A security is a financial instrument or financial asset that can be traded.
Securities can be traded in:
➡ Primary markets: Where companies sell their stocks to the public.
➡ Secondary markets: Investors trade securities between them.
The securities sector can be attractive to money launderers because of the following characteristics:
Complexity of investment products
Internationality of transactions
High level of interaction between parties
Easy conversion to cash
The securities sector is also vulnerable to insider trading, market manipulation and securities fraud – maybe more than vulnerable to money laundering.
The securities sector is mostly abused in the layering and integration stages of money laundering. This is because investment firms usually do not accept cash.
Investors’ strategies that do not appear designed to provide a return on the investment
Transactions in a sequential manner to avoid transaction monitoring
Transactions involving high-risk jurisdictions
Mirror trading with no apparent business purposes.
Trading in the same security between various accounts controlled by the same people
Customer is reluctant to provide information in relation to its identity or transactions.
Purchase of securities or transactions that do not match the customer’s investment profile.
Two or more unrelated accounts at an investment firm trade an illiquid or low-priced security suddenly and simultaneously.
Transactions indicating that the customer is acting on behalf of third parties with no apparent business or lawful purpose.
…and many more which cannot be covered in a single post!
Where can you find more information...
The FATF in 2018 has issued a Guidance for a risk-based approach for the securities sector which describes:
the various types of securities providers
the characteristics of securities transactions that can create opportunities for criminals and
measures that can be put in place to address such vulnerabilities
There are unlimited methods to launder illegally derived funds and the securities sector could not be missed by criminals.
Investment firms must establish appropriate AML measures to prevent the misuse of their products and services for money laundering or other types of financial crime.