Insider Trading

Insider trading is a predicate offense that generates illegal proceeds through the exploitation of market-moving, non-public information, forming the initial step in this laundering chain.

Criminals engaging in insider trading present themselves as standard investors or customers from the financial institution’s perspective. Their illicit proceeds blend seamlessly into normal trading profits, exploiting the institution’s customer due diligence processes and making it difficult to discern which trades rely on material non-public information. This is the pivotal vulnerability, as detecting suspicious behavior is hampered by the insider masquerading behind an otherwise legitimate customer profile.

Criminals exploit jurisdictions lacking centralized beneficial ownership registries and other robust AML measures, where shell entities or offshore accounts remain opaque. By channeling insider trading proceeds into these jurisdictions, they circumvent transparency requirements and hinder regulatory oversight.

A bonus-driven culture and insufficient staff training on insider dealing laws weaken internal controls, allowing suspicious or high-volume trades just ahead of market-moving announcements to slip through without appropriate scrutiny. This operational gap within financial institutions enables insiders to trade and launder proceeds with minimal detection.

• Contains risk assessments of AML/CFT controls and enforcement levels across various jurisdictions.
• Identifies ties to high-risk or under-regulated regions susceptible to hidden insider trading activity.

• Provides ownership details, account balances, and transaction histories.
• Correlates suspicious securities proceeds with subsequent layering or distribution transactions in insider trading scenarios.

• Provides real-time and historical pricing, market volumes, and trading trends for securities.
• Enables detection of anomalous price and volume spikes immediately before corporate announcements.
• Supports correlation of trade timing with non-public or market-moving events, exposing potential insider dealing.

• Maintains verified identities, beneficial ownership information, risk profiles, and customer backgrounds.
• Detects unusual trading activity by identifying customers with limited trading experience who suddenly engage in high-value transactions around key corporate announcements.

Records from corporate emails, phone calls, and messaging platforms capture metadata such as sender/receiver details, timestamps, and—where legally permissible—message content. These logs can reveal unauthorized sharing of material non-public information, suspicious instructions around market-moving announcements, or collusion among insiders, directly supporting investigations of illicit trading activity.

• Captures transaction timestamps, trade volumes, counterparties, and order details on regulated exchanges.
• Enables detection of suspiciously timed or coordinated trades consistent with illicit exploitation of non-public information.

• Provides official or aggregated entity registration details, including shareholders, directors, and beneficiaries.
• Reveals complex ownership structures, shell companies, or trusts used to channel and obscure insider trading proceeds.

Apply deeper scrutiny to accounts demonstrating repeated, well-timed securities trades with unusually high returns near critical corporate events. Verify the declared source of funds and cross-check identity information across multiple brokerage or corporate accounts to uncover opaque ownership and deter the layering of insider trading proceeds.

Analyze the movements of proceeds from suspected insider trades by identifying sudden capital inflows that do not match the customer’s typical risk profile. Follow this with rapid layering or distribution to multiple external accounts. This process helps pinpoint illicit profits from insider trading before they can be fully integrated into legitimate channels.

Provide specialized training to front-office, compliance, and brokerage employees on insider trading laws, market abuse typologies, and the identification of suspicious trading activities. Emphasize real-case red flags such as sudden position accumulations or liquidations tied to significant corporate disclosures.

Screen employees who may have access to confidential corporate information and trading systems to deter collusion or exploitation of insider data. Review past regulatory infractions, ensure robust conflict-of-interest declarations, and reinforce confidentiality agreements.

Use publicly available data, corporate registries, and other external sources to verify beneficial ownership and identify undisclosed ties or conflicts of interest. This helps uncover shell entities or layered accounts receiving proceeds from suspiciously timed trades, particularly in jurisdictions lacking centralized registers.

Implement secure and confidential whistleblower channels for employees to raise concerns about unusual trading behaviors or potential insider activity. Designate clear escalation protocols so that internal reports of suspected insider trades receive prompt investigation by compliance or legal teams.

Deploy specialized trade surveillance systems that flag abrupt or large-volume trades immediately preceding market-moving announcements and rapidly liquidated positions thereafter. These systems compare trade execution times against corporate disclosures, highlighting activity indicative of insider dealings and preventing criminals from covertly leveraging non-public information.

• After liquidating insider-traded stocks, criminals deposit proceeds into one or more bank accounts, often under personal names or shell corporations.
• By splitting funds across different banks or jurisdictions, they layer and commingle illicit proceeds, making it harder to detect suspicious activity.
• The routine appearance of deposits and transfers in these accounts disguises the criminal origins of the funds.

• Criminals use non-public, market-moving information to trade company stocks just before key announcements, capturing illicit gains as stock prices shift after the news.
• The high liquidity and quick settlement of securities enable rapid liquidation of proceeds.
• Once liquidated, the profits are routed through multiple brokerage or corporate accounts, obscuring the origin of funds by blending them with legitimate trading activity.

• Criminals establish or acquire shell companies in jurisdictions lacking centralized beneficial ownership registries.
• They inject insider trading proceeds as lawful “investments” or “capital contributions” into these entities, disguising illicit funds as legitimate business or shareholder financing.
• The opaque ownership structure conceals the true beneficiary, hampering regulators and financial institutions in detecting the original source of the capital.

• Criminals leverage brokerage accounts to execute high-volume securities trades on non-public information, quickly generating illicit profits.
• Proceeds from these insider trades are then funneled across multiple accounts or intermediaries, obscuring the origin and ownership of funds.
• Rapid liquidation and subsequent distribution of profits to external accounts frustrates regulatory oversight and masking suspicious trading patterns.

• Facilitate the creation of shell entities in jurisdictions lacking centralized beneficial ownership registries.
• Criminals channel insider trading proceeds through these offshore structures, concealing ultimate ownership behind complex layers.
• The opacity of such arrangements hampers detection efforts and obstructs financial institution due diligence.

Traders who knowingly exploit insider information to execute securities transactions are involved in the following activities:

• Initiating high-volume trades immediately before critical announcements.
• Rapidly liquidating positions and distributing proceeds across multiple accounts.
• Masking the source of profits, making it harder for financial institutions to recognize suspicious patterns.

Brokers or brokerage firms establish and maintain accounts used for insider trading. They may be unwittingly exploited due to:

• Lax internal controls or insufficient familiarity with insider trading regulations.
• Allowing unusual trading volumes or timing without adequate scrutiny.
• Overlooking the rapid liquidation and external transfer of proceeds, hindering effective monitoring.

Legal entities with little or no active business operations are often created in offshore jurisdictions lacking centralized beneficial ownership registries. They:

• Receive or layer insider trading proceeds, obscuring true ownership.
• Create multiple transactional layers that hinder financial institutions’ due diligence efforts.
• Enable the conversion of illicit gains into seemingly legitimate corporate revenues or investments.