Wealth managers can be targets for money launders due to their small compliance teams, lack of resources and eagerness for new clients, Don Andrews writes on WealthManagement.com. However, there are some rules that compliance officers can follow to prevent their firms from falling victim to such schemes, he writes.
Why Small Firms Get Targeted
Larger banks are unlikely to take on clients from outside the Financial Action Task Force network, according to Andrews, Partner and Global Practice Leader of the Risk and Compliance Group at Reed Smith. However, for a smaller firm, accepting an overseas account worth several million dollars could be a major boost, he writes.
Those in business development should avoid prospects with questionable cash flows and understand that fines are not a business risk — nor is the likelihood of being caught, Andrews writes. Anti-money laundering violations are monitored by financial regulators and law enforcement agencies, and the consequences of breaking these rules could easily put a small firm out of business, he writes.
Money that needs to be laundered comes from illicit activity, so the prospect will not hesitate to lie, therefore, managers must remain circumspect, according to Andrews. Additionally, managers should compare a prospect’s aims with other clients of a similar bracket, and if they want to park their money in cash or cash-like vehicles for long periods of time, they should be wary, he writes. Furthermore, managers should develop appropriate risk profiles and follow-up strategies for prospects and a testing program in case future transactions of a seemingly legitimate prospect raise red flags, according to Andrews.
Additionally, managers should scrutinize complex structures, ensuring that they are not designed to hide the true ownership, he writes. Finally, small firms offer a personal touch with attention to detail — if a prospect doesn’t require this level of service, their motives should be questioned, according to Andrews.