Suspicious Activity

There are signs of suspicious activity that suggest money laundering. These are commonly referred to as “red flags.” If a red flag is detected, additional due diligence will be performed before proceeding with the transaction. If a reasonable explanation is not determined, the suspicious activity shall be reported to the AML Compliance Committee.

Examples of red flags are:

  • The customer exhibits unusual concern regarding the firm’s compliance with government reporting requirements and the firm’s AML policies, particularly concerning his/her identity, type of business, and assets, reluctant or refuses to reveal any information concerning business activities, or furnishes unusual or suspect identification or business documents.

  • The customer wishes to engage in transactions that lack business sense or apparent investment strategy or are inconsistent with the customer’s stated business strategy.

  • The information provided by the customer that identifies a legitimate source for funds is false, misleading, or substantially incorrect.

  • Upon request, the customer refuses to identify or fails to indicate any legitimate source for his/her funds and other assets.

  • The customer (or a person publicly associated with the customer) has a questionable background or is the subject of news reports indicating possible criminal, civil, or regulatory violations.

  • The customer exhibits a lack of concern regarding risks, commissions, or other transaction costs.

  • The customer appears to be acting as an agent for an undisclosed principle but declines or is reluctant without legitimate commercial reasons to provide information or is otherwise evasive regarding that person or entity.

  • The customer has difficulty describing the nature of his/her business or lacks general knowledge of his/her industry.

  • The customer attempts to make frequent or large deposits of currency, insists on dealing only in cash equivalents, or asks for exemptions from the firm’s policies relating to the deposit of cash and cash equivalents.

  • For no apparent reason, the customer has multiple accounts under a single name or multiple names, with many inter-account or third-party transfers.

  • The customer’s account has unexplained or sudden extensive activity, especially in accounts that had little or no previous activity.

  • The customer’s account has many wire transfers to unrelated third parties inconsistent with the customer’s legitimate business purpose.

  • The customer’s account has wire transfers that have no apparent business purpose to or from a country identified as money laundering risk or a bank secrecy haven.

  • The customer’s account indicates large or frequent wire transfers, immediately withdrawn by check or debit card without any apparent business purpose.

  • The customer makes a funds deposit followed by an immediate request that the money is wired out or transferred to a third party, or another firm, without any apparent business purpose.

  • The customer makes a fund deposit to purchase a long-term investment followed shortly thereafter by a request to liquidate the position and transfer the proceeds out of the account.

  • The customer requests that a transaction be processed in such a manner to avoid the firm’s normal documentation requirements.

Know your customer – the basis for recognizing suspicions

A suspicious transaction will often be inconsistent with a customer’s known, legitimate business or personal activities or with the normal business for that type of customer. Therefore, the first key to recognition is knowing enough about the customer’s business to recognize that a transaction, or series of transactions, is unusual.

Questions you must consider when determining whether an established customer’s transaction might be suspicious are:

  • Is the size of the transaction consistent with the normal activities of the customer?

  • Is the transaction rationale in the context of the customer’s business or personal activities?

  • Has the pattern of the transaction conducted by the customer changed?

Suspicious scenarios

Issues that should lead you to have cause for suspicion would include:

  • Clients who are reluctant to provide proof of identity;

  • Clients who place undue reliance on an introducer (they may be hiding behind the introducer to avoid giving you a true picture of their identity or business);

  • Requests for cash-related business, for example, questions about whether investments can be made in cash, suggestions that funds might be available in cash for investment.

  • Where the source of funds for investment is unclear.

  • Where the magnitude of the available funds appears inconsistent with the client’s other circumstances (i.e. the source of wealth is unclear). An example might be students or young people with large amounts to invest.

  • Where the transaction doesn’t appear rational in the context of the customer’s business or personal activities. Particular care should be taken in this area if the client changes their method of dealing with you without a reasonable explanation.

  • Where the pattern of transactions changes.

  • Where a client who is undertaking international transactions does not appear to have any good reason to be conducting business with the countries involved (e.g. why do they hold monies in the particular country that the funds are going to or from? Do their circumstances suggest that it would be reasonable for them to hold funds in such countries?).

  • Clients who are unwilling to provide you with normal personal or financial information, for no apparent or rational reason. (care should be taken not to include all distance relationships as suspicious, because most will be for genuine reasons. Suspicions will ordinarily be based upon cumulative as opposed to standing alone issues)

A money launderer is likely to provide persuasive arguments about the reasons for their transactions. Those should be questioned to decide whether a transaction is suspicious.

Reporting a Suspicion

Where, for whatever reason, we suspect that a client or anybody for whom they are acting may be undertaking (or attempting to undertake) a transaction involving the proceeds of any crime it

must be reported as soon as practicably possible and in writing.

Internal reports must be made regardless of whether any business was or is intended to be written.

Investigation

Upon notification to the AML Compliance Committee, an investigation will be commenced to determine if a report should be made to the appropriate law enforcement or regulatory agencies.

The investigation will include but not necessarily be limited to a review of all available information such as payment history, birth dates, and address. If the results of the investigation warrant, a recommendation will be made to the AML Compliance Committee to file the SAR with the appropriate law enforcement or regulatory agency. The AML Compliance Committee is responsible for any notice or filing with law enforcement or regulatory agency.

Investigation results will not be disclosed or discussed with anyone other than those who have a legitimate need to know. Under no circumstances

shall any officer, employee, or appointed agent disclose or discuss any AML concern, investigation, notice, or SAR filing with the person or person subject of such, or any other person including members of the officer’s, employee’s or appointed agent’s family?

Freezing of Accounts

Where we know that the funds in an account derive from criminal activity, or that they arise from fraudulent instructions, the account must be frozen. Where it is believed that the account holder may be involved in the fraudulent activity that is being reported, then the account may need to be frozen.

Monitoring and Reporting

Transaction-based monitoring will occur within the appropriate business units of Seven Capitals Foreign Brokerage Limited Markets Limited. Monitoring of specific transactions will include but is not limited to transactions aggregating $5,000 or more and those concerning which Seven Capitals Foreign Brokerage Limited Market Limited has a reason to suspect suspicious activity. All reports will be documented.

Evidence of Address

Current bank statements, or credit/debit card statements issued by a regulated financial sector firm (but not ones printed off the internet and not less than 3 months old)

Utility bills (not including mobile phone bills, not ones printed off the internet and not less than 3 months old)

For increased risk level products, in addition to obtaining the standard information detailed above, the following know your customer information should be obtained and recorded:

Employment and income details Source of wealth (i.e. source of the funds being used in the transaction)

Verification

Verification of the information obtained must be based on reliable and independent sources – which might either be documents produced by the customer, or electronically by the firm, or by a combination of both. Where business is conducted face-to-face, firms should see originals of any documents involved in the verification.

If documentary evidence of an individual’s identity is to provide a high level of confidence, it will typically have been issued by a government department or agency, or by a court, because there is a greater likelihood that the authorities must have checked the existence and characteristics of the persons concerned. In cases where such documentary evidence of identity may not be available to an individual, other evidence of identity may give the firm reasonable confidence in the customer’s identity, although the firm should weigh these against the risks involved.

If the identity is to be verified from documents, this should be based on: a government-issued document that incorporates:

The customer’s full name, and their residential address, Photographic Government Issued Identity Documents, or Valid passport National Identity card alternatively, this can be done by a non-photographic government-issued document which incorporates the customer’s full name, supported by a second document, which incorporates: customer’s full name, and their residential address.

Identification

The standard identification requirement for customers who are private individuals is generally governed by the circumstances relating to the customer and the product type that is being dealt in, i.e. the level of risk attributed to the product whether it is reduced risk, intermediate-risk, or an increased risk product. Taking that into account for reduced risk and intermediate-risk products the following pieces of information are required as a standard for identification purposes:

  • Full Name

  • Residential Address

Source of Funds

When a transaction takes place the source of funds, i.e. how the payment is to be made, from where and by who must always be ascertained and recorded in the client file (this would usually be achieved through retaining a copy of the cheque or direct debit mandate).

Know Your Customer

When a business relationship is formed, to establish what might constitute normal activity later in the relationship, the company must ascertain the nature of the business a the client expects to conduct.

Once an ongoing business relationship has been established, any regular business undertaken for that customer can be assessed against the expected pattern of activity of the customer. Any unexplained activity can then be examined to determine whether there is a suspicion of money laundering or terrorist financing.

Information regarding a client’s income, occupation, source of wealth, trading habits, and the economic purpose of any transaction is typically gathered as part of the provision of advice. At the start of the relationship personal information is also obtained such as nationality, date of birth, and residential address. These pieces of information should also be considered concerning the risk of financial crime (including AML and CTF). For high-risk transactions, it might be appropriate to seek verification of the information the client has provided.

Notice to Customers

Seven Capitals Foreign Brokerage Limited Market Limited will provide notice to customers that it is requesting information from them to verify their identities, as required by applicable law.

Customer Identification Program

Seven Capitals Foreign Brokerage Limited Market Limited has adopted a Customer Identification Program (CIP). We will provide notice that they will seek identification information, collect certain minimum customer identification information from each customer, record such information, and the verification methods and results.

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