High-Risk Transactions

High-Risk Transactions

EBA „The ML/TF Risk Factors Guidelines“ (EBA/GL/2021/02)

Unusual transactions

4.60. Firms should put in place adequate policies and procedures to detect unusual transactions
or patterns of transactions. Where a firm detects such transactions, it must apply EDD measures.

Transactions may be unusual because:

  • they are larger than what the firm would normally expect based on its knowledge
    of the customer, the businessrelationship or the category to which the customer
  • they have an unusual or unexpected pattern compared with the customer’s
    normal activity or the pattern of transactions associated with similar customers,
    products or services; or
  • they are very complex compared with other, similar, transactions associated
    with similar customer types, products or services, and the firm is not aware of an
    economic rationale or lawful purpose or doubts the veracity of the information
    it has been given.

4.61. These EDD measures should enable the firm to determine whether these transactions give
rise to suspicion and must at least include:

  • taking reasonable and adequate measures to understand the background and
    purpose of these transactions, for example by establishing the source and
    destination of the funds or finding out more about the customer’s business to
    ascertain the likelihood of the customer making such transactions; and
  • monitoring the business relationship and subsequent transactions more
    frequently and with greater attention to detail. A firm may decide to monitor
    individual transactions where this is commensurate to the risk it has identified.

Section 15 (3) no. 3 of the German GwG

A higher risk arises in particular if the transaction, in relation to similar cases,

  • is particularly complex or unusually large,
  • is conducted in an unusual pattern or
  • has no apparent economic or lawful purpose

Section 15 (6) of the German GwG

In the case of high-risk transactions, at least the following enhanced due diligence requirements must be fulfilled:

  1. the transaction and its background and purpose must be examined by taking appropriate measures so that the risk associated with the respective business relationship or transactions can be monitored and assessed with regard to money laundering and terrorist financing and to determine, if applicable, whether a reporting requirement exists, and
  2. where a transaction is based on an underlying business relationship, this relationship is to be subject to enhanced, ongoing monitoring in order that the risk associated with the business relationship and individual transactions with regard to money laundering and terrorist financing can be assessed and, in the case of heightened risk, monitored.

BaFin-Interpretation and Application Guidance on the German Money
Laundering Act (GwG)

Under section 15 (3) no. 3 of the GwG, enhanced due diligence obligations apply for transactions which are particularly complex or unusually large by comparison with similar transactions, which follow an unusual pattern of transactions or which are implemented without any obvious economic or legal purpose.

The obliged entity must decide in each specific instance whether a particularly large, complex or unusual transaction is applicable. The yardstick is transactions in other cases which are known to the obliged entity, provided that the discrepancy is not obvious to this obliged entity.

The size of the obliged entity’s business or the normal scope of the business relationship may serve as indications. The manner in which an obliged entity has learned of the discrepancy, unusual characteristic or abnormality is immaterial. Information on the above transactions may also be found in nos. 4.60 et seq. of the guidelines on risk factors.

The applicability of this requirement is expressly not subject to these discrepancies, unusual characteristics or abnormalities – which have not yet been considered in the specific instance – already qualifying as a reportable case within the meaning of section 43 of the GwG.

For example, mere unusual characteristics and abnormalities will already apply where, on the basis of expertise or an underlying understanding of processes in this undertaking and without any further clarification, preparation or additional details regarding the matter in question, the obliged entity or its employee determines deviations from normal behaviour or business practices on the part of a customer or other third party or else transactions being implemented in an unusual manner.

In case of one of the above-mentioned transactions, on the one hand the transaction must at least undergo a special examination process, so as to be able to monitor and assess the level of risk in relation to money laundering and terrorist financing and so as to be able to review, where applicable, whether a report must be provided under section 43 (1) of the GwG.

On the other hand, where a transaction is based on an underlying business relationship, this relationship is to be subject to enhanced, continuous monitoring in order that the level of risk associated with this business relationship with regard to money laundering and terrorist financing can be assessed and, in the case of a heightened level of risk, monitored.

Sources: https://www.bafin.de/SharedDocs/Downloads/EN/Auslegungsentscheidung/dl_ae_auas_gw2021_en.html