Money laundering schemes are ever-evolving. With money launderers continually searching for newer and better ways of infiltrating the financial system, it has become extremely difficult, if not impossible, to trace the ‘money trail’. The most logical and effective solution therefore, is to prevent such infiltration in the first place.

The more you know your client, the more likely you are to catch out suspicious activity and the converse is equally true. In our dealings with new and existing clients, therefore, we must carry out proper due diligence and on-going monitoring, which will in turn allow us to better detect suspicious client behaviour/ transactions and thereby take appropriate reporting action, as early as possible.

As per the Prevention of Money Laundering and Funding of Terrorism Regulations 2008, when a subject person knows, suspects or has reasonable grounds to suspect that a transaction may be related to money laundering or the funding of terrorism (ML/FT), said person must disclose such information to the Financial Intelligence Analysis Unit, by not later than five working days from when the suspicion first arose.

This obligation is furthermore imposed whenever a subject person may have been, is or may be connected with ML/FT, and where ML/FT has been, is being or may be committed or attempted.

Evidently, discretion is afforded to subject persons in determining whether suspicion of ML/FT exists. How do we go about assessing this? Suspicion is generally based on awareness of certain facts and the use of common sense. It is not speculation, and therefore cannot be based on hunches, assumptions, or any insubstantial basis.

It is true that suspicion involves a subjective element which can be hard to judge. However, the failure to report when there are “reasonable grounds” for knowledge or suspicion, ultimately assumes an objective test: if you ought to suspect but do not, and consequently fail to report, you are at fault.

It is thus imperative to acquire a proper understanding of your clients and their businesses so as to be able to identify causes of suspicion related to ML/FT, and this in accordance with each client’s particular business climate. That said, there are a number of indicators which should raise concern, irrelevant of the client or business involved. Examples include:

• Client refusal/reluctance to provide any requested information;

• Implausible explanation for business and/or amount involved;

• Inconsistent size or freq­uency  of  activity  from clients’ normal activities;

• Change of transaction pattern since the business relationship was established;

• Presentation of invoices or other supporting documentation which appear to be false;

• Transfers of funds to/from companies registered in offshore jurisdictions which appear to be shell companies;

• Adverse information being exposed through open sources, on the client and/or the beneficiaries or remitters thereof

In the instance of any red flags, therefore, the obligation to report kicks in. This involves a two-tier procedure, which begins internally.

Briefly, internal reporting necessitates the appointment by each subject person, of a Money Laundering Reporting Officer (MLRO), who shall be resident in Malta.

The MLRO is effectively designated to receive reports of any information or other matter which triggers knowledge or suspicion of ML/ FT. Such person must therefore, have access to all necessary resources and must be easily accessible by the subject person.

Upon receipt of report, the MLRO shall consider its contents in the light of all other relevant information and determine whether or not there does, in fact, exist knowledge or suspicion that a person has been, is or may be engaged in ML/FT.

In the affirmative, external reporting must be effected. This obligation is shouldered by the MLRO, who must complete what is known as a Suspicious Transaction Report (STR), containing all relevant client/transaction information, and submit same to the FIAU by no later than five working days from when the suspicion first arose, (hence, from first receipt of an internal report). Confidentiality attaches to the STR, such that the name of the employee who made the internal report is not included.

A subject person who fails to comply with the above-mentioned reporting requirements, shall be liable to an administrative penalty of not less than €250 and not more than €2,500. This shall be imposed by the FIAU without recourse to a court hearing and may be imposed either as a one-time penalty or on a daily cumulative basis until compliance, provided that in the latter instance, the accumulated penalty shall not exceed €12,500.