An auction house dealing in fine art and antiques sells a well-known painting at a price of $12 million to an agent bidding for a group of local investors. The same painting sold ten years prior at auction for $5 million. The auction house receives payment for the painting via wire transfer from an account maintained in an offshore jurisdiction by the investor group. No beneficial ownership information is available for the account.
What are the two money laundering red flags? (Choose two.)
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A. B. C. D. E.BE
The two money laundering red flags in this scenario are:
Payment is received from an account in an offshore jurisdiction (Option D): Offshore accounts are commonly used by money launderers to hide the true source of funds and to avoid paying taxes. The lack of transparency and regulation in offshore jurisdictions makes it easier to disguise illicit transactions. Therefore, transactions involving offshore accounts require enhanced scrutiny.
Lack of beneficial ownership details for the originating account (Option E): Beneficial ownership refers to the ultimate individual(s) who own or control an account or asset. The lack of beneficial ownership information makes it difficult to identify who is behind the transaction, which increases the risk of money laundering. Without beneficial ownership information, it is challenging to determine the source of funds, the purpose of the transaction, and the potential risks associated with the customer.
While options A, B, and C may raise suspicion, they are not necessarily money laundering red flags on their own. Wire transfers are a common method of payment in legitimate transactions, and the use of an agent to bid on behalf of a group of investors is not necessarily illegal. The increase in the painting's value may be due to market forces, and there may be no evidence of criminal activity. However, in combination with options D and E, these factors could increase the risk of money laundering and require further investigation.