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How Can You Protect Your New Venture From Money Launderers?

Tips on how to stay safe from money laundering
Written by MicroStartups

Small businesses and startups are often the prime targets of money laundering schemes. That’s because they lack the expertise and resources to identify and deal with such transactions.

Moreover, small business owners are constantly looking for lucrative business opportunities to expand operations and scale their ventures.

So, when they come across an opportunity that seems attractive, they grab it without a second thought and risk getting entangled in crimes, such as insider trading.

Before they know, they find themselves fighting corporate crime and corruption lawsuits and end up getting penalized and losing their credibility.

Therefore, it’s critical from small ventures and startups to have a proactive and vigilant process in place that helps them fight and stay away from situations that involve money laundering and the crimes associated with it. Read on to know how you can protect your venture from money launderers.

Be Aware of the Red Flags of Money Laundering

Every business runs the risk of unintentionally facilitating money laundering.

Therefore, it’s important to be vigilant and exercise professional scepticism when dealing with customers, investors, suppliers, and other stakeholders. Here are a few warning signs you should watch out for.

i. Reluctance to Share Complete Information

Secrecy and reluctance to disclose information is a major red flag small businesses should pay attention to. Also, the information shared should be complete and consistent.

Beware of inconsistent information and false documentation. Watch out for multiple tax IDs, documents that aren’t or cannot be verified, and entities trying to shield the identity of their business partners or owners.

ii. Strange Money Transactions or Transfers

The transfer of money or assets from one hand to the other can offer a lot of information about the business and unusual financial activities.

If you notice fund transfer between parties having no business relationships, a sudden high turnover versus the cost of sales, or loan transactions that do not match the regular commercial arrangements, it’s time to dig deeper.

iii. Use of Complex Structures

More often than not, businesses or individuals involved in illicit activities develop complicated structures to hide the true source of funds or unusual transactions.

For instance, the use of a complex financial instrument without any valid reason could be a sign that the business is layering the stages of money laundering.

iv. Negative Publicity

Though press or media reports aren’t strong evidence that a business or an individual is laundering money, you should use it as a sign to conduct appropriate due diligence.

Research the firm or the individual’s background to find out unusual business activities if any.

2. Investigate Thoroughly

Whether you are dealing with a customer or a prospective investor, don’t be afraid to ask questions. Effective due diligence can help you understand the person’s background and whether or not their firm is registered.

Use these questions to learn about a prospective client, vendor, or investor.

  • How well do I know this customer/ investor? Are they referred by a reliable source? If the person or business is seemingly affluent, analyze why they are interested in dealing with you.
  • Have I understood the business proposal? Am I comfortable with this deal? Is there something fishy about the transaction? Does it make complete business sense to deal with this person?
  • What’s the customary method of processing such transactions? Am I following that method or is there any unusual change in the process?
  • Why is this investor ready to invest so much in my small business?
  • What records should I maintain to keep myself protected?

In addition to this, take time to go through these websites for information on money laundering:

3. Foster a Culture of AML Compliance

Anti-money laundering is a set of rules, procedures, and policies that prohibit people from engaging in illegitimate business practices.

To protect your business from money-launderers, set up a culture of AML compliance.

Educate your employees on the various money-laundering schemes. Check out the Financial Crimes Enforcement Network website to stay updated on the subject.

Train your employees to document every source of funds and where it is going.

Further, encourage them to investigate transactions and practices and blow the whistle on suspicious activities. They should be aware of the correct authorities to contact in case of an issue.

For instance, businesses in the US and Canada should get in touch with FinCEN and Fintrac respectively in case of a suspicious transaction or business activity.

The corporate culture plays a critical role in keeping money laundering in check. Have a sound AML compliance culture in place to send a strong signal internally and externally. This will help you thwart money-launderers and protect your business from its long-term adverse consequences. 

4. Exercise Caution with Prepaid Credit Cards

Prepaid credit cards are anonymous and transportable across borders.

Also, they are not subject to regulatory controls, suspicious activity reporting, and vigorous due diligence.

Therefore, these cards are often used by money launderers to hide money earned by illegal means.

Exercise caution when you see a client, investor, or vendor using open-loop prepaid credit cards for making business transactions. Immediately report such suspicious activities to keep a check on money laundering activities.

5. Weigh Your Cybersecurity Risks

Don’t forget to monitor your business’s cyber activity – suspicious activities are not limited to cash and prepaid credit card transactions.

Criminals are experts at creating multiple online identities for fraudulent digital transactions.

Therefore, it’s important to research the person or business you will be dealing with before going ahead.

Also, refrain from sharing any financial details or data within anyone who has solicited you through an email or phone call. Such mistakes are often used by criminals to launch cyberattacks.

Wrapping Up

Owing to their lack of experience and resources, startups and small businesses are easy targets for criminals and money launderers.

Money laundering schemes can land small businesses in legal soup and adversely impact their credibility. Therefore, it’s important to take proactive measures to protect your small venture from falling victim to such schemes.

Use the tips and insights shared in this post to protect your business from money laundering activities.

About the author


A team of writers and marketers, MicroStartups was founded to inspire the entrepreneurial and business community to give back. We believe in business growth through giving and supporting the local community.

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