Late Escalation, Secrecy Request and a Settlement Deadline
A private banking RM is told by a long-standing client, a UAE-based trading company owner, that a USD 2.1 million payment to a new Turkish supplier is for 'machinery'. The invoice says 'second-hand textile equipment', the supplier was incorporated three months ago, and the shipping documents show the goods will be routed through a free zone with the final destination left blank. The client asks the RM to 'keep this between us' because the bank's compliance team 'always delays everything'. The RM mentions it to the MLRO at lunch, two days later, and says he does not want to file a report because the client is a PEP's cousin and might complain to the board. The MLRO asks you to review. The payment is scheduled to settle tomorrow.
1. What should the RM and MLRO have done differently, and what are the tipping-off and escalation risks?
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The RM should have escalated immediately in writing when the client asked for secrecy and the documents did not match the stated purpose. A lunch conversation two days later is too informal and too slow, especially with settlement tomorrow. The MLRO should document the referral, assess suspicion, and decide whether to hold the payment. Tipping-off risk arises if the client is told about a report, if settlement is delayed in a way that reveals a report, or if the board contact is used to short-circuit compliance. The client's PEP connection and threat to complain are not reasons to avoid reporting. Escalation should be need-to-know and documented.
2. What investigation steps are needed before settlement, and should an STR/SAR be filed?
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Before settlement, verify the supplier's incorporation, ownership and address; validate the invoice against the goods and the client's business; obtain shipping and end-user documents; screen all parties; assess the PEP link; review source of funds and account history; and compare the activity with the client's profile. The mismatch between 'machinery' and 'second-hand textile equipment', the new supplier, the blank final destination, the free-zone routing, and the request for secrecy are suspicion indicators. If the explanation is not readily corroborated, file an STR/SAR promptly and consider holding the payment. The report should be based on suspicion, not proof.
3. How should the bank handle the client relationship and any law-enforcement request?
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Do not tell the client about the report. Continue CDD/EDD and apply enhanced monitoring, or exit if the risk cannot be managed. If law enforcement requests information, verify authority, respond within the legal scope, preserve records, and route the request through the MLRO and legal. Do not destroy records. If exiting, follow account closure procedures and avoid tipping off. Document all decisions, including board pressure. The relationship should not be maintained on the basis of seniority or complaint risk.