16/06/2023

Typologies as a Means of Creating Alerts

Business advisory

Marvin Esquivel

Typologies refer to the classifications and descriptions of techniques used by criminal organizations to give the appearance of legitimacy to funds of licit or illicit origin to eventually transfer them from one place or person to another with the purpose of financing illegal activities. Understanding the typologies used by some organizations is critical; we must assess clients thoroughly before accepting a contract offer.

Money laundering typologies pose a risk not only to our profession but also to the general public. Therefore, it is our social responsibility to raise awareness among other professionals and individuals regarding the methods used by money launderers. By doing so, we can help fight the proliferation of money laundering activities and reduce their impact on society.

As auditors, professional skepticism is our fundamental tool to identify various typologies. Using our ability to question situations will significantly reduce risks. We must locate suspicious operations using risk matrices and external data to assess records in our audits or when providing services to clients. We can identify suspicious operation records by checking documents provided by the potential client and by utilizing the “know your client” approach.

Commercial activities and financial transactions require our watchful eyes, and the identification of typologies through the analises provided by our documents. These activities include car sales, fund remittances, money transfers from abroad (unverified financial flows), suspicious money movements that appear legitimate, cross-border money transportation, shell companies, sales or trading activities where the fund sources are suspicious such as real estate, software development, gold trading, wildlife purchase and sale, medical products trade, purchase and sale of works of art, among others (data obtained from the Narcotics Institute of Costa Rica).

Of course, not all the commercial activities mentioned above are illicit. However, they may raise red flags as different typologies have been determined with reported suspicious operations.

To identify potential typologies, auditors must be aware of red flags that may denote illicit activities. The Narcotics Institute of Costa Rica has provided a list of typologies:

  1. Use of the same financial information for different banks.
  2. Credit requests without collateral.
  3. No verifiable economic activity.
  4. Increasing bank deposits with no apparent relation to a particular economic activity or structure, without information as to the origin of the funds.
  5. No match between the purchase of an asset with the socio-economic profile of the client.
  6. Acquisition of goods in cash, with no economic activity to back up the origin of the funds.
  7. Suspected links to drug trafficking or other illicit businesses.
  8. Purchases of goods that are not yet in inventory.
  9. No information to support the structured transactions nor a trustworthy reason.
  10. Unknown economic activities that require legal structure.
  11. Nationality of individuals coming from countries with high money laundering risks (tax havens).
  12. Ignorance of the origin of the funds received where there is no logical relationship of employment, family, or any other kind.
  13. There is no record of formal and remunerated economic activity about the individuals receiving funds; some individuals may even have a criminal record.
  14. The use of current accounts as a “bridge,” upon recpetion funds are funneled to other accounts, ATM withdrawals are common as cash is harder to track.
  15. Use of shell or “paper” companies.
  16. No information on economic activities carried out abroad.
  17. Some entrepreneurs make sudden changes in economic activity.
  18. People who do not logically respond to questions asked as part of the “know your customer” matrix, they do not appear to have a genuine business activity or business history.
  19. Individuals who provide documents that appear to support business activity abroad but are not verified by apostille from the country of origin.
  20. Newly incorporated companies with foreign partners lacking information as to their roots in the country where they live.
  21. Refusal of the client to provide requested information that supports the origin of the funds.
It is necessary to educate our staff through continuous training so that they are part of our strategy to minimise risks in our profession, and to be prepared to detect these illicit activities with ethical and professional actions.

Marvin Esquivel

As professionals, it’s crucial that we diligently evaluate the constant occurrence of different typologies. It’s our responsibility to ensure that our staff is well-versed through continuous training to minimize risks in our profession. Our team must be well-prepared to detect illicit activities and respond with ethical and professional actions.

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