated with commercial operations.
• Client maintains a number of trustee or client accounts that are not consistent with that type of business or not in keeping with normal industry practices.
• Client operates a retail business providing cheque-cashing services but does not make large draws of cash against cheques deposited.
• Client pays in cash or deposits cash to cover bank drafts, money transfers or other negotiable and marketable money instruments.
• Client purchases cashiers cheques and money orders with large amounts of cash.
• Client deposits large amounts of currency wrapped in currency straps.
• Client makes a large volume of seemingly unrelated deposits to several accounts and frequently transfers a major portion of the balances to a single account at the same bank or elsewhere.
• Client makes a large volume of cash deposits from a business that is not normally cash-intensive.
• Client makes large cash withdrawals from a business account not normally associated with cash transactions.
• Client consistently makes immediate large withdrawals from an account that has just received a large and unexpected credit from abroad.
• Client makes a single and substantial cash deposit composed of many large bills.
• Small, one-location business makes deposits on the same day at different branches across a broad geographic area that does not appear practical for the business.
•  There is a substantial increase in deposits of cash or negotiable instruments by a company offering professional advisory services, especially if the deposits are promptly transferred.
•  There is a sudden change in cash transactions or patterns.
• Client wishes to have credit and debit cards sent to international or domestic destinations other than his or her place of business.
• There is a marked increase in transaction volume on an account with significant changes in an account balance that is inconsistent with or not in keeping with normal business practices of the client's account.
• Asset acquisition is accompanied by security arrangements that are not consistent with normal practice.
• Unexplained transactions are repeated between personal and commercial accounts.
• Activity is inconsistent with stated business.
• Account has close connections with other business accounts without any apparent reason for the connection.
• Activity suggests that transactions may offend securities regulations or the business prospectus is not within the requirements.
• A large number of incoming and outgoing wire transfers take place for which there appears to be no logical business or other economic purpose, particularly when this is through or from locations of concern, such as countries known or suspected to facilitate money laundering activities. 
  

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5.3 Businesses who Send or Receive Electronic Funds Transfers

 Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators. If you are involved in the business of electronic funds transfers, consider the following indicators. 

• Client orders wire transfers in small amounts in an apparent effort to avoid triggering identification or reporting requirements.
• Client transfers large sums of money to overseas locations with instructions to the foreign entity for payment in cash.
• Client receives large sums of money from an overseas location via electronic funds transfer that includes instructions for payment in cash.
• Client makes frequent or large electronic funds transfers for persons who have no account relationship with the institution.
• Client receives electronic funds transfers and immediately purchases monetary instruments prepared for payment to a third party which is inconsistent with or outside the normal course of business for the client.
• Client requests payment in cash immediately upon receipt of a large electronic funds transfer.
• Client instructs you to transfer funds abroad and to expect an equal incoming transfer.
• Client shows unusual interest in electronic funds systems and questions limit of what amount can be transferred.
• Client transfers funds to another country without changing the form of currency.
• Large incoming wire transfers from foreign jurisdictions are removed immediately by company principals.
• Client sends frequent wire transfers to foreign countries, but business does not seem to have connection to destination country.
•  Wire transfers are received from entities having no apparent business connection with client.
• Size of electronic transfers is out-of-keeping with normal business transactions for that client. 
• Wire transfers do not have information about the beneficial owner or originator when the inclusion of this information would be expected.
• Stated occupation of the client is not in keeping with the level or type of activity (for example a student or an unemployed individual who receives or sends large numbers of wire transfers).
• Beneficiaries of wire transfers involve a large group of nationals of countries associated with terrorist activity.
• Client conducts transactions involving countries known as narcotic source countries or as trans-shipment points for narcotics, or that are known for highly secretive banking and corporate law practices.
• Client makes electronic funds transfers to free trade zones that are not in line with the clients business.
  
  

  More information on which countries these characteristics may apply to can be found at the following Web sites:  http://www.state.gov/www/global/narcotics_law/1999_narc_report/ index.html   (International Narcotics Control Strategy Report released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State, March 2000)

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5.4 Businesses who Provide Loans

Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators. If you are involved in the business of providing loans or extending credit to individuals or corporations, consider the following indicators. 

• Client suddenly repays a problem loan unexpectedly.
• Clients employment documentation lacks important details that would make it difficult for you to contact or locate the employer.
• Client has loans to or from offshore companies that are outside the ordinary course of business of the client.
• Client offers you large dollar deposits or some other form of incentive in return for favourable treatment on loan request.
• Client asks to borrow against assets held by another financial institution or a third party, when the origin of the assets is not known.
• Loan transactions are entered into in situations where the client has significant assets and the loan transaction does not make economic sense.
• Customer seems unconcerned with terms of credit or costs associated with completion of a loan transaction.
• Client applies for loans on the strength of a financial statement reflecting major investments in or income from businesses incorporated in countries known for highly secretive banking and corporate law and the application is outside the ordinary course of business for the client. 

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5.5 Life Insurance Companies, Brokers and Agents

Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators. If you provide life insurance as your main occupation or as one of the many services that you offer, consider the following indicators. 

• Client proposes to purchase an insurance product using a cheque drawn on an account other than his or her personal account.
• Client requests an insurance product that has no discernible purpose and is reluctant to divulge the reason for the investment.
• Client who has other small policies or transactions based on a regular payment structure makes a sudden request to purchase a substantial policy with a lump payment.
• Client conducts a transaction that results in a conspicuous increase in investment contributions.
• Client cancels investment or insurance soon after purchase.
• Client shows more interest in the cancellation or surrender than in the long-term results of investments.
• Client makes payments with small denomination notes, uncommonly wrapped, with postal money orders or with similar means of payment.
• The duration of the life insurance contract is less than three years.
• The first (or single) premium is paid from a bank account outside the country.
• Client accepts very unfavourable conditions unrelated to his or her health or age.
• Transaction involves use and payment of a performance bond resulting in a cross border payment.

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5.6 Securities Dealers

Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators. If you are involved in the business of dealing in securities or segregated fund products, including portfolio managers and investment counsellors, consider the following indicators. 

• A new or prospective client is known to you as having a questionable legal reputation or criminal background.
• Normal attempts to verify the background of a new or prospective client are difficult.
• Accounts that have been inactive suddenly experience large investments that are inconsistent with the normal investment practice of the client or their financial ability.
• Any dealing with a third party when the identity of the beneficiary or counter-party is undisclosed.
• Client attempts to purchase investments with cash.
• Client wishes to purchase a number of investments with money orders, travellers cheques, cashiers cheques, bank drafts or other bank instruments, especially in amounts that are slightly less than $10,000, where the transaction is inconsistent with the normal investment practice of the client or their financial ability.
• Client uses securities or futures brokerage firm as a place to hold funds that are not being used in trading of securities or futures for an extended period of time and such activity is inconsistent with the normal investment practice of the client or their financial ability.
• Client wishes monies received through the sale of shares to be deposited into a bank account rather than a trading or brokerage account which is inconsistent with the normal practice of the client.
• Client frequently makes large investments in stocks, bonds, investment trusts or the like in cash or by cheque within a short time period, which is inconsistent with the normal practice of the client.
• Client makes large or unusual settlements of securities in cash.
• The entry of matching buying and selling of particular securities or futures contracts (called match trading), creating the illusion of trading. 
• Transfers of funds or securities between accounts not known to be related to the client.
• Trades conducted by entities that you know have been named or sanctioned by regulators in the past for irregular or inappropriate trading activity.
• Transaction of very large dollar size.
• Client is willing to deposit or invest at rates that are not advantageous or competitive.
• All principals of client are located outside of Canada.
• Client attempts to purchase investments with instruments in the name of a third party.
• Payments made by way of third party cheques are payable to, or endorsed over to, the client.
• Transactions made by your employees, or that you know are made by a relative of your employee, to benefit unknown parties.
• Third-party purchases of shares in other names (i.e., nominee accounts).
• Transactions in which clients make settlements with cheques drawn by, or remittances from, third parties.
• Unusually large amounts of securities or stock certificates in the names of persons other than the client.
• Proposed transactions are to be funded by international wire payments, particularly if from countries where there is no effective anti-money-laundering system. 
  
  

  More information on which countries these characteristics may apply to can be found at the following Web site: http://www1.oecd.org/fatf/NCCT_en.htm  (information from the Financial Action Task Force about non-cooperative countries and territories in the fight against money laundering and terrorist financing)

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Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators. If you are involved in the money services business, including foreign exchange dealers, money remitters, issuers of travellers cheques and post offices, consider the following indicators. 

• Client requests a transaction at a foreign exchange rate that exceeds the posted rate.
• Client wants to pay transaction fees that exceed the posted fees.
• Client exchanges currency and requests the largest possible denomination bills in a foreign currency.
• Client knows little about address and contact details for payee, is reluctant to disclose this information, or requests a bearer instrument.
• Client wants a cheque issued in the same currency to replace the one being cashed.
• Client wants cash converted to a cheque and you are not normally involved in issuing cheques.
• Client wants to exchange cash for numerous postal money orders in small amounts for numerous other parties.
• Client enters into transactions with counter parties in locations that are unusual for the client.
• Client instructs that funds are to be picked up by a third party on behalf of the payee.
• Client makes large purchases of travellers cheques not consistent with known travel plans.
• Client requests numerous cheques in small amounts and various names, which total the amount of the exchange.
• Client requests that a cheque or money order be made out to the bearer.
• Client requests that a large amount of foreign currency be exchanged to another foreign currency.

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Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators. If you are an accountant, consider the following indicators when you are carrying out certain activities on behalf of your client, as explained in Section 2.1.

• Client appears to be living beyond his or her means.
• Client has business activity inconsistent with industry averages or financial ratios.
• Client has cheques inconsistent with sales (i.e., unusual payments from unlikely sources).
• Client has a history of changing bookkeepers or accountants yearly.
• Client is uncertain about location of company records.
• Company carries non-existent or satisfied debt that is continually shown as current on financial statements.
• Company has no employees, which is unusual for the type of business.
• Company is paying unusual consultant fees to offshore companies.
• Company records consistently reflect sales at less than cost, thus putting the company into a loss position, but the company continues without reasonable explanation of the continued loss. 
• Company shareholder loans are not consistent with business activity.
• Examination of source documents shows misstatements of business activity that cannot be readily traced through the company books.
• Company makes large payments to subsidiaries or similarly controlled companies that are not within the normal course of business. 
• Company acquires large personal and consumer assets (i.e., boats, luxury automobiles, personal residences and cottages) when this type of transaction is inconsistent with the ordinary business practice of the client or the practice of that particular industry.
• Company is invoiced by organizations located in a country that does not have adequate money laundering laws and is known as a highly secretive banking and corporate tax haven.
  
  

  More information on which countries these characteristics may apply to can be found at the following Web site: http://www.oecd.org/home/0,2605,en_2649_201185 _1_1_1_1_1,00.html  (Organisation for Economic Co-Operation and Development tax haven update information)

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5.9 Real Estate Brokers or Sales Representatives

Please read Section 3 and Section 5.1 (above) for general information about identifying suspicious transactions and how to use these indicators. If you are in the real estate industry, consider the following indicators when carrying out certain activities on behalf of your clients, as explained in Section 2.1. 

• Client arrives at a real estate closing with a significant amount of cash. 
• Client purchases property in the name of a nominee such as an associate or a relative (other than a spouse).
• Client does not want to put his or her name on any document that would connect him or her with the property or uses different names on Offers to Purchase, closing documents and deposit receipts.
• Client inadequately explains the last minute substitution of the purchasing partys name.
• Client negotiates a purchase for market value or above asking price, but records a lower value on documents, paying the difference under the table.
• Client sells property below market value with an additional under the table payment.
• Client pays initial deposit with a cheque from a third party, other than a spouse or a parent.
• Client pays substantial down payment in cash and balance is financed by an unusual source or offshore bank.
• Client purchases personal use property under corporate veil when this type of transaction is inconsistent with the ordinary business practice of the client.
• Client purchases property without inspecting it.
• Client purchases multiple properties in a short time period, and seems to have few concerns about the location, condition, and anticipated repair costs, etc. of each property.
• Client pays rent or the amount of a lease in advance using a large amount of cash.
• Client is known to have paid large remodelling or home improvement invoices with cash, on a property for which property management services are provided.

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5.10 Casinos

• Any casino transaction of $3,000 or more when an individual receives payment in casino cheques made out to third parties or without a specified payee.
• Client requests a winnings cheque in a third partys name.
• Acquaintances bet against each other in even-money games and it appears that they are intentionally losing to one of the party.
• Client attempts to avoid the filing of a report for cash by breaking up the transaction.
• Client requests cheques that are not for gaming winnings.
• Client enquires about opening an account with the casino and the ability to transfer the funds to other locations when you do not know the client as a regular, frequent or large volume player.
• Client purchases large volume of chips with cash, participates in limited gambling activity with the intention of creating a perception of significant gambling, and then cashes the chips for a casino cheque.
• Client exchanges small denomination bank notes for large denomination bank notes, chip purchase vouchers or cheques.
• Client is known to use multiple names.
• Client requests the transfer of winnings to the bank account of a third party or a known drug source country or to a country where there is no effective anti-money-laundering system.
  
  

  More information on which countries these characteristics may apply to can be found at the following Web sites: http://www.state.gov/www/global/narcotics_law/1999_narc_report /index.html  (International Narcotics Control Strategy Report released by the Bureau for International Narcotics and Law Enforcement Affairs, U.S. Department of State, March 2000) http://www1.oecd.org/fatf/NCCT_en.htm  (information from the Financial Action Task Force about non-cooperative countries and territories in the fight against money laundering and terrorist financing)

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