Identifying Potential Red Flags

Headshot of Rob Guldner

Rob Guldner, Head of Compliance, Independent Channel

January 24, 2022

Meeting with clients or members in person is more complicated than ever, and we must all rely on technology to communicate like never before. A lack of face-to-face contact necessitates increased vigilance when conversing and reviewing account maintenance or money movement instructions. As we continue to adapt to the remote work environment, we must remain aware of our obligations to identify and report red flags.

Ways to spot fraudulent activity

Client or member service requests may seem routine or low risk but remember that many fraudsters who attempt to gain access to accounts start here. If you receive a request to change information like a telephone number, physical address or email address on file, be sure to take proactive steps to ensure its legitimacy. You should confirm the legitimacy by calling your client at a known telephone number on file to verify the instruction verbally. If someone purporting to be your client or member calls you from an unknown number, ask verifying questions which only your client should be able to answer before providing any information. Remind the caller that in order to protect your client’s assets, you must call back at a known number that you have previously used to communicate. As with any out of the ordinary or unexpected request, analyze it in the context of what you know about your client. Does the change make sense? Does the language used by the purported client on a phone call or email match their typical spelling, grammar and syntax?

Potential money movement red flags

In light of the current remote work environment, money movement requests should be subjected to increased scrutiny. Pay close attention to how the request was received and remember to check for any recent account updates (especially to contact information – fraudsters who start with an attempt to update a telephone number, physical address or email address will often progress to disbursement requests if successful). It is important to call the client at a known number on file to verbally verify any money movement instructions received via email. Be sure to question the purpose of any disbursement request, especially those to third parties.

When discussing with your client, be aware of potential red flags including, but not limited to:

  • Vague or contradictory rationale for a disbursement, or a reluctance or refusal to provide rationale upon request
  • Disbursement methods, amounts and/or rationale which deviate from historical activity or which do not make sense based on what you know about your client and their financial needs
  • Requests involving an unfamiliar third party
  • Requests involving different or new bank account information – remember that some fraudsters will establish standing instructions with the intent of affecting future disbursements and scrutinize standing instructions as you would any one-time money movement request
  • An unexplained sense of urgency
  • Disregard for fees or other costs associated with a transaction

Due diligence is key

Financial professionals must know their clients and members – asking these questions and taking precautions when dealing with service or money movement requests, no matter how routine, is key to meeting that obligation. If you notice any of the above red flags or have other concerns, it is crucial to immediately escalate the matter to your designated supervisor and AML Compliance at your firm.

Please ensure that you and your staff are trained and prepared to address potential red flags. Your due diligence and caution can mean the difference between a successfully thwarted fraud and a loss to your client or member.