Annex 1. Red Flags
Red Flags for DPMS
Trade practices
• Precious metals and stones originate from a country where there is limited production or no mines at all.
• Trade in large volumes conducted with countries which are not part of a specific precious metals and stones pipeline.
• An increase of the volume of the activity in a DPMS account despite a significant decrease in the industry-wide volume.
• Selling or buying precious metals and stones between two local companies through an intermediary located abroad (lack of business justification. uncertainty as to actual passage of goods between the companies).
• Volume of purchases and/or imports that grossly exceed the expected sales amount.
• Sale of gold bars, coins, and loose diamonds from a jewelry store (retail).
• Payments related to the appearance of rare or unique precious stones in the international market outside of known trading procedures (e.g., Argyle's rare pink diamond appearing in the international marketplace outside of the annual tender process). This to the best knowledge of the financial institution.
• A single bank account is used by multiple businesses.
Transactions/financing of precious metals and stones trade
• Unusual forms of payment in the trade, for example, use of travelers cheques (all stages according to the accepted forms of payments).
• Date of payment not customary in the trade, (e.g. receiving/sending funds for a precious metal and stone deal conducted a very long time ago (outside accepted payment terms). Or, a customer paying upfront where the customary payment date is within a 120 days term.
• Financial activity is inconsistent with practices in the precious metal and stone trade. For example,
o Foreign currency deposits followed by currency conversion and cash withdrawal in local currency.
o Cheque deposits followed by immediate cash withdrawals in slightly lower amounts (possible use of the DPMS account for cheques discounting).
o Transfers of foreign currency and/or foreign currency cheques deposits, followed by currency conversion and immediate withdrawal from the account (possible use of the DPMS account for exchange services)
• No economic rationale for transactions involving an individual or company in the precious metal and stone industry.
• Deposits immediately followed by withdrawals, atypical of practices in the precious metal and stone trade, including but not limited to:|
o Circular transaction related to import/export of precious metals and stones.
o Circular transactions related to local trade (between local bank accounts).
o Circular financial transactions between a precious metal and stone company's account and the private account of the company's shareholder/director, without business or economic reason.
o High turnover of funds through an account with a low end of day balance.
• Deposits or transfers to a precious metal and stone dealer's account from foreign companies followed by immediate transfer of similar amounts to another jurisdiction.
• Immediately after a precious metal and stone dealer's related account is opened, high-volume and high-value account activity is observed.
• Transactions between accounts of different companies which are affiliated with the same customer, particularly to or from Free Trade Zones or countries with tax leniencies 119 (may be an indication of transfer pricing or trade mispricing).
• Open export is settled by offsetting to, and receiving payment from, a third party.
• Open export is settled abroad by offset in front of the importer.
• Settling an open export invoice with unrelated companies that engage in a specific precious metal and stone and not through value/return from abroad or return of goods to the precious metal and stone merchant.
• Details of the transaction are different from the details of the commercial invoice presented by the DPMS to the bank (name of importer/exporter, sum, place etc.)
• High-value funds deposited or transferred to an account described as short-term loans with no transactions showing repayment of loans.
• Early repayment of DPMS loan (a loan for 25 years is repaid after five month) with no reasonable explanation.
• Sale of diamonds and jewelry at small incremental amounts (retail).
• Multiple cheques drawn on the same DPMS' account on the same day.
• Origin/destination of funds is different from the destination/origin of the specific precious metal and/or stone.
• DPMS is credited by transactions with no evidence of sales.
• Numerous returns of advanced payments.
Customers
• Activity does not match KYC, for example:
o Actual trade volumes are significantly larger than the expected volume.
o Customers and/or suppliers of the customer do not correspond to the stage of the trade initially declared.
• DPMS is not familiar with trade practices.
• DPMS maintains high level of secrecy.
• DPMS conducting activity in a branch not specializing in precious metals and stones (where such branches exist).
• Use of a bank account in the name of a charity to transfer funds to/from DPMS.
• Frequent changes in company name and contact person for a business in the industry (mainly wholesale)
Use of third parties
• Customer consults a third party while conducting transactions.
• Receiving/transferring funds for import/export activity to/from entities that are not known to be involved in the precious metals and stones trade (either an individual or a legal entity).
• Return of an advanced payment from a third party.
• Receiving/transferring funds for import/export where the ordering customer/beneficiary is an MSB.
• Use of third parties to deposit funds into single or multiple DPMS' accounts.
• Return of an advanced payment from a third party.
• Name of sender in the payment transfer to the DPMS is not the importer/buyer (mainly rough and polished trade).
• Name of receiver in the payment from the DPMS is not the exporter/supplier.
• A single bank account with multiple deposit handlers (retail and wholesale).
Use of missing/suspicious/falsified documents
• For diamond dealers, Kimberly Process (KP) certificate is or seems to be forged.
• Long validity of a KP certificate
• Transfers of funds or an attempt to transfer funds through a DPMS company's account without producing appropriate documentation.
• DPMS claims funds received/transferred are an advanced payment without producing any appropriate export/import invoice to support it.
• Transfers between a DPMS and a private account that are reported to the bank as precious metal and/or stone transactions, without presenting appropriate documentation.
• Invoice presented by the DPMS appears to the bank as unreliable/fake.
• Failing to provide a customs declaration in relation to a foreign currency cash deposit resulting from selling precious stones abroad.
Red Flags for the Real Estate Sector
Natural persons
• Transactions involving individuals residing in tax havens or risk territories, when the characteristics of the transactions match any of those included in the list of indicators. • Transactions carried out on behalf of minors, incapacitated persons or other persons who, although not included in these categories, appear to lack the economic capacity to make such purchases. • Transactions involving persons who are being tried or have been sentenced for crimes or who are publicly known to be linked to criminal activities involving illegal enrichment, or there are suspicions of involvement in such activities and that these activities may be considered to underlie money laundering • Transactions involving persons who are in some way associated with the foregoing (for example, through family or business ties, common origins, where they share an address or have the same representatives or attorneys, etc.). • Transactions involving an individual whose address is unknown or is merely a correspondence address (for example, a PO Box, shared office or shared business address, etc.), or where the details are believed or likely to be false. • Several transactions involving the same party or those undertaken by groups of persons who may have links to one another (for example, family ties, business ties, persons of the same nationality, persons sharing an address or having the same representatives or attorneys, etc.). • Individuals who unexpectedly repay problematic loans or mortgages or who repeatedly pay off large loans or mortgages early, particularly if they do so in cash.
Legal persons
• Transactions involving legal persons or legal arrangements domiciled in tax havens or risk territories, when the characteristics of the transaction match any of those included in the list of indicators. • Transactions involving recently created legal persons, when the amount is large compared to their assets. • Transactions involving legal persons or legal arrangements, when there does not seem to be any relationship between the transaction and the activity carried out by the buying company, or when the company has no business activity. • Transactions involving foundations, cultural or leisure associations, or non-profit-making entities in general, when the characteristics of the transaction do not match the goals of the entity. • Transactions involving legal persons which, although incorporated in the country, are mainly owned by foreign nationals, who may or may not be resident for tax purposes. • Transactions involving legal persons whose addresses are unknown or are merely correspondence addresses (for example, a PO Box number, shared office or shared business address, etc.), or where the details are believed false or likely to be false. • Various transactions involving the same party. Similarly, transactions carried out by groups of legal persons that may be related (for example, through family ties between owners or representatives, business links, sharing the same nationality as the legal person or its owners or representatives, sharing an address, in the case of legal persons or their owners or representatives, having a common owner, representative or attorney, entities with similar names, etc.). • Formation of a legal person or increases to its capital in the form of non-monetary contributions of real estate, the value of which does not take into account the increase in market value of the properties used. • Formation of legal persons to hold properties with the sole purpose of placing a front man or straw man between the property and the true owner. • Contribution of real estate to the share capital of a company which has no registered address or permanent establishment which is open to the public in the country. • Transactions in which unusual or unnecessarily complex legal structures are used without any economic logic. Natural and legal persons • Transactions in which there are signs, or it is certain, that the parties are not acting on their own behalf and are trying to hide the identity of the real customer. • Transactions which are begun in one individual's name and finally completed in another's without a logical explanation for the name change. (For example, the sale or change of ownership of the purchase or option to purchase a property which has not yet been handed over to the owner, reservation of properties under construction with a subsequent transfer of the rights to a third party, etc.). • Transactions in which the parties: o Do not show particular interest in the characteristics of the property (e.g. quality of construction, location, date on which it will be handed over, etc.) which is the object of the transaction. o Do not seem particularly interested in obtaining a better price for the transaction or in improving the payment terms. o Show a strong interest in completing the transaction quickly, without there being good cause. o Show considerable interest in transactions relating to buildings in particular areas, without caring about the price they have to pay. o Transactions in which the parties are foreign or non-resident for tax purposes and: o Their only purpose is a capital investment (that is, they do not show any interest in living at the property they are buying, even temporarily, etc.). o o They are interested in large-scale operations (for example, to buy large plots on which to build homes, buying complete buildings or setting up businesses relating to leisure activities, etc.).
• Transactions in which any of the payments are made by a third party, other than the parties involved. Cases where the payment is made by a credit institution registered in the country at the time of signing the property transfer, due to the granting of a mortgage loan, may be excluded. Intermediaries • Transactions performed through intermediaries, when they act on behalf of groups of potentially associated individuals (for example, through family or business ties, shared nationality, persons living at the same address, etc.). • Transactions carried out through intermediaries acting on behalf of groups of potentially affiliated legal persons (for example, through family ties between their owners or representatives, business links, the fact that the legal entity or its owners or representatives are of the same nationality, that the legal entities or their owners or representatives use the same address, that the entities have a common owner, representative or attorney, or in the case of entities with similar names, etc.). • Transactions taking place through intermediaries who are foreign nationals or individuals who are non-resident for tax purposes.
Means of Payment
• Transactions involving payments in cash or in negotiable instruments which do not state the true payer (for example, bank drafts), where the accumulated amount is considered to be significant in relation to the total amount of the transaction. • Transactions in which the party asks for the payment to be divided in to smaller parts with a short interval between them. • Transactions where there are doubts as to the validity of the documents submitted with loan applications. • Transactions in which a loan granted, or an attempt was made to obtain a loan, using cash collateral or where this collateral is deposited abroad. • Transactions in which payment is made in cash, bank notes, bearer cheques or other anonymous instruments, or where payment is made by endorsing a third-party's cheque. • Transactions with funds from countries considered to be tax havens or risk territories, according to anti-money laundering legislation, regardless of whether the customer is resident in the country or territory concerned or not. • Transactions in which the buyer takes on debt which is considered significant in relation to the value of the property. Transactions involving the subrogation of mortgages granted through institutions registered in the country may be excluded. Nature of the Transaction • Transactions in the form of a private contract, where there is no intention to notarise the contract, or where this intention is expressed, it does not finally take place. • Transactions which are not completed in seeming disregard of a contract clause penalising the buyer with loss of the deposit if the sale does not go ahead. • Transactions relating to the same property or rights that follow in rapid succession (for example, purchase and immediate sale of property) and which entail a significant increase or decrease in the price compared with the purchase price. Transactions entered into at a value significantly different (much higher or much lower) from the real value of the property or differing markedly from market values. • Transactions relating to property development in high-risk urban areas, in the judgement of the company (for example, because there is a high percentage of residents of foreign origin, a new urban development plan has been approved, the number of buildings under construction is high relative to the number of inhabitants, etc.). • Recording of the sale of a building plot followed by the recording of the declaration of a completely finished new building at the location at an interval less than the minimum time needed to complete the construction, bearing in mind its characteristics. • Recording of the declaration of a completed new building by a non-resident legal person having no permanent domicile indicating that the construction work was completed at its own expense without any subcontracting or supply of materials. • Transactions relating to property development in high-risk urban areas based on other variables determined by the institution (for example, because there is a high percentage of residents of foreign origin, a new urban development plan has been approved, the number of buildings under construction is high relative to the number of inhabitants, etc.).