Expatriate Client, Layered Deposits, and Third-Party Transfer
A new retail client, an Iranian expatriate resident in the UAE, opens an account at your Tehran brokerage through a branch. Within two weeks he deposits IRR 45 billion in three tranches from two domestic banks and an exchange house. He states the source is a family inheritance but provides no will, bank statements, or beneficial-ownership information for a UAE company he says he owns. He then buys 200 million shares of three illiquid companies and asks to transfer the shares to his cousin's account and withdraw IRR 10 billion to a bank account in a different name. The trades settle T+2 and the account has no prior history. He becomes impatient when asked for documents and says the branch manager knows him. What should the dealing desk and compliance do?
1. Identify the AML/KYC red flags and the customer due diligence steps required.
Read the worked answer
The red flags include: a new account with no history; large deposits arriving quickly from multiple sources; a stated inheritance with no documentary support; a foreign-resident client with an undisclosed UAE company; refusal to provide beneficial-ownership information; purchases concentrated in illiquid shares; a request to transfer shares to a relative's account; a withdrawal to an account in a different name; urgency and impatience; and reliance on a branch manager's personal acquaintance. The firm must complete customer due diligence before establishing the relationship or continuing it. That means verifying identity and residence, identifying the beneficial owner of the UAE company, obtaining source-of-funds and source-of-wealth evidence, screening for politically exposed person status, and applying enhanced due diligence because of the cross-border element and the unexplained flows. The inheritance claim should be supported by probate or bank records. The cousin and the destination bank account are third parties whose identity and relationship must be verified. If the client refuses, the firm should not open or continue the relationship.
2. Can the desk execute or settle the trades while due diligence is incomplete? What about the transfer and withdrawal requests?
Read the worked answer
The desk should not accept new orders while CDD is incomplete. If trades have already been executed, the firm still has a legal settlement obligation, but it should not facilitate further activity. The transfer of shares to the cousin's account and the withdrawal to a different-name bank account should be frozen pending compliance review. A third-party transfer can be a legitimate family arrangement, but it can also be a nominee or layering technique; the firm must verify the cousin's identity, the relationship, and the economic purpose. The withdrawal to a different name is especially high risk and should not be processed without documented justification and senior compliance approval. The branch manager's acquaintance is not a substitute for CDD and creates a conflict of interest; the branch manager should be excluded from the approval. The firm should preserve all account-opening records, deposit slips, trading records, and client communications. If suspicion remains after review, the compliance officer should file a suspicious-transaction report with the Financial Intelligence Unit and consider whether to exit the relationship.
3. What reporting, tipping-off, and recordkeeping rules apply, and how should staff handle the branch manager's involvement?
Read the worked answer
If the firm knows or suspects that the funds are proceeds of crime or that the activity is suspicious, it must report to the Financial Intelligence Unit under the applicable AML framework, and it should also notify the Securities and Exchange Organization as required. Staff must not tip off the client that a report has been made or that an investigation is underway. The client should be handled with normal service language, not told the real reason for the freeze. Records should be retained for the statutory retention period and should include the CDD file, the beneficial-ownership analysis, the screening results, the transaction monitoring alerts, the internal escalation, the STR, and the final decision. The branch manager should not review or approve the client's file because his personal relationship undermines independence. Senior management and compliance should decide whether the account can continue, whether the shares can be transferred, and whether the firm should terminate the relationship. The dealing desk should not execute further orders until that decision is documented.