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Cash intensive business definition and meaning | AML glossary

What is a cash-intensive business? Definition and AML compliance meaning.

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Cash-intensive business definition: What it means in AML compliance.

A cash-intensive business is one that primarily deals in cash transactions, either because it offers services or products that are typically paid for in cash, or due to customer preference. These businesses often see a high volume of cash being exchanged, making it more challenging to track, monitor, and report transactions

Common examples of cash-intensive businesses include:

  • Restaurants and cafes: Especially those that accept significant cash payments from customers on a daily basis.
  • Bars and nightclubs: These businesses often see large volumes of cash from drink sales and cover charges.
  • Convenience stores and corner shops: These businesses typically have a large volume of small cash transactions throughout the day.
  • Car washes: Cash payments are commonly made for services rendered, and these businesses can often process large volumes of cash.
  • Hair salons and beauty spas: Many customers prefer paying in cash for personal grooming services, making it difficult to track payment flows.
  • Construction contractors and home repair services: Cash payments are often used in the form of informal transactions for services like plumbing, electrical work, or general construction.
  • Taxis and ride services: Drivers often receive cash payments for services, making these businesses cash-intensive.
These types of businesses are seen as high-risk in terms of money laundering due to the ease with which illicit funds can be integrated into legitimate cash flow. The high volume of cash transactions can obscure the true nature of a business’s finances, making it difficult to detect illegal activities like money laundering or tax evasion. 
 
For example, a cash-intensive business like a nightclub may regularly deposit large sums of cash from ticket sales and alcohol transactions. If these funds are not properly recorded or if the business is not diligently monitored, it becomes more difficult to identify whether the money comes from legitimate sources. The lack of a paper trail or electronic transaction history, as is the case with non-cash payments, raises concerns for regulators and compliance managers alike.

What a cash-intensive business means for AML compliance.

If you are working in a regulated business that interacts with cash-intensive businesses, your compliance obligations increase substantially. When dealing with cash-heavy industries, your responsibility is to not only monitor your own operations but also ensure that the businesses you engage with adhere to Anti-Money Laundering (AML) regulations.

Cash-intensive businesses present a unique challenge because of the inherent difficulty in tracing the origin of funds. Transactions are often opaque, and it’s easy for illicit money to be introduced into the financial system without detection. As a regulated entity, you must develop a strong oversight framework to mitigate these risks and ensure that your partnerships with cash-intensive businesses don’t inadvertently lead to involvement in money laundering activities.

One of the first steps in managing the risk of dealing with cash-intensive businesses is enhanced due diligence (EDD). Cash-heavy businesses are often classified as high-risk due to the high volume of transactions that lack an easily traceable audit trail. This means that when assessing the risk of engaging with such businesses, you need to go beyond the standard checks.

Given that cash-intensive businesses often deal with individuals who may not wish to disclose the origin of their funds, it’s critical that you apply rigorous Know Your Customer (KYC) procedures. You need to establish a thorough understanding of the business’s financial activities and its customer base. In some cases, the owners or operators of cash-intensive businesses may try to bypass traditional financial channels, making it easier for them to launder money through their operations.

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