Red flags for underground banking schemes

This information is from FINTRAC’s Project Athena Operational Alert, "Laundering the proceeds of crime through a casino-related underground banking scheme". It lists additional indicators to assist reporting entities in recognizing financial transactions suspected of being related to the laundering of proceeds of crime with roots in underground banking related to China, notably in Hong Kong.

In addition to other red flags, the following red flags have been identified relevant to underground banking schemes:

General

• Client moves funds sourced from individuals/entities located in China, notably in Hong Kong, within a short period of time to one or more of the following sectors: real estate, investments, automotive and/or the legal profession.
• Incoming funds from individuals/entities located in China, notably in Hong Kong, are immediately transferred to a client’s associated personal or businesses account(s) or to unrelated party(ies).
• Client has ties to China and is using their accounts for pass-through activities funded by individuals/entities located in China, notably in Hong Kong, whose relationship is unclear.
• Client is receiving funds from entities located in China, notably in Hong Kong, that are connected to the money service business industry, with no ultimate remitting party names listed.
• Funds are received from entities in China, notably in Hong Kong, with limited to no online presence and there are no details relating to the types of services offered by the sending entity.
• Stated purpose of incoming funds from individuals/entities located in China, notably in Hong Kong, is for the purchase of property but the funds were used to purchase Guaranteed Investment Certificates.
• Business accounts are funded by multiple transfers, mainly from the business’ directors and/or authorized signatories’ personal accounts.
• Adverse media mentions client, or related transacting parties of the client, as being linked to criminal activity such as fraud, possession of proceeds of crime, corruption/bribery, or illicit gambling/betting charges.

Real Estate

• Incoming funds of unknown origin sent by individuals/entities located in China, notably in Hong Kong, to a real estate-related party (e.g., real estate agent/brokerage or real estate developer) in structured amounts with indications suggesting the purpose of funds is for a real estate-related transaction (such as memos referencing an address).
• Cash deposit(s) are followed by funds sent to a real estate party (e.g., real estate agent/brokerage) with indications suggesting the purpose of payment is for a real estate-related transaction (such as memos referencing the same address repeatedly).
• Client receives funds from individuals/entities located in China, notably in Hong Kong, marked for education or personal purposes (e.g., “tuition” or “living expense”), but funds are then used towards payments with indications suggesting the purpose of payment is for a real estate-related transaction (such as memos referencing “property purchase” or “mortgage”).
• Mortgage payments are sourced from incoming funds from China, notably in Hong Kong, where the original source of funds is unclear.

Securities

• Incoming funds from individuals/entities located in China, notably in Hong Kong, are used to purchase shorter-term investment products (such as Guaranteed Investment Certificates), which are then redeemed before the term date, despite incurring a penalty.
• Incoming funds from individuals/entities located in China, notably in Hong Kong, are quickly transferred to holding companies, trust companies or investment firms.
• Cash deposits are transferred within a short period of time to a holding company, trust company or investment firm.

Automotive

• Cash deposits are transferred within a short period of time to vehicle import/export companies, often located in China, notably in Hong Kong.
• Incoming funds from individuals/entities located in China, notably in Hong Kong, are used to send funds to high end car dealerships that are inconsistent with clients stated occupation.
• Incoming funds from individuals/entities located in China, notably in Hong Kong, are used to send funds to entities listed in the automotive sector who have newer profiles (1-2 years at most).
• Incoming funds from individuals/entities located in China, notably in Hong Kong, are used to send funds to entities listed in the automotive sector who have residential addresses as their business locations.
• Incoming funds from individuals/entities located in China, notably in Hong Kong, are used to send funds to entities listed in the automotive sector who have limited to no online presence.
  Incoming funds from individuals/entities located in China, notably in Hong Kong, are used to send funds in a similar amount to a car dealership.
• Circular flow of funds between different entities listed in the automotive industry and import/export entities, with one or more entity located in China, notably in Hong Kong.
• Outgoing fund transfers to entities operating in China, notably in Hong Kong, with references to the automotive industry (such as “car purchases” or “buying cars”) that are inconsistent with client’s stated occupation (e.g., student, homemaker or unemployed).
• Inter-account transfer from personal to business accounts (or vice-versa) sourced through high value domestic fund transfers from individuals/entities in the automotive sector.
• Client receiving funds from entities with no apparent online presence that appear to be involved in automotive import/export activities and are inconsistent with clients stated occupation or expected pattern of activities (e.g., student, homemaker, unemployed).

Legal profession

• Incoming funds of unknown origin from individuals/entities located in China, notably in Hong Kong, are sent to a legal professional in structured amounts with no clear relationship or stated purpose.
• Incoming funds from individuals/entities located in China, notably in Hong Kong, are used to send funds to legal professionals who specialize in real estate and are inconsistent with client’s stated occupation or expected pattern of activities (e.g., student, homemaker, unemployed).
• Client’s account is mainly or in part funded by bank drafts, email money transfers and/or cheques from legal professionals who have limited or no open source footprint.
• Cash deposits, not in line with account holder’s stated occupation, were used to send funds to legal professionals with no clear relationship.
• Financial transactions such as cash deposits/withdrawals, use of personal negotiable instruments (e.g., cheques), electronic funds transfers and foreign exchange using legal professional’s personal account.