Four Subscriptions Below the Reporting Threshold
At Unity Trust, four new clients subscribe to the Unity Money Market UITF within three banking days: P480,000, P490,000, P495,000, and P470,000. Each application lists the same residential address and mobile number, and each is funded by a manager's check drawn on the same joint account at another bank. The clients say they are relatives pooling 'family savings.' One client, Mr. Tan, is a first cousin of a municipal mayor and is therefore treated as a domestic politically exposed person under the bank's policy. When asked for source of funds, the group gives a one-page undated deed of sale for a parcel of land with no notary details. The branch wants to accept the subscriptions because each is below the P500,000 covered-transaction threshold and the UITF is a low-risk product. The total is P1.935 million.
1. Identify the AML red flags and explain whether each subscription being below P500,000 resolves the issue.
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The red flags include four subscriptions in three days, amounts deliberately close to but below P500,000, a common address and mobile number, funding from the same third-party joint account, a vague 'family savings' explanation, a PEP connection, and an undated deed with no notary details. The pattern is consistent with structuring, and the low-risk nature of a money-market UITF does not neutralize the source-of-funds risk.
The P500,000 threshold is a covered-transaction reporting trigger, not a definition of suspicion. A transaction below the threshold can still be suspicious, and related transactions may be aggregated. The trust entity should look at the total relationship and the common beneficial ownership, not four isolated tickets. The branch's reasoning is therefore wrong: keeping each ticket below P500,000 is precisely what makes the pattern more suspicious. The trust entity must document the aggregation analysis and cannot rely on the product label to avoid escalation.
2. What enhanced due diligence and approval steps are required before onboarding, and should a suspicious transaction report be filed?
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Before onboarding, the trust entity should verify each client's identity, relationship to the others, and beneficial ownership of the joint account. It should obtain independent evidence of source of funds and wealth: bank statements, tax returns, the notarized deed and Registry of Deeds records, and evidence of the land sale proceeds. The PEP relationship requires senior management approval, enhanced ongoing monitoring, and a clear explanation of the mayor's connection. The deed should be validated with the issuer or registry, not accepted at face value.
If the clients cannot explain the common funding account or the deed remains unverifiable, the trust entity should decline or suspend the subscriptions. A suspicious transaction report should be filed promptly with the AMLC, without tipping off the clients. The report should describe the aggregation, the common address and funding, the PEP link, and the inadequate documents. The decision to file should not depend on whether the clients are ultimately accepted; suspicion is enough.
3. Can the trust entity rely on the branch's acceptance, and what governance failures would you flag?
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The trust entity cannot simply rely on the branch. It has its own AML obligations as a covered institution and must conduct its own customer due diligence, even if the branch is part of the same bank. If it uses another unit's onboarding, it must satisfy itself that the information is reliable, current, and documented. The branch's threshold-based reasoning is a red flag in itself.
Governance failures include a sales culture that treats low-risk products as low-risk clients, no aggregation across related applications, no PEP escalation, and no challenge to a one-page undated deed. The compliance function should review why the branch believed P500,000 was a safe harbor. Remediation should include retraining, a related-party aggregation report, PEP approval controls, and quality testing of source-of-funds documentation. Senior management should receive the case, and the trust entity should consider whether the branch's incentive structure rewards volume over AML quality.