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In today’s digital world, increased financial crimes adversely impact global industries, mainly the financial sector. It’s a colossal challenge for banks and other financial institutions as they are at the helm of securing the country’s as well as citizens’ financial interests. According to the United Nations Office on Drugs and Crime (UNODC) findings, about 2 and 5% of global GDP is laundered annually, approximately between €715 billion and 1.87 trillion each year.
The challenge is further enhanced due to the unavailability of effective anti-money laundering compliance processes and robust transaction monitoring solutions. Financial firms, particularly banks, are in a very complex situation where they are expected to onboard customers and process transactions at lightning-fast speed whilst adhering to anti-money laundering, know your customer, and countering terrorist financing regulations using AML solutions.
A Short Overview of Financial Crimes
When a fraudster illegally acquires money for their own financial gain through scams or corruption or conducts seemingly legitimate transactions to conceal illicit gains acquired from activities like human exploitation or drug trafficking. The definition might look simple, but identifying, defining, investigating, and prosecuting such activities is a complex and challenging process. There are hundreds of ways or channels for ill-gotten money to flow through, and many incidents of money laundering involving an array of transactions make it hard for financial firms as well as the regulatory authorities to monitor these illicit cash flows and follow the money.
Putting a precise number on the scale associated with financial crimes is hard as global digitisation is paving the way for fraudsters to defraud banks. However, various statistics show that approximately two percent of the global GDP is laundered through the financial sector each year, and the number will be increased soon as financial crimes worldwide are increasing exponentially due to various reasons, including ineffective AML compliance systems, inconsistent laws, pandemic situations, and increased digitisation.
That said, such factors pave the way for criminal gangs, individuals, and businesses to launder money or commit other forms of crimes that harm the financial system. However, identifying and fighting these crimes require robust and fool-proof anti-money laundering, know your customer as well as countering terrorist financing systems, helping businesses dig deeper whilst keeping regulatory bodies aligned with the proceeds of crimes.
What is AML Compliance?
World’s prominent financial regulatory authorities and governments have emerged with a rigid set of anti-money laundering laws and policies, aiming to halt money laundering using banks and legal financial systems. As most shell businesses, criminals, tax evaders and corrupt politicians rely significantly on laundered money for their illicit operations, having rigid, automated anti-money compliance procedures in place can reduce the occurrence of financial crimes.
Many financial firms and other businesses need to do extensive customer due diligence as well as enhanced due diligence under AML regulations to overcome the risk of money laundering and other economic crimes. Anti-money laundering checks are a vital aspect of customer due diligence since they can screen the customers or legal entities against global watchlists, PEPs lots, and more, ensuring your business deals with a legitimate client.
The Emergence of AML Solutions
The Bank Secrecy Act (BSA), adopted by the United States in 1970, was one of the first rules for the anti-money laundering regime. The BSA was one of the first of its kind to detect, stop, and prevent financial crimes. However, the Financial Crimes Enforcement Network (FinCEN) oversees BSA, “protecting the financial system from financial crime abuses such as terrorist financing, money laundering, and other illicit activity.”
In 1989, the Financial Action Task Force (FATF) was established by a group of countries and organisations worldwide, having a similar aim to BSA, to create, promote and enforce anti-money laundering regulations worldwide. However, after the world trade centre tragedy (9/11), FATF broadened its scope to anti-money laundering and terrorist financing. Other than these, the International Monetary Fund (IMF) is another prominent body, having 189 member countries onboard and aiming to preserve the global financial system’s stability. The IMF is more concerned about financial crimes’ impact on the monetary systems than making regulations.
The European Union (UN) also introduced its First Anti-Money Laundering Directive in 1990 to reduce the risk of financial crimes as well as restrict criminals from using legal financial systems for illicit gains. The EU’s AML Directives are constantly evolving to fight evolving money laundering techniques whilst ensuring secure financial operations.
The Proceeds of Crime ACT 2002 (POCA) is a top-tier law in the UK that mandates businesses to comply with the country’s AML regulations. Other than this, regulatory authorities like the National Crime Agency (NCA), Serious Fraud Office (SFO), Financial Conduct Authority, and (FCA) were developed in the country to reduce the risk of financial crimes. Even though the UK is not a member of the UN, the country’s anti-money laundering laws and policies are systematically aligned with the Financial Action Task Force (FATF) requirements.
Critical Components of an Effective AML Compliance Programme
Financial firms and the banking sector need to develop an effective anti-money laundering compliance programme to meet regulatory obligations whilst managing and mitigating the money laundering risks. However, failure in the AML screening solutions can expose businesses to financial crime risks, leading to non-compliance fines, hefty penalties, and reputational damages.
AML programme consists of effective control measures as well as a directive that ensures banks meet their regulatory obligations, an effective AML compliance programme includes:
AML Compliance Officer: banks must onboard or appoint a compliance officer that can provide insights into AML compliance programmes and act as a liaison for them. There are also some certain requirements for compliance officers that vary jurisdiction-wise.
AML Training: Financial service providers should arrange AML training workshops to keep their employees capable of detecting and reporting suspicious activities or transactions. The bank’s AML compliance programme should involve training sessions, keeping employees well-informed to meet emerging regulations and trends in fraudulent activities.
Customer Record Keeping: Banks need to keep records of customers’ activities, transaction monitoring, and verification results whilst ensuring customers’ personal data and privacy rights remain intact.
Risk-Based Approach: Financial firms need to practise risk assessment perfectly aligned with know your customer and customer due diligence procedures for secure client onboarding. Banks can precisely reduce the risk of money laundering with detailed insights into customers’ risk profiles.
Customer Identity Verification: Banks need to authenticate customers’ identity by using ID document verification method to ensure that the clients are who they say they are. To do so, financial firms need to gather personally identifiable information, including name, date of birth, transaction sources, and more, before getting them onboard.
Sanctions & PEP Screening: Businesses need to screen their customers against sanction lists and PEP lists to confirm that they are not onboarding high-risk entities. However, if customers appear in any of the lists, they are subject to enhanced due diligence.
Anti-Money Laundering Screening with Shufti Pro
Banks and other financial firms who do not comply with anti-money laundering regulations or show negligence in implementing AML screening systems, institutions are more likely to become victims of money launderers, risking their reputation and exposing their business to hefty fines and regulatory sanctions.
However, navigating anti-money laundering regulations is not an easy task, but made simple and accessible with Shufti Pro. Our sophisticated AML compliance solution is powered with AI and ML, making it one of its kind, best-in-class fraud preventive services in the global market. With Shufti Pro, businesses can screen their customers against 1700+ sanction lists while onboarding customers from 240+ countries and territories in a matter of seconds with 99.77% accuracy.
Here’s what Shufti Pro’s AML solution offers:
- Four-tier PEP screening system
- Reduced false positives
- Interactive user interface
- Screening within seconds
- Access to 1700+ datasets
- Enhanced data security
- Proof of screening
- Fully automated monitoring
Want to learn more about our AML compliance solution and how you can mitigate the risk of money laundering?