Money laundering has become one of the most common types of online financial fraud. With time, criminals have become more competent, making it hard for businesses to detect and prevent such fraud. Therefore, businesses must opt for smart measures to strengthen their guard against criminal attempts and minimize the damage.

In this blog, we talk about some important AML red flags that would help businesses detect and mitigate illegal activities about money laundering.

What are the Red Flags Indicators for AML/KYC? 

Red flag indicators are warning signs indicating a suspicious act of money laundering or terror financing. Businesses and federal authorities actively monitor KYC/AML red flags and monitor the suspected customers or business entities to clarify their suspicion. The AML red flags make detecting and preventing money laundering acts easy.

Red Flags to Look out for in Client

Considering the rising acts of money laundering globally, the Financial Action Task Force has released red flag indicators for AML/KYC fraud. Businesses can keep an eye on these red flags while onboarding new customers or dealing with existing customers to minimize the damage. Here are some of the most important red flag indicators, as stated by the Financial Action Task Force:

1.    Customers Being Highly Secretive

Businesses are requested to share their information for KYC when onboarding new clients. However, if a business or individual declines to share the information or seems reluctant, it’s a red flag, and businesses must deny their application straightway.

2.    Funds from Suspicious Accounts 

Banks must keep an eye on customers who receive funds from suspicious accounts (blacklisted by other banks or located in a high-risk country) because they’re often involved in money laundering activities.

3.    Transfers without Logical Explanation

Clients/businesses must present a valid logical explanation whenever they make transfers. And if they fail to do so, they must be refrained from making any transaction.

4.    Transferring or Receiving Money from Unregistered Geographies

FATF states that countries that aren’t registered or countries that are sanctioned are risky. Therefore, if a customer sends or receives funds from an unregistered geography, that account must be investigated carefully.

5.    Immediate Withdrawal

Another red flag that businesses must notice is immediate withdrawal. Sometimes, customers withdraw money to private wallets immediately after receiving the funds. And if the transaction amount is too high, businesses must report the same to authorities.

6.    Account Holder from a High-Risk Country 

While onboarding customers from high-risk countries are allowed, businesses must be very careful with them. Businesses must comply with AML guidelines and perform background checks until they know the account poses no threat.

7.    Frequent Transfers to Different Accounts

Business entities, especially banks, must monitor frequent transfers to different accounts. While regular transactions are not a problem, a sudden change in transaction volume and value can be suspicious.  

8.    Multiple Accounts Under the Same Client

Clients can have multiple accounts under the same details. However, such accounts must be constantly monitored because of the high probability of money mule scams.

9.    Conversion to Virtual Assets

While virtual assets are becoming popular, they aren’t involved in regular transactions. Several times fraudsters convert small amounts to purchase virtual assets or convert virtual assets into fiat money. Such transactions need to be closely monitored for potential money laundering scams.

10.  Problems in the Customer Due Diligence Process

Individuals with illegal ties and criminal backgrounds are often reluctant to comply with AML and KYC checks. And when they do comply, there’s always some inconsistency in the documents or details presented by them. Businesses must look for these signs seriously and take the appropriate action.

Wrapping Up

While it’s not possible to completely prevent instances of money laundering, businesses can surely minimize them by keeping the above red flags in mind. These indicators will help businesses stay cautious, identify individuals with illicit intentions, and deal with such instances effectively.


What are AML red flags?

AML red flags are warning signs that indicate a potentially suspicious act of money laundering.

Why do I need to notice AML Red Flags?

By keeping an eye on AML red flags, businesses can detect any money laundering effort and report the same to authorities. This way, businesses keep themselves and their customers safe.

How to prevent money laundering?

Businesses can always be vigilant about the AML red flags to minimize money laundering risk and opt for ID verification solutions such as HyperVerge. HyperVerge helps businesses accurately verify identities, ensuring only genuine consumers are onboarded, minimizing the risk of fraud.