Red flag
Also called red flag indicator, suspicious activity indicator
A red flag is a warning sign that a customer, transaction or relationship may involve money laundering, terrorist financing, sanctions evasion or fraud. A red flag is not proof of crime. It tells staff or systems to look more closely, gather context and decide whether a suspicious activity report is needed.
How it works
Red flags come from regulator advisories, FATF guidance and the firm's own case history. Systems raise some automatically, such as cash deposits just below reporting thresholds. Staff spot others, such as a customer reluctant to explain the source of funds. An analyst reviews the flag against what the firm knows about the customer and records a decision.
Red flags are the trigger for reporting. In the UK, staff in the regulated sector commit an offence if they know or suspect laundering, or have reasonable grounds to, and fail to report. In the US, banks must file SARs on suspicious transactions. Firms that log red flags but never act on them face enforcement.
The rules
Makes it an offence to fail to report knowledge or suspicion of money laundering, including where there were reasonable grounds to suspect.
Staff of businesses in the UK regulated sectorRequires banks to file a SAR on transactions of $5,000 or more they know, suspect or have reason to suspect involve illicit funds.
US banksCommon questions
Does a red flag mean a firm must file a SAR?
No. A red flag starts an inquiry. The firm files a report if, after review, it knows or suspects laundering or the legal test for suspicion is met. Decisions to close are documented.
What are common AML red flags?
Examples include structuring cash below thresholds, transactions with no clear economic purpose, unexplained third-party payments, rapid in-and-out movements and reluctance to provide identity or source of funds information.
Where do firms get red flag lists?
From FinCEN advisories and alerts, FATF reports, the National Crime Agency, supervisors and industry guidance. Firms add indicators drawn from their own past cases and investigations to reflect the products they offer.
