When it comes to identifying possible cases of money laundering, financial planners need to use their “spidey senses” to pick up on red flags, says Amber Scott, senior manager, financial crime risk and compliance, MNP LLP.
“You’re that front line of defense in terms of whether or not something is unusual,” says Scott, who spoke at the Canadian Institute of Financial Planners annual conference in Niagara Falls, Ont. on Monday.
“Trust your gut, trust your instincts and if something doesn’t seem quite right, ask a couple of questions.”
Below are four red flags that could indicate a client may be involved in money laundering:
> A strange demeanor
If a client demonstrates over-the-top behaviour, whether friendly or aggressive, it may be a sign that he or she is into some shady financial dealings.
For instance, a client who provides too much information or tries to justify everything, says Scott, may be trying to convince you of something that isn’t true. Furthermore, clients who try to rush through processes or to intimidate you during a conversation could be involved in fraudulent activities.
As well, overly friendly clients, such as people who are always dropping off little gifts, should be reported to compliance, according to Scott.
> A sudden change in direction
Although a person’s views and actions will always change over time, unexpected changes in behaviour in a client should be considered a red flag.
For example, if a client, who has always been consistent in the past, suddenly changes his or her investments but can’t explain why, it may be that they are receiving instructions from someone else as part of a fraudulent scheme, says Scott.
> Problems with identification
Another red flag for money laundering is identification.
Watch out for I.D documents that cannot be confirmed, says Scott, or that are inconsistent. “One of the things we see a lot of the time in fraud situations,” she says, “is that you’ll have a lot of individuals that seem to have the same address.”
Another warning sign is a reluctance to provide identification. Of course, in some cases that hesitancy may stem from privacy concerns, says Scott. In that case, advisors simply need to explain that you are required to collect personal information to prevent fraud.
> Overly comfortable with fees
Clients who seem a little too easy going about commissions may not be on the straight and narrow, according to Scott.
“Most of us have a pretty vested interest in hanging onto our wealth,” she says, “and don’t feel like giving it away.” As such, supposed “dream clients” who don’t want to haggle over fees and are willing to top up your commission should be treated with caution.
The reason why potential money launderers are so nonchalant about fees is because of the cost of doing (illegal) business. The average cost of laundering money is about 17% to 25% of the total amount, says Scott. So, if there is a cheaper way for the money to be laundered through a financial planner, the person will not be so concerned about slightly higher fees or commissions.