Section 4: Module 1: STR Examples
1. Core Definitions
1.1 Suspicious Transaction Report (STR)
Definition
A report submitted to FINTRAC when there are reasonable grounds to suspect that a completed or attempted transaction is related to money laundering or terrorist financing.
Key Elements
Applies to completed and attempted transactions.
No monetary threshold.
Based on Reasonable Grounds to Suspect (RGS).
Supports FINTRAC intelligence disclosures.
1.2 Reasonable Grounds to Suspect (RGS)
Definition
A legal threshold reached by considering financial transactions and the surrounding context.
Key Elements
Higher threshold than simple suspicion.
Lower threshold than reasonable grounds to believe.
Requires facts and context.
Does not require proof.
1.3 Simple Suspicion
Definition
An initial concern or intuition that ML or TF may be occurring.
Key Elements
Based on a possibility.
Cannot alone support an STR.
May lead to further investigation.
1.4 Reasonable Grounds to Believe
Definition
A higher legal threshold where verified facts support the belief that ML or TF is occurring.
Key Elements
Higher threshold than RGS.
Requires stronger evidence.
More likely associated with law enforcement activities.
2. Core Concepts
2.1 Importance of STRs
Definition
STRs are one of FINTRAC’s most important sources of financial intelligence.
Key Elements
Establish links between subjects.
Provide objective grounds for suspicion.
Supply contextual information.
Support disclosures to law enforcement.
Important for identifying terrorist financing.
2.2 Suspicious Indicators
Definition
Indicators that may contribute to a determination that a transaction is suspicious.
Key Elements
Must be assessed in context.
One indicator alone may not be sufficient.
Indicators support RGS determinations.
Apply to both ML and TF.
2.3 Best Practices for STRs
Definition
An STR should clearly explain why a transaction is suspicious.
Key Elements
Who conducted the transaction?
When did it occur?
What instruments were used?
Where did it occur?
How did it occur?
Why is it suspicious?
3. Suspicious Indicator Categories
3.1 Main Categories
Definition
FINTRAC groups suspicious indicators into nine primary categories.
Categories
Client Behaviour
Knowledge of Money Laundering Issues
Identity Documents
Involving Accounts
Cash Transactions
Economic Purpose
International
Offshore Business
Terrorist Financing
4. Client Behaviour Indicators
4.1 Behavioural Red Flags
Definition
Client actions or behaviours that may indicate ML or TF concerns.
Common Indicators
Nervous or defensive behaviour.
Reluctance to meet in person.
Confusing explanations.
Over-justifying transactions.
Reluctance to provide ID.
Sudden abandonment of a transaction.
Use of informal money transfer systems.
5. Knowledge-Based Indicators
5.1 Reporting Threshold Awareness
Definition
Unusual knowledge of reporting requirements may indicate attempts to avoid detection.
Common Indicators
Questions about reporting thresholds.
Attempts to avoid reporting.
Structuring transactions.
Collaboration with others to avoid thresholds.
Multiple transactions just outside reporting periods.
5.2 Structuring
Definition
Breaking transactions into smaller amounts to avoid reporting or record-keeping requirements.
Key Elements
Transactions below thresholds.
Multiple transactions.
Coordinated activity.
Designed to avoid detection.
6. Identity Document Indicators
6.1 Identity Concerns
Definition
Issues involving identification documents that may indicate suspicious activity.
Common Indicators
Refusal to provide ID.
False documentation.
Copies only.
Multiple identities.
Different IDs used over time.
Vague or inconsistent information.
Use of aliases.
7. Account Indicators
7.1 Account Activity Red Flags
Definition
Account usage patterns that may indicate ML or TF activity.
Common Indicators
Multiple accounts.
Structuring deposits.
Consolidation of funds.
High transaction volume.
Third-party activity.
Frequent currency exchanges.
Transactions inconsistent with business activity.
7.2 Layering Indicators
Definition
Movement of funds through multiple accounts to obscure origin.
Common Indicators
Deposits into several accounts.
Consolidation into one account.
International transfers.
Repeated transfers between accounts.
U-turn transactions.
7.3 Third-Party Activity
Definition
Transactions involving unrelated individuals or entities without a reasonable explanation.
Common Indicators
Third-party deposits.
Third-party transfers.
Payments by unrelated individuals.
Shared contact information.
8. Cash Transaction Indicators
8.1 Cash Red Flags
Definition
Cash activities commonly associated with ML or TF.
Common Indicators
Large cash transactions.
Rounded amounts.
Structuring.
Multiple money orders.
Frequent currency exchanges.
Use of intermediaries.
Large cash purchases.
8.2 Smurfing
Definition
The use of multiple individuals or transactions to avoid detection and reporting thresholds.
Key Elements
Multiple small deposits.
Multiple participants.
Avoidance of thresholds.
Common TF technique.
9. Economic Purpose Indicators
9.1 Lack of Legitimate Purpose
Definition
Transactions that lack an apparent business or economic rationale.
Common Indicators
Unnecessarily complex structures.
No commercial justification.
Frequent movement of funds.
Financial losses without benefit.
Activity inconsistent with client profile.
10. International and Offshore Indicators
10.1 International Risk Indicators
Definition
Transactions involving jurisdictions or activities associated with elevated ML/TF risk.
Common Indicators
Tax havens.
High-risk jurisdictions.
Secretive banking systems.
Third-party international transfers.
Shell companies.
10.2 Trade-Based Money Laundering (TBML)
Definition
Money laundering conducted through international trade transactions.
Common Indicators
Over- or under-invoicing.
Misrepresented goods.
Shell companies.
Complex trade structures.
Discrepancies in shipping documentation.
Goods inconsistent with the client’s business.
10.3 Offshore Business Indicators
Definition
Use of offshore entities or jurisdictions to obscure ownership or movement of funds.
Common Indicators
Offshore companies.
Offshore banks.
Offshore credit cards.
Offshore loans.
International negotiable instruments.
11. Terrorist Financing Indicators
11.1 Terrorist Financing Red Flags
Definition
Indicators associated with terrorist financing activity.
Common Indicators
Travel to high-risk jurisdictions.
Sudden account depletion.
Violent extremist activity.
Third-party debt payments.
Donations to questionable causes.
Purchases of suspicious materials.
Conversion to anonymous virtual currency services.
12. Exceptions
12.1 Lower-Risk Exceptions
Definition
Certain products and transactions are generally exempt from specific record-keeping requirements and are considered lower ML risk.
Examples
Exempt insurance policies.
Group life insurance without cash value.
Registered pension products.
RRSPs and RESPs.
Reverse mortgages.
Structured settlements.
Certain regulated financial institution accounts.
Important Note
Even if a transaction falls under an exception, a suspicious transaction must still be reported if reasonable grounds to suspect exist.
13. Key Takeaways
STRs have no monetary reporting threshold.
RGS is the threshold required to file an STR.
Suspicious indicators must always be assessed in context.
FINTRAC groups indicators into nine major categories.
Behavioural indicators alone may contribute to suspicion.
Structuring is a common attempt to avoid reporting requirements.
Multiple accounts and layering techniques are common ML indicators.
Cash transactions remain a major ML risk area.
TBML is an important international ML technique.
Terrorist financing indicators often differ from traditional ML indicators.
Products with record-keeping exceptions can still generate STR obligations.
A strong STR clearly explains who, what, when, where, how, and why.