Guidance to financial institutions on the use of cash

The Guidance Note highlights the need for a holistic overview of the customer’s banking activity to properly appreciate the extent of withdrawals being affected, how these are being done and how they fit in with the overall banking activity of the customer.

There are two main factors that need to be considered for cash withdrawals:

1. The funds to be withdrawn have previously been deposited in an account with the credit institution.

Irrespective of whether balances on account were accumulated through cash deposits or bank transfers, credit institutions should be aware of the legitimacy of such funds. Any questions should be cleared when funds hit the account and before the customer requests a withdrawal. 

Having said this, there may be instances where a cash withdrawal needs to be questioned but these should be the exception rather than the rule and only when there are actual ML/FT risks. 

2. Credit institutions should consider all available information and apply a risk-based approach.

Institutions should also apply a risk-based approach and consider all available information, including the personal circumstances of the given customer. It is highlighted that to the extent that a cash withdrawal can be justified based on what is known about a customer’s circumstances, there would be no need to question it.

Some of the red flags to look out for include:

• repeated withdrawals at different locations or different means within a short period of time but which, when taken together, result in significant amounts being withdrawn;

• deposits followed by immediate single or multiple small withdrawals;

• withdrawals being made by unrelated third parties, even worse when a third party is consistently accompanying the account holder.

The bottom line is, when it comes to withdrawals, the focus should be more on how these are taking place rather than on the amounts being withdrawn. Nonetheless, this does not absolve institutions from their monitoring responsibilities. Where the amount to be withdrawn presents a significant risk of ML/FT and/or there are large withdrawals that look to be unusual when considering the customer’s normal banking activity, credit institutions should query those withdrawals and based on information obtained and if considered necessary, file a Suspicious Transaction Report (STR) with the FIAU.

With the adoption of CRR, payments or transactions amounting to, or exceeding, ten thousand euro (€10,000) or its equivalent in any other currency, whether in one transaction or in several linked transactions, in respect of the purchase or sale of given items or products is not permissible. Such restrictions should be taken into account by institutions within the context of their customers.

Significant cash deposits should not automatically result in STRs unless the institution has a suspicion that the cash constitutes proceeds of crime or is in breach of the CRR. In this respect, it is important to make use of any insights available with respect to customers’ activities to identify those deposits that should be queried and always ensure that cash deposits are commensurate with the actual business activity of the customer including securing relevant documentation thereon.

Additionally, cash deposits may represent multiple sales, which individually would not fall foul of the restriction under the CRR or based on the profile of the customer, the threshold might be too low. Institutions may adopt a risk-based approach for higher or lower thresholds to more effectively identify cash deposits that should be investigated, based on the customer’s activity.

Setting limits may assist to conduct ongoing monitoring but these controls can be circumvented if customers spread their activity over a number of transactions to avoid attracting attention. As such, the application of thresholds will be more effective if accompanied by determining a reasonable time frame over which a customer may not exceed any desired or set threshold.

A frequent dilemma that arises is what to do when faced with a suspicious transaction. Should the institution process the transaction and then file an STR? Delay the execution of the said transaction (or even refuse to carry it out) pending the filing of the STR to see if the FIAU opposes it?

In such situations, consideration should be given to:

• The way deposits and withdrawals are made. This plays a determining factor in establishing how to proceed. The technological improvements implemented by the banking sector are giving rise to situations where the customer is not always available for questioning. ATMs and the facility to move funds through online applications and platforms are creating an added difficulty for banks to delay a deposit or a withdrawal or not attract unwanted attention when reaching out to the customer. In such cases, it is provided that it would be more viable to proceed with processing the customer’s instructions and then file an STR. 

• Customers wishing to withdraw significant amounts may be requested to provide prior notice to the institution. This would provide the institution with sufficient time to file an STR if there is suspicion of ML/FT and for the FIAU to indicate whether it has any objection to the credit institution proceeding with the requested withdrawal. This however does not absolve credit institutions from querying and obtaining sufficient information on the purpose of the withdrawal.