A high-volume dealer of precious metals and stones in a high-risk jurisdiction is approached by a new customer interested in selling gold worth $200,000. The customer was referred by a longtime family friend of the dealer and provides no indication of background or business purpose for the sale. The dealer agrees to make the purchase based solely on the reference.
What is the money laundering red flag?
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A. B. C. D.D
The correct answer to the question is D. The money laundering red flag in this scenario is that the customer provides no background information or business purpose for the transaction.
Money laundering is a process by which individuals or entities attempt to conceal the origins of illegally obtained funds by making them appear legitimate. It typically involves three stages: placement, layering, and integration. During the placement stage, the illicit funds are introduced into the financial system. One common method used by money launderers is to convert the illegal funds into valuable assets, such as precious metals, which can be easily moved across borders and have high intrinsic value.
In the given scenario, a high-volume dealer of precious metals and stones operating in a high-risk jurisdiction is approached by a new customer who wants to sell gold worth $200,000. The customer's introduction to the dealer is through a longtime family friend. While having a referral from a longtime friend may establish a certain level of trust, it alone does not constitute a money laundering red flag.
However, the key red flag in this situation is that the customer provides no background information or business purpose for the transaction. When dealing with high-value transactions, it is essential for businesses to gather information about their customers, such as their identity, source of funds, and the purpose of the transaction. The lack of background information or business purpose raises suspicions because it suggests an attempt to hide the true origin of the gold or the illicit funds involved in the transaction. Money launderers often seek to exploit relationships and referrals to gain access to legitimate businesses for their illicit purposes.
Therefore, option D is the correct answer as it highlights a significant money laundering red flag in this scenario. The lack of background information or business purpose should prompt the precious metals dealer to conduct further due diligence and apply appropriate anti-money laundering (AML) measures to mitigate the risk of being involved in a potential money laundering scheme. This may include conducting enhanced customer due diligence, such as verifying the customer's identity, source of funds, and assessing the legitimacy of the transaction through further inquiries and record-keeping.