Red Flags of Money Laundering and Fraud
There can be many types of frauds perpetrated against companies and similar organizations. Set out below are some of the many red flags that can, in specific circumstances, warrant a closer review of past, pending and future transactions.
Red flags of possible money laundering
Red flags of possible employee fraud
- Merchants - sales of big-ticket items for cash, later returned for refund by cheque.
- Importers - goods sent to Canada at higher than normal market prices with cash paid in Canada to cover "overpayment";
- Exporters - payment in cash for highly saleable consumer goods to be shipped abroad, thus converting cash to goods and moving goods outside of country.
- Lawyers - accepting trust fund deposits in cash, particularly as deposits for purchases of large assets with mortgages funded by offshore banks or with mortgages guaranteed by deposits in offshore banks;
- Accountants - assisting on new client purchases of businesses funded in whole or in part by cash or funds from offshore.
- Banks - large cash payments on credit cards domiciled offshore; such payments can the be drawn out as "cash advances" by the credit card holder, offshore or in Canada.
- Retailers - offers to provide goods at inflated prices with good credit terms with large "cash" rebate upon payment by cheque;
- Investment dealers - new clients who pay in cash for liquid investments such as savings bonds and then ask for delivery of the securities.
- Businesses - willingness by new clients to pay full asking price for and all other fees without debate, for goods and services, provided cash payment is accepted.
- Casinos - large sales of chips with minimal gambling and quick conversion into a casino cheque;
- Art and antique dealers - sales of readily resalable antiquities and art for cash;
- Travel agents - purchase of fully refundable business class tickets with cash, later returned for a cheque refund.
- Real estate brokers - large cash deposits on conditional property purchases that are not completed, with deposit refunded by cheque.
- Lottery and racetrack winners - offers to "buy" the winning ticket for cash plus a premium, thus converting cash into "legitimate" winnings.
- Anyone, either personally or in business:
- Transactions that appear to be needlessly complex, roundabout or without a sound business reason, except "trust me";
- Individuals who appear to be naturalized Canadian citizens using second passports as identification, especially if the passports do not show entry stamps (passport may be in a maiden name or a name that has been revised for North America);
- New "friends" with lavish hospitality who quickly propose unusual financial transactions using their cash and your credit rating and banking relationships;
- Financial transactions with "offshore" locations in Caribbean, Mediterranean or South Pacific areas; and
- An obsession with secrecy and a desire to your limit consultation with professional advisers.
Red flags of possible supplier fraud
- Employee is very reluctant to take vacations or even days off.
- Employee works long hours of overtime, often without seeking compensation (extra pay or time off in lieu of overtime).
- Long-time employee has strong knowledge of organization’s internal control systems and is able, due to position or relationships, to override or circumvent internal controls.
- Employee is very friendly with other employees, offering gifts or bonuses or travel to encourage cooperation with or "blind eye" to questionable acts.
- Employee berates or uses fear or intimidation to force junior employees to do his bidding.
- Employee becomes excessively angry, defensive or forgetful when questioned about business process, procedures and decisions.
- Life-style of employee exceeds apparent family resources; living standard more lavish than lifestyles of employee’s parents or siblings.
- Employee or spouse shows signs of being addicted to drugs, gambling, speculative stock market investments, sex.
- Employee caught in a lie about business matters, raising questions about truthfulness of other assertions.
- Employee, for certain supplier(s) or client(s) is rumoured to be on close personal terms or to be recipient of lavish hospitality or in an intimate relationship.
- Employee with past record of conflicts of interest, illegal or questionable acts.
- Employee expense account is heavily used and higher than for employees with similar responsibilities.
Red flags of possible fraud by bid-rigging using internal
- Supplier name is unknown and supplier representatives are not seen.
- Supplier is not listed in the telephone directory or with directory assistance; calls are never answered by a live voice.
- Supplier address is a residential neighbourhood, post-office box or a mail drop.
- Supplier invoices have limited detail or are standard stock from office stationer.
- Supplier invoice excludes usual taxes.
- Payment of supplier’s invoices authorized by only one person.
- Supplier invoices are for services without any proof of delivery.
- Amount of invoice is just under signing authority of person approving payment.
- Goods invoiced by supplier are consistently "received" by one person.
- Supplier invoices are not received by regular mail but are "walked over" to Accounts Payable clerk; cheques are marked for delivery to one person, rather than mailed.
- Supplier transaction has unusual terms for which no reasonable explanation is apparent.
- Price is very low compared to competitors (possible non-receipt, short delivery or substituted products) or very high (uncompetitive).