The Suspicious Deposit
A new client, Mr Chen, opens an investment account and deposits £180,000 in three tranches over eight days, each just under £60,000. He is a UK resident but the funds arrive from a company account in a jurisdiction the firm classifies as higher risk. He provides a passport and a utility bill, but the source-of-funds evidence is a one-page letter from the overseas company stating the money is a 'consultancy payment'. He is reluctant to explain his business and asks to keep correspondence by personal email. A junior adviser notices the pattern and asks the compliance officer whether to proceed.
1. Identify the money-laundering red flags and explain why they matter.
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Red flags: structuring - three deposits just under £60,000 suggest an attempt to avoid reporting or scrutiny thresholds; funds from a higher-risk jurisdiction via a corporate account rather than the client's own; weak source-of-funds evidence (a generic one-page letter is easily fabricated and does not identify the underlying payer or purpose); evasiveness about his business; and a request to use personal email, which evades firm record-keeping. Individually each may have an innocent explanation; together they meet the threshold for enhanced due diligence and possible suspicion, which triggers a report to the financial intelligence unit. The firm must not tip off the client.
2. Set out the compliance steps the firm should take before and after deciding whether to accept the client.
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Before acceptance: apply enhanced due diligence - verify identity and beneficial ownership of the overseas company, obtain independent source-of-funds and source-of-wealth evidence (bank statements, contracts, tax records), and seek senior management approval for a higher-risk relationship. Do not proceed on the current evidence. If suspicion remains, submit a suspicious activity report to the National Crime Agency and consider whether a defence is needed before continuing. Freeze or restrict the account pending review. Do not tell the client a report has been made. Retain all records for the required period, and document the decision and rationale. The junior adviser should escalate, not decide alone.