Rapid Pass-Through on a New Trading Account
A Hong Kong-incorporated trading company was onboarded six months ago. It declared annual turnover of HK$40 million from selling consumer electronics to Southeast Asia. Over three weeks, the account receives 14 inward remittances totalling HK$9.8 million from five unrelated companies in Singapore, Cyprus and the UAE. Each payment references “consultancy” or “logistics”. Within 48 hours of each receipt, funds are sent to a single supplier in a jurisdiction subject to enhanced scrutiny. The supporting invoices use identical template fonts, have sequential invoice numbers and show unit prices 60–70% above market. No bills of lading, packing lists or customs declarations have been provided. The relationship manager calls the director; an assistant answers, says the director is travelling and cannot explain the supplier relationship. The company website is a one-page site with no staff names or address beyond a virtual office. The account has no payroll or tax payments.
1. Identify the red flags and explain which money-laundering typology they suggest. Prioritise the three most significant indicators and justify your ranking.
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The pattern points to trade-based money laundering combined with third-party layering. The key red flags are: payments from unrelated third parties in multiple jurisdictions; references to “consultancy” and “logistics” that do not match the declared electronics business; rapid in-and-out movement within 48 hours; a single high-risk supplier; invoice anomalies such as identical templates, sequential numbering and 60–70% price inflation; absence of shipping documents; and evasive behaviour by the director.
The three most significant are: (1) rapid pass-through with no economic substance, because it shows the account is being used as a conduit rather than for trading; (2) invoice discrepancies plus missing shipping documents, because they undermine the stated trade and suggest fabricated value; and (3) third-party payments from unrelated entities, because they break the audit trail and are a common layering technique. The virtual office and absence of payroll or tax payments reinforce the concern that the business profile is not genuine. A risk-based assessment should treat these as a cluster, not isolated defects.
2. What should the relationship manager and MLRO do in the next 24 hours? Address CDD refresh, account operation, STR filing and tipping-off.
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The RM should escalate immediately to the MLRO and preserve the account activity, invoices and call notes. The MLRO should treat this as a potential STR case and assess whether the institution has reasonable grounds to suspect proceeds of crime. CDD should be refreshed on an enhanced basis: obtain the underlying contracts, shipping documents, customs records, counterparty ownership information and an explanation of why unrelated third parties are paying. Because suspicion already exists, requests should be made carefully through normal channels and without revealing that a report is being considered.
The bank may restrict or suspend transactions pending review, but it should not tell the customer that an STR has been or may be filed. Tipping-off is a criminal offence, so any account restriction should be explained on ordinary risk or documentation grounds. If suspicion remains after review, file an STR with JFIU promptly and document the decision. Do not continue high-risk flows simply because the customer provides more paper; test whether the documents are independently verifiable and consistent with the profile.
3. Two days later the director emails PDFs of bills of lading and asks why the bank is “interfering”. How should the bank respond and what should it do with the documents?
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The bank should acknowledge the documents through routine channels, avoid confirming or denying any report, and say only that enhanced monitoring or documentation review is being applied. It must not disclose that an STR has been filed or that suspicion exists. The documents should be reviewed for authenticity and consistency: vessel names, ports, dates, weights, container numbers, issuer details, and whether they match the invoices and customs records. The bank should verify them independently where possible, not simply accept PDFs at face value.
If the documents resolve the concerns, the MLRO should document why and adjust monitoring. If inconsistencies remain, the bank should maintain restrictions and consider exiting the relationship after any required STR. The director’s use of the word “interfering” is itself a risk indicator. The response should be calm, factual and non-accusatory, and staff should avoid speculation in writing.