Cash Deposits and a Sudden Exit

The firm appears to have a suspicion, even if it cannot yet prove wrongdoing. Suspicion is objective and fact-based; it does not require proof or a completed investigation. The cash deposits are structured across 12 branches, which is a recognised indicator of attempts to avoid reporting thresholds or scrutiny. The amounts are round and repetitive, and the stated furniture trading business has not produced matching trade documentation. The remittances come from six unrelated companies in higher-risk jurisdictions, with no clear economic link to the business. The director refused a site visit and became agitated when asked for basic documents. The sudden request to close the account and move HKD 3.2 million to a newly incorporated company is a further red flag, particularly when combined with the RM's comment about avoiding an audit.

The RM's assertion that the client is legitimate is not determinative. The firm must consider the totality of the facts, including the client's explanation and any documents obtained. If the firm accepts a plausible explanation and documents it, the suspicion may be reduced; but on these facts the firm should not simply rely on the RM's assurance. The firm should also consider whether the activity is consistent with the client's risk profile and whether any sanctions or PEP issues arise. If suspicion remains, the firm should make an STR to the Joint Financial Intelligence Unit as soon as reasonably practicable. There is no de minimis threshold for suspicious transactions.

The firm should not treat the closure request as a routine administrative matter. It can consider exiting the relationship, but it must not do so in a way that helps the client avoid scrutiny or disposes of funds that may be criminal proceeds. Before any transfer, the firm should complete its investigation and decide whether it has a suspicion. If it makes an STR, it may rely on the statutory safe harbour for the disclosure. It should not tell the client that an STR has been made or that the firm is considering one, because tipping-off is a criminal offence under the organized and serious crimes and drug trafficking legislation.

The firm may need to consider whether to continue or suspend the relationship pending law enforcement feedback. There is no general legal requirement to freeze the account merely because an STR is made, but the firm should assess the risk of releasing funds and take legal advice. It should not use account closure as a substitute for reporting. If the firm decides to exit, it should do so on documented risk grounds, apply enhanced due diligence and consider whether to return funds only after satisfying itself that there is no suspicion. The MLRO and senior management should be involved, and the decision should be recorded. The firm should also consider whether the RM's comment suggests a culture issue or a conflict of interest that needs escalation.

The firm should refresh corporate due diligence: verify the company's ownership and control, identify beneficial owners, obtain the business registration and shareholder records, and establish the source of the cash deposits and the purpose of the third-party remittances. It should request contracts, invoices, shipping documents, customs records and bank statements for the counterparties. It should conduct adverse media, sanctions and PEP screening on the director, shareholders and counterparties. A site visit should be attempted again, and the firm should document the refusal and the reasons given.

The firm should interview the RM and review the relationship from inception, including whether the original customer risk assessment was adequate. It should assess whether the activity is consistent with the stated business and whether the transaction monitoring alerts were properly investigated. The MLRO should document the suspicion analysis, the decision on the STR, the closure decision and the reasons for any transfer. Records should be retained for at least five years after the end of the relationship, and longer if required by law enforcement. The firm should also consider reporting the matter to the SFC if it reveals a systemic AML control weakness, and should provide staff training on structuring, third-party payments and tipping-off.