Suspicious transactions should be reported to the Financial Reporting Centre or Financial Intelligence Authority. file photo | nmg
The news is often awash with reports of illegal practices such as human trafficking, slavery and forced labour. The groups behind these crime nonetheless still access formal banking services to receive funding, purchase equipment and pay their instructors amongst other expenses.
But how can donor organizations, operations, risk and compliance officers, or even ordinary citizens identify suspicious activities and organisations?
What tools are there to help you identify such activities? Who should you report such activities to and how should such reports be made? Multiple penalties, law enforcement action and negative media coverage are indicators of a high risk organisation.
Often, an organisation will suffer negative media coverage on minor issues before major law enforcement action is taken against it.
Such adverse media coverage, law enforcement action and regulatory penalties need not be limited to the organisation, but also to its managers, owners and directors.
Tools such as Thomson Reuters World Check name screening and Enhanced Due Diligence reports bring such reports to the attention of donor organisations, operations and risk and compliance officers before such organisations and individuals are allowed to open bank accounts or receive funding.
For bank officers, a business account with frequent outbound fund transfers with no obvious business or lawful purposes is a red flag. Such frequent fund transfers take-on an even higher risk dimension when they are directed to countries with high risk human trafficking ratings such as Mexico, Thailand, and Philippines amongst many others.
Numerous transaction monitoring systems are available in the market to help banks identify such suspicious transactions. Unfortunately, most mid-tire banks across East Africa still rely on manual review of transactions at the end of day to identify suspicious transactions.
This is not only inefficient given that the monitoring is being performed after-the-fact, but also due to the large number of transactions that occur in a day and the risk that an individual compliance officer may be unable to make linkages between multiple small value transactions from multiple channels such as mobile banking, card transactions, over the counter transactions, internet banking and many more.
Internal auditors and regular employees should re-look at payrolls for discrepancies. For example, some taxes may be missing from staff pay slips or employees may have pay cheques inconsistent with having a full time minimum wage job.
In addition, staff being paid below the government approved minimum wage or pay slips with several unexplained deductions may indicate workers paying their employer for something. This is a red flag for slave labour and possible human trafficking.
Donor organisations and banks should also frequently review risk intelligence reports to identify high risk industries such as agriculture, mining, foreign labour recruitment agencies and other labor intensive industries.
Organisations in such industries should undergo deeper Know-You-Client procedures, including Enhanced Due Diligence if they have adverse media coverage.
Suspicious transactions should be reported to the Financial Reporting Centre or Financial Intelligence Authority.
Gilbert Ouko is Director, Risk & Compliance East Africa, Thomson Reuters
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