As with all customers, LFIs must monitor activity by legal person and arrangement customers to identify behaviour that is potentially suspicious and that may need to be the subject of a Suspicious Transaction Report (see section 4.4 below). Legal persons, especially those that engage in commerce, are likely to engage a wider range of financial activity than are individual and most legal arrangement customers. This can make identifying suspicious behaviour by legal persons difficult.

As with other customer types, LFIs that use automated monitoring systems should apply rules that are designed to detect common typologies for illicit behaviour. When monitoring and evaluating transactions, the LFI should take into account all information that it has collected as part of CDD, including the identities of beneficial owners. For example, a series of transactions between two unconnected companies may not be cause for an alert. But if the companies are all owned or controlled by the same individual(s), the LFI should investigate to make sure that the transactions have a legitimate economic purpose.

Where possible, monitoring systems should also flag unusual behaviour that may indicate that a legal person customer’s business has changed—for example, a first transfer to or from a high-risk jurisdiction, or a large transaction involving a new counterparty. LFIs should follow up on such transactions with the customer to discover whether the customer has changed its business model in such a way as to require a higher risk rating.

A list of red flags for illicit behaviour involving legal persons and arrangements is provided in the Annex to this Guidance.