With regulators upgrading their anti-money laundering requirements, it is becoming increasingly important for advisors to be vigilant about suspicious activity among clients.
Kirsty MacDonald, manager of branch audit and advisor compliance training at Assante Wealth Management (Canada) Ltd. in Toronto says it’s very rare, in her experience, to see examples of client fraud. “We have so many checks and balances and policies in place to ensure that this doesn’t happen,” she says.
But that doesn’t mean the problem doesn’t exist. Watch out for the red flags that could indicate fraudulent activity on the part of a client:
> Refusal to prove identity
Hesitation or refusal to verify personal information could be a sign that a prospective client may be involved fraud or other criminal activity.
Be wary of someone who doesn’t want to provide verification of his or her address, income or place of work, says MacDonald.
> Trying to use an alternative address
Become suspicious if a client wants an account set up under a different address from their own.
If a new client shows you their identification and then requests another address for the account without a justifiable reason, you should become wary, says MacDonald. There are legitimate situations in which people winter in other countries, for example, but those are easily explained and verified.
> Refusing to declare sources
Watch out for clients who are secretive about their incomes.
A client’s refusal to disclose a source of funds could indicate that he or she is involved in money laundering, says MacDonald.
> Hiding a connection to the financial services industry
Be careful of people who don’t tell you everything about their jobs — particularly if they’re in the financial services business.
If you discover that a prospective or new client has failed to mention that he or she works in financial services, that could indicate a case of insider trading.
> Asking too many questions
Pay attention to the questions a potential clients asks during an initial meeting. If they seem more interested in your firm’s operations than investment and financial planning options, they may be less than above-board.
Think twice about a prospective client who makes a lot of inquiries around compliance, internal controls, money laundering or reporting requirements, says MacDonald. You should be especially concerned if they choose not to open an account after asking all those questions.
> Unusual account activity
An unusual degree of activity within a client’s account can be a sign of suspicious behaviour.
Clients who make multiple withdrawals or deposits within days of each other could be involved in criminal activity, says MacDonald.
Too little activity should also raise suspicion.
If you believe a client may be involved in criminal activity, contact your compliance department.
IE