Suspicious Transactions And Money Laundering

The term money laundering often brings to mind a vivid picture of making dirty money clean. This term while descriptive, can lead to individuals having difficulty in recognising money laundering in all its sophisticated forms. For regulated financial institutions, the obligation to prevent money laundering and the need to disclose any suspicion of same is the focus of the Proceeds of Crime Act (“POCA”).

The POCA defines a suspicious transaction as complex, unusual or large business transaction carried out by the customer and unusual patterns of transactions, whether completed or not, which appear to be inconsistent with the normal transactions carried out by that customer with the business. The Courts have defined “suspicious” as going beyond sheer speculation but nevertheless based on some foundation.

In an effort to stem the proliferation of money laundering disguised as harmless transactions, financial institutions are required to make suspicious transaction reports. Financial institutions must make these reports in circumstances where:

1. there is knowledge or belief or reasonable grounds for knowledge or belief that another person has engaged in a transaction that could constitute or be related to money laundering; and
2. the information or matter on which the knowledge or belief is based or which gave reasonable grounds for such knowledge or belief was obtained in the course of a business in the regulated sector.

The BOJ’s 2004 (revised 2009) Guidance Notes on the Detection and Prevention of Money Laundering and Terrorist Financing Activities (the “Guidance Notes”) are instructive and outline, inter alia, the responsibilities of financial institutions under POCA. The Guidance Notes indicate that there is now a minimum 30 day period for financial institutions to file a suspicious transaction report with the Chief Technical Director of the Financial Investigations Division of the Ministry of Finance and Planning.

The test for whether a financial institution should make a suspicious transaction report is essentially an objective one where the question posed is whether an honest reasonable person would have known or suspected the transaction.

In addition, as a rule of thumb the Guidance Notes suggest that financial institutions should seek to employ procedures with customers that allow them to terminate the transaction in the event that the institution believes that money laundering could be involved. However, a financial institution may well ask what should be done when faced with a suspicious transaction in circumstances where declining to proceed may arguably alert the customer of the institution’s suspicions while proceeding may cause the institution to inadvertently run afoul of POCA.

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