When must financial institutions trace the source of funds for foreign persons or institutions?

Financial institutions are required to trace the source of funds for foreign persons or institutions specifically when a primary money laundering concern has been identified. This requirement arises from regulations aimed at enhancing the scrutiny of transactions that could potentially involve illicit activities. When a financial institution recognizes that a transaction is associated with significant risks of money laundering—such as unusual activity patterns, high-risk jurisdictions, or known associations with criminal enterprises—it becomes imperative to understand where the funds originated. This due diligence is crucial in preventing the institution from becoming unwittingly involved in money laundering activities, protecting its reputation, and complying with legal obligations.

In contrast, the other scenarios do not automatically trigger the requirement to trace the source of funds. A facilitator's involvement, while potentially significant, does not inherently indicate money laundering risk. Transactions involving two or more banks or those of $10,000 or more also might require scrutiny under different regulations, but they do not guarantee that a primary money laundering concern exists. Therefore, the identification of a primary money laundering concern is the key factor that necessitates tracing the source of funds.