Decoding suspicious transactions-Industry: Precious Metals and Stones

1. High-value funds deposited or transferred to an account described as short-term loans with no transactions showing repayment of loans

Nature of Business: Import, export, and local trade of precious metals and stones

Victoria Ruby is a charismatic entrepreneur with a penchant for luxury. She is known for her meticulous attention to detail and her ability to manage complex financial portfolios.

Business Flow
Ø Sourcing: Gemma Lux Corp. imports and exports globally.
Ø Quality Check: 4C (Cut, Clarity, Color, Carat) quality checks for stones.
Ø Storage: Secure vaults with advanced security systems.
Ø Sales: Retail and wholesale.
Ø Payment: Multiple payment methods, including short-term loans.
Ø Record-Keeping: Advanced AI-based record-keeping system.

Suspicious Transactions

GemmaLux Corp. received a series of high-value funds described as short-term loans over a period of three months. The funds were deposited into the company’s main operating account but showed no signs of repayment

Transaction Details in USD
Month 1: $500,000 deposited as a short-term loan.
Month 2: $600,000 deposited as a short-term loan.
Month 3: $700,000 deposited as a short-term loan
Total Short-Term Loans: $1,800,000

Balance Sheet Impact

Before Suspicious Transactions (in USD)

Assets
Cash: $200,000
Inventory: $300,000
Total Assets: $500,000

Liabilities
Accounts Payable: $100,000
Total Liabilities: $100,000

Equity
Owner’s Equity: $400,000

After Suspicious Transactions (in USD)

Assets
Cash: $2,000,000 ($200,000 initial + $1,800,000 loans)
Inventory: $300,000
Total Assets: $2,300,000

Liabilities
Accounts Payable: $100,000
Short-Term Loans: $1,800,000
Total Liabilities: $1,900,000

Equity
Owner’s Equity: $400,000

Balance Sheet Items	Before Transactions (USD)	After Transactions (USD)
Cash	$200,000.00	$2,000,000.00
Inventory	$300,000.00	$300,000.00
Total Assets	$500,000.00	$2,300,000.00
Accounts Payable	$100,000.00	$100,000.00
Short-Term Loans	$0.00	$1,800,000.00
Total Liabilities	$100,000.00	$1,900,000.00
Owner’s Equity	$400,000.00	$400,000.00

A front officer can detect this during routine account reviews, where they may notice that high-value funds are being deposited as short-term loans, but no repayments are being made. This can be flagged during monthly or quarterly financial audits.

Options for Handling the Suspicious Transactions

Option 1: Ignore the Transactions
Rationale: No immediate legal issues.
Risk: High. Potential for money laundering or fraud.
Option 2: Conduct Further Investigation
Rationale: To understand the nature and legitimacy of the transactions.
Risk: Medium. Resource-intensive but necessary.
Option 3: Consult with Legal Team
Rationale: To understand the legal implications.
Risk: Low. May lead to further actions.
Option 4: File STR with FIU
Rationale: The transactions are highly suspicious.
Risk: Low. Ensures compliance but may attract regulatory scrutiny.

Recommended Option: Option 2 – Conduct Further Investigation

Rationale

Given the absence of loan repayments, an internal investigation is warranted to understand the nature and legitimacy of these activities. The sudden influx of high-value short-term loans with no repayments significantly alters the balance sheet, increasing both assets and liabilities. This raises questions about the legitimacy and purpose of these transactions, warranting an internal investigation.

Result: Do Not File STR with FIU but Conduct Further Investigation

The transactions, although suspicious, do not present immediate legal red flags. An internal investigation should be conducted to understand the nature of these activities before taking any legal steps.

Questions for Investigation

• a. What is the source of these high-value funds?
• b. Why are there no repayments for these short-term loans?
• c. Are there any similar transactions in other accounts?
• d. Is there any business justification for these transactions?

Conclusion

The suspicious nature of the transactions involving high-value short-term loans with no repayments necessitates an internal investigation. While there are no immediate legal red flags, the situation warrants closer scrutiny to ensure compliance with AML regulations.

Checklist for AML Controls

Table Summary

Option	Rationale	Risk Level
1	No immediate legal issues	High
2	Understand nature of transactions	Medium
3	Legal implications	Low
4	Highly suspicious transactions	Low