police busted a massive

Police busted a massive £215m money laundering ring in the Northern Ireland

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PSNI police arrested 7 individuals following one of the biggest money-laundering investigations in the history of Northern Ireland. A senior detective describes it as one of the significant live money-laundering investigations in the UK which involve £215m.

The chief police officer said, “During our extensive investigation we identified that a significant volume of suspected criminal cash was being laundered out of the country through a number of shell companies and bank accounts held here in Northern Ireland. The investigation has identified over 50 companies and over 140 bank account.”

He further added that approximately £215m was deposited to thousands of bank accounts across the UK and also transferred out of the country through different foreign exchange companies since 2011. 

According to Ian Wilson, money laundering is one of the critical enablers of organized criminality. And the majority of this black money is derived from different criminal activities. 

Several other agencies were involved in this investigation, including the Garda economic crime branch, Criminal Assets Bureau, National Crime Agency, the United Kingdom Financial Investigation Unit, Her Majesty’s Revenue, and Customs and Europol.

AML solutions: Eliminating the risks of money laundering

AML Solutions: Eliminating the Risks of Money Laundering

5 minutes read
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Money laundering is a serious crime that can have serious and long-term consequences for your business. Oftentimes, small business owners are offered business opportunities that they can’t simply pass up. It looks like easy money, so they accept and start serving as a facilitator for money laundering. According to a PwC survey, global money laundering transactions account for roughly $1 trillion to $2 trillion annually or 5% of global GDP.

What is money laundering?

The basic concept of money laundering revolves around transforming dirty money into clean money or in a more formal way, money laundering is the process of making a large amount of money generated through illegal activity appear to have earned through legitimate sources. 

Money laundering is typically done through 3 steps: placement, layering, and integration. 

  • Placement is to put illegal money into a legitimate financial system such as a bank
  • Layering is to mask the source of money through a series of transactions and bookkeeping techniques
  • Integration is to withdraw laundered money from a legal account and utilize it

Know more about money laundering process in this demo:

The money laundering is generally accomplished through currency exchanges, wire transfers, smurfing, and shell companies. Moreover, the globalization and digitalization have expanded the capabilities of money launderers, making it more difficult to identify the source of the transaction. Online banking, P2P services, money exchange businesses, and now cryptocurrency have made it difficult to detect the illegal transfer of money. 

However, laundering money is a serious offence. It could lead to heavy fines, penalties and even jail time. According to International Comparative Legal Guide, the maximum penalties for laundering money are fines up to $50,000 or double the amount of property involved, whichever is greater, and imprisonment up to 20 years for each violation. 

Risk of money laundering for small businesses

Small businesses are often the victims of money laundering. Criminals target small businesses because the owners of such businesses lack experience and knowledge about the risks involved with a certain type of business dealing. Further, they don’t have allocated resources and knowledge about Anti Money Laundering (AML) compliance.

Protecting your business against money laundering

By adopting anti-money laundering solutions and practices, you can protect your business from money laundering threats. 

What is Anti Money Laundering?

Anti-money laundering or AML is a methodology or a policy that governs: how the company monitors transactions, detects and reports financial crimes to the regulatory authority. For this purpose, companies adopt different AML solutions that screens and tackles money laundering risks, which the company faces or could face in the future.

AML compliance was first coined with the formation of the Financial Action Task Force (FATF) in 1989. The main concept for its formation was to devise international standards to prevent money laundering and to promote these standards.

In past AML laws has been slow to catch up with cybercrimes, since most of the AML solutions were deployed for traditional banking institutes. However, amid the digital transformation, FATF and other regulatory authorities started focusing on digital transactions and devised stringent regulations to prevent money laundering using digital platforms.

To follow and comply with these regulations, businesses need AML solutions that could detect suspicious transactions and perform due diligence during the onboarding process.    

Automated AML solutions for enhancing AML process

Artificial intelligence and machine learning have been transforming different operational sectors in the finance industry. Automating the tasks that involve data processing and analyzation, filtering out false alerts, and identifying complex criminal conducts are some of the tasks that are being automated using artificial intelligence. To prevent money laundering, banks and other financial institutes use AI-driven AML solutions. These systems are used to identify and categorise suspicious transactional activities.

AI is deemed crucial for performing repetitive tasks while saving time, resources and efforts, which can be reallocated for other tasks. Natural language processing and machine learning are usually adopted for automating AML screening tasks. 

6 Ways AML Solutions can prevent Small Businesses from Money Laundering

Here are ways in which AI-driven AML solutions have revolutionised customer and business screening.

Enhanced due diligence

Artificial intelligence automates the enhanced due diligence process. It starts by taking steps to ensure you know who you are dealing with, understanding and monitoring their transactional activities and accessing their risks of money laundering.

Monitoring transactions and activity

AI-powered risk-based solutions and procedures help monitor ongoing customer activity to detect fraud, as well as money laundering activities including but not limited to placement, layering, and integration of funds.

Reviewing odd patterns of transactions

In most of the cases, launderers use hundreds of different accounts to perform small transactions that can easily surpass without being detected. While it’s difficult for humans to identify such transactions, automated AML solutions can easily identify such smaller transactions and reveal a pattern of illegal activity related to money laundering or terrorist financing.

Identifying Politically Exposed Persons (PEPs)

PEPs compliance is mandatory for firms. It is crucial to identify the risks associated with your customers. According to FATF, any person who is or has been holding any public office or function is a politically exposed person and to do business with any such entity, organisations should perform enhanced due diligence and monitor their ongoing transactional activities.  

Money laundering is a serious risk for small businesses. In addition to facing criminal charges and hefty fines. Involving in money laundering activity intentionally or accidentally could lead to fines and may damage your brand reputation. With this in mind, small business owners need to study and comply with AML regulations. 

An inside look at the need for AML in the e-gaming industry

An inside look at the need for AML in the e-gaming industry

5 minutes read
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Data analytics and trends show the penetration of the population into console-based online video games and smartphone gaming applications. Online video gaming platforms having microtransaction features tend to handle much of financial transactions on their own, they are not considered a bank or a saving association. Therefore do not lie under the regulations of the Office of Foreign Assets Control or Bank Secrecy Act (BSA). However, the facility of financial transactions to buy gaming assets are raising several security challenges in the e-gaming industry. 

Financial frauds, the major threat the e-gaming industry is prone to. Money laundering, a huge financial crime is facilitated using the gaming industry a medium. By selling digital goods and currency (in-game), money laundering activities are conducted. The rise of online gaming has opened the ways for fraudsters to conduct financial crimes in the complex environment in which players operate. The loopholes in the gaming systems are well-analyzed and misused by laundering millions. This is challenging for the e-gaming industry to regulate the sector and deter the risks of financial crimes. 

Moreover, money launderers use e-gaming platforms to convert embezzle funds into good money. The video game industry can reduce money laundering activities by taking in place dynamic AML practices that filter out the bad actors beforehand. 

Anti-Money Laundering and Countering of Terrorist Financing (AML/CFT)

To disguise the ownership of illicit funds, money launderers use several means to hide money or convert it into legitimate money. The money that is earned as a result of cross-border organized criminal activities is concealed by money launderers either by transferring it across the world or buying properties with that. This is what happens in the online gaming industry. Assets are bought with in-game currency and in the form of assets, money is laundered. 

Having a comprehensive AML and CFT program is not only a regulatory requirement but a business practice on which business reputation, as well as profits, are dependent. Moreover, to fight against the criminal liabilities facilitated through e-gaming platforms can better be avoided taking in place stringent AML and CFT actions. 

Player identification

Online casinos’ major concern is fraud prevention. Especially money laundering that is residing in the industry can better be prevented by identifying each onboarding player at the time of account registration and financial transactions. Customer Due Diligence and AML background checks should be implemented in real-time while onboarding a player. This will help build a clean customer base.

Player identification usually can be performed by verifying the identity details. By authenticating official ID documents, KYC compliance can be achieved. The real-time captured information is then validated against the updated global watchlists. AML screening is performed during identity validation in which various AM background checks are implemented that ensure the identity’s data against exclusion lists such as;

  • Sanction Lists
  • Government-issued Data Sources
  • Watchlists
  • Money Launderers
  • Criminal Databases
  • Politically Exposed Persons (PEPs) List

By collecting the extensive details from identity and validating them against criminal databases, online casinos and gaming platforms can build a compliance program that can help them comply with local and global regulatory obligations as well as protect their business from any monetary loss. 

Moreover, ongoing identity monitoring is equally important. One time identity verification can not help eliminate money laundering activities entirely. In-between identity verification deters the risks of malicious transactions and suspicious activities. Just to overcome the effort of identity verification, biometric identification can help in robust verification without compromising user experience and keeping intact the security perspectives simultaneously. 

Other money-laundering countermeasures

Other than verifying the identity of a player, countermeasures can be taken that prevent the direct and indirect approaches of fraudsters of laundering money. These measures are:

  • Detective and preventive controls in assistance with technology should be taken to investigate if some players are exchanging the information among themselves to cheat the gaming system and perform money laundering.
  • Preventive measures against identity theft should be taken to avoid the misuse of someone’s identity by the fraudster to launder money. 
  • The customer information collected at the time of identity verification should be protected from any uncontrolled/unauthorized access. 
  • The customer’s credit card details should be protected from unauthorized access.
  • Enhanced Due Diligence measures to combat money launderers from entering into a legitimate system.
  • Prohibiting direct payment system between customers.
  • Monitoring the transactions between countries and immediate blocking when money is sent to some country that does not register previously as the home country.
  • Reporting of suspicious transactions to the Financial Intelligence Unit.

Risk-based approach

Online gaming companies are required to evaluate the measures they have taken to counter bad actors and their malevolent activities in an online environment. Identification of risks and mitigating them to avoid severe circumstances is the priority of every business. Assigning each onboarding identity a risk rating can help prevent money laundering in the e-gaming sector. With the risk rating approach, gaming companies can develop appropriate AML and CFT measures to combat potential threats. 

Future prospects to combat money laundering in e-gaming

The online video gaming industry will be evolving in the years ahead and create new opportunities for enhanced monetization. By employing an enhanced identity verification framework, the e-gaming sector can proactively avoid regulatory fines and penalties. Identity verifications supported by AI-based and machine learning models that facilitate automation facility would be the future of combating money laundering from the online gaming industry. Hence, providing a financially safer platform and a secure environment from bad actors. Moreover, improved revenue generation opportunities for e-gaming seems to be on the way in years ahead. 

Two More Crypto Firms to Shut Down Over EU Money Laundering Regulations

Two More Crypto Firms to Shut Down Over EU Money Laundering Regulations

2 minutes read
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Two more cryptocurrency firms – mining pool Simplecoin and bitcoin gaming platform Chopcoin – are shutting down because of the AMLD5 regulations of the European Union. 

The 5th directive of the Anti-Money Laundering regulations comes into effect on January 10, 2020. 

A notice on the Simplecoin website reads that the firm is closing down on the 1st of January because the new rules will require firms to identify their users and implement several anti-money laundering (AML) and know-your-customer (KYC) requirements. This is against the protection of users’ privacy. 

According to Simplecoin, 

‘When the laws come into effect, we would be forced to require you, the users, to identify yourselves for anti-money-laundering purposes. Mining should be available to anyone and we refuse to jeopardize our users’ privacy.’ 

Users of Simplecoin will have time until December 20 to withdraw funds and until December 21 to delete their account information. After this date, the wallets and entire platform will shut down. 

Chopcoin is another crypto firm that is shutting down because of AMLD5 since it imposes more stringent reporting obligations for cryptocurrency firms. Under the AMLD5, the Financial Intelligence Units will be authorized to obtain the addresses and identities of all the owners and users of cryptocurrency.

Apart from Simplecoin and Chopcoin, other crypto firms are also being impacted by the regulations. Last week, a cryptocurrency payments startup, Bottle Pay, announced that it is shutting down on December 31 because of AMLD5 laws. According to Bottle Pay, the AMLD5 regulations will “alter the current user experience so radically, and so negatively, that we are not willing to force this onto our community.” Just three months prior, Bottle Pay raised $2 million in a seed funding round. 

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Two More Crypto Firms to Shut Down Over EU Money Laundering Regulations

AML compliance checklist for efficient AML screening in 2020

AML compliance checklist for efficient AML screening in 2020

8 minutes read
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2019 brought a plethora of AML regulations for businesses and non-compliance is no more an option in 2020, it’s an obligation. 

When AML compliance is inevitable, let’s see how it can be performed smartly to get efficient results. This checklist will help businesses thinking about compliance and those who want to update their compliance operations in 2020. 

The amount of globally laundered money is about 2 – 5% of global GDP in one year (report of the United Nations). And the report of the Financial Conduct Authority (FCA) stated that at least £100bn was laundered through the UK. The need for an efficient and constructive AML compliance is inevitable for global business entities. 

What is Efficient AML compliance?

Efficient AML compliance is beyond just sticking to minimal AML compliance requirements. It is about taking concrete steps to eliminate fraud and financial crime from happening on your business platform through a data-centric approach.

Efficient AML compliance is practicing obligatory scrutiny on customers while adopting a data-centric approach in collecting and analyzing customer data to gain useful risk-management insights. The customers’ data collected through automated due diligence solutions should be used to perform customized risk management and to assign customers a realistic risk rating. 

In short efficient AML compliance brings in several other benefits apart from eliminating non-compliance penalties. It helps businesses onboard secure clientele, develop transparent B2C and B2B relationships, improved brand reputation and market value.

AML Compliance Checklist - Infographic 2020 

2019 changed the facet of Global AML Regulation

2019 was a very unpredictable year when it comes to AML/KYC regulations. The global regulatory authorities drafted some strict AML regulations and also increased the scope of those regulations. Several new industries were also added to the scope of global AML regulations. 

FATF took a revolutionary step and issued a digital ID systems guide for the reporting entities to utilize when performing digital identity screening on their customers. The draft of the digital ID system is issued for edits from the stakeholders and it is expected to motivate businesses to move towards automated AML screening of their customers.

On the other hand, the European Union (EU) amended the Fourth Anti-Money Laundering Directive (AMLD4) and published the AMLD5 in the official journal of the EU in June 2018. It increased the scope of the AML regulations to the virtual assets sector, prepaid cards, and real estate sector. The identity verification threshold for the prepaid cards is reduced to EUR 150 from EUR 250. Also, the identity verification threshold for remote payments is set at EUR 50. 

Also, AUSTRAC, the U.S treasury, and the UK regulatory authority introduced new regulations and expanded the scope of the current AML regulations. Read more about these changes in this blog.   

AML/KYC – how 2019 changed the landscape of global regimes? 

Although the regulations changed a lot, the primary compliance requirements are the same in global regulations and they are mentioned below. But these are just the requirements following which would just be compliance and following these regulations smartly will help in efficient and productive AML compliance in 2020. 

Five Components of AML Compliance

Below are the primary components in global AML/KYC regimes, implemented by authorities such as FATF, FinCEN, FINTRAC, FINMA, etc. 

Policies, Controls and Procedures

The policies, controls, and procedures of the company must be aligned with the AML regulations. Ensure that the due diligence, customer verification, record keeping, risk assessment, and reporting operations of the company are aligned with the regulations. The AML regulations changed a lot in 2019 and the businesses must align their compliance procedures with the changed regulations. 

Awareness and Traning of Employees

It is important to train the employees at all hierarchical levels to comply with AML regulations. Making compliance a habit of the employees is important. A sense of accountability must be maintained at all levels. The Danske bank scandal which shook the financial world also happened due to a lack of accountability at an executive level.  

For efficient AML compliance train your employees regarding the changes in the regulatory framework and how they should play their part in making the company fraud-free. As efficient compliance is possible with a team effort from all the employees. 

Record Keeping

A proper updated record of customer information and AML screening must be maintained in a secure manner. In some regulations, it is to be maintained for five years even after a relationship with a client is ceased. 

For efficient AML screening, this record must be used to predict the future prospects of the company and assign customized risk ratings to the customers. 

Customer Due Diligence (CDD) 

The most important part of AML regulations is the verification of the customers and business entities related to your business. For customer due diligence the basic identity verification along with AML screening must be practiced. The customers must be verified against watchlists, sanction lists, and PEPs lists. 

For efficient AML compliance, don’t just verify the customer against domestic watchlists but practice global risk prevention and verify the customers against global watchlists. 

Reporting

Reporting is a crucial part of AML compliance. It includes reporting the unusual transaction that is above the predetermined threshold made by your customers. It helps in mitigating the unpredicted risk coming from businesses. It increases the credibility of a reporting entity. 

Devise efficient AML screening in-house protocols to keep an eye on the transaction of all customers and especially the high-risk entities. 

AML Compliance Checklist for efficient AML compliance 

Digital AML compliance solution helps in automated AML screening of prospects. And also shares the customer screening burden of the reporting entity. Below is the AML compliance checklist to experience efficient AML compliance in 2020 with the help of an AML screening solution. 

Practice global coverage in Customers Verification

In order to practice enhanced due diligence, the businesses must perform global AML screening on their customers. While onboarding a global clientele it becomes difficult for the businesses to practice AML screening on people coming from different corners of the world with ID cards in different languages. 

An AML screening solution helps in performing global AML screening on individuals. And on the businesses as well, so helps you stay one step ahead of fraudsters and also competitors who stick to minimum AML compliance requirements. 

Ongoing monitoring of customers

Performing customer due diligence is mandatory but it is required to be performed only at the time of onboarding a customer. On the other hand, efficient AML compliance is not limited to just minimum protocols so perform AML screening on your customers (especially the high-risk entities) at regular intervals. The risk status of a customer could change anytime. Ongoing AML screening of customers helps in identifying the in-house risk. 

Perform verifications but with Security

Not only money but the personal credentials of your customers are also an asset that needs to be protected from hackers. So be sure that the customer data is in safe hands. Also, AML regulations come with data protection laws. The GDPR (General Data Protection Regulation) in the EU and CCPA (California Consumer Privacy Act) in the U.S are some common data protection regulations imposed on businesses collecting the data of their customers. 

Using the AML screening solution that complies with the GDPR regulations also share the burden of data protection regulations. 

Proactive risk management through valuable risk insights about your prospects

The valuable insights about the prospects (individuals and businesses) help in crafting a proper risk management framework. For example, the nationality verification helps in deciding whether a customer should be verified under CDD or Enhanced Due Diligence (EDD). 

A customer could claim to be from a low-risk country, ID card screening and AML screening against global watchlists will ensure that the person is actually who he claims to be. 

Record keeping through Intuitive back office

Record keeping is important for reporting entities. A digital AML screening solution reduces the burden here as well with the help of an intuitive back office. The verification proof of real-time verification is stored in the back office and it can be used to practice efficient AML compliance on your platform. These proofs help businesses in proving that they actually performed verification on a certain customer.

The world is changing and businesses need to move towards automation to perform their compliance operations in a smart manner. Following the minimal regulations is no more enough. Businesses need to take voluntary steps towards AML screening of their customers to practice efficient AML compliance in 2020. Following the above-mentioned AML compliance checklist will help in proactive fraud prevention and unlocking more growth opportunities.

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AML compliance checklist for efficient AML screening in 2020

DOJ Arrested Three Individuals In A $722 Million Cryptocurrency Ponzi Scheme

DOJ Arrested Three Individuals In A $722 Million Cryptocurrency Ponzi Scheme

2 minutes read
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The Department of Justice arrested three men on Tuesday, December 10, on charges of running an elaborate Ponzi scheme of $722 million since 2014. 

The DOJ issued a press release about the main incident saying, 

‘Matthew Brent Goettsche, 37, of Lafayette, Colorado, and Jobadiah Sinclair Weeks, 38, of Arvada, Colorado, are charged by indictment with conspiracy to commit wire fraud and Goettsche, Weeks, and Joseph Frank Abel, 49, of Camarillo, California, are charged by indictment with conspiracy to offer and sell unregistered securities…Two defendants remain at large and their identities remain under seal.’

According to Assistant Director in Charge of the FBI’s Los Angeles Field Office, Paul Delacourt, 

‘Those arrested today are accused of deploying elaborate tactics to lure thousands of victims with promises of large returns on their investments in a bitcoin mining pool, an advanced method of profiting on cryptocurrency…The defendants allegedly made hundreds of millions of dollars by continuing to recruit new investors over several years while spending victims’ money lavishly.’

The press release gives further details about the operations of ‘BitClub Network’ and how it fooled investors. The network was a pretend mining pool operation that fooled investors through false returns on Bitcoin mining operations while not actually mining any Bitcoin. The three individuals arrested were the ones who operated the network and claimed to offer shares in a ‘mining pool’ for Bitcoin. 

According to the press release by DOJ, Goettshce considered his target audience as ‘dumb’ investors and said he was ‘building this whole model on the backs of idiots’. ‘BitClub Network’ traveled the entire world to sell to new investors and made claims that they were too big of a company to fail. 

 

British Columbia Makes Regulatory Change to Combat Money Laundering

British Columbia Makes Regulatory Change to Combat Money Laundering

1 minute read
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The British Columbia government is providing the gambling regulator of the province more independence to establish and ensure regulatory policy in order to combat money laundering. 

According to the government, the gaming control and enforcement branch will be transitioned to a new independent gambling control office. The new office will focus solely on regulatory policy related to gambling, horse racing and responsible-gaming programs. 

Until this initiative, the branch has enforced policy while also providing advice to the province on business matters involving the British Columbia Lottery Corp. 

Attorney General of British Columbia, David Eby, said the change addresses concerns raised by former RCMP (Royal Canadian Mounted Police) officer Peter German in a report for the provincial government. The concerns were about the dual responsibility and how it could give rise to conflicts of interest and impede anti-money laundering measures. 

Eby expects the change to be effective and says, 

“The IGCO will have the mandate, authority, and independence to ensure the overall integrity of gambling in B.C. This change will make it far easier to keep dirty money out of our province.”

American Gaming Association Updates Best Practices for AML

American Gaming Association Updates Best Practices for AML

2 minutes read
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The American Gaming Association (AGA) has released updated “Best Practices for Anti-Money Laundering (AML) compliance for the year 2019-2020”. The update reflects on the industry’s continuing commitment to AML compliance and guides casinos’ efforts to protect the US financial system from money laundering and other related financial crimes. 

The gaming industry became the first industry to collectively establish a complete set of best practices for AML compliance in 2014. The Best Practices along with the AGA’s Bank Secrecy Act (BSA) compliance efforts have been lauded by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). 

The updated Best Practices contain a more comprehensive risk assessment section as well as enhanced Know Your Customer (KYC) and Customer Due Diligence (CDD) measures. The update is based on FinCEN’s guidance and enforcement action takeaways, the Treasury Department’s National Money Laundering Risk Assessment and the Office of Foreign Assets Control’s updated compliance guidelines. 

The president and CEO of AGA, Bill Miller, said, 

“As one of the most highly regulated industries in the United States, it is imperative we take every possible step to discourage illicit behaviour and safeguard the integrity of the casino industry. Through our ongoing partnership with FinCEN, the Treasury Department, and law enforcement, our industry continues to be a leader in compliance.”

 

ukraine passes anti money

Ukraine Passes Anti-Money Laundering Law based on FATF

2 minutes read
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The Government of Ukraine has passed the final version of a money laundering law based on the guidelines provided by the Financial Action Task Force (FATF). The law will handle virtual assets and virtual asset service providers (VASPs). 

The Rada, Ukraine’s legislative body published the final version of the law on December 6 that counts virtual assets as a symbol of wealth while also considering its potential use in financial crimes like money laundering, frauds, terrorist financing, tax evasion, etc. 

The new law contains guidelines on the ways the government intends to monitor and control the trading of cryptocurrencies. The guidelines center on unique crypto transactions worth less than 30,000 hryvni ($1300) from which the government will only collect the public key of the sender for the purpose of financial monitoring. 

If the transaction exceeds that amount, verification will be applied to both the sender and the receiver. The verification process will include identity verification as well as the verification of the nature and business of the relationship. 

For virtual asset service providers, the limit is 40,000 hryvni ($1600). In which case, the VASPs should present information to the authorities whenever such traders are registered in the jurisdiction that do not comply with anti-money laundering regulations. 

Binance, a major global crypto exchange, is reportedly collaborating with Ukrainian officials to build cryptocurrency-related legislation in the country. The Ministry of Digital Transformation of Ukraine and Binance signed a memorandum of understanding to jointly work on the legal status of cryptocurrencies. The CEO of Binance, Changpeng Zhao (CZ), said in November that in order to bring positive growth in the economy and to attract additional investments, legalization of cryptocurrencies and the adoption of progressive legislation can play a key role. 

The Ministry and Binance intend to form a working group as part of the agreement which will be focused on the strategy of blockchain implementations as well as the production of “new virtual assets and virtual currencies market in Ukraine.”

The Definitive Guide to Anti-Money Laundering & Countering of Terrorist Financing

The Definitive Guide to Anti-Money Laundering & Countering of Terrorist Financing

13 minutes read
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In this modern globalized era, money launderers, terrorist financiers and other criminal elements came up with a slew of resourceful ways to accomplish their malicious desires. It is a common practice of these groups to misuse the services of legitimate businesses such as banks and other Financial Institutions (FIs) to convert ill-gotten gains into ‘good money’. Whereas, to counter such criminal activities, FIs rely on procedures and systems that aim at acquiring customer knowledge.

One of the major issues is that most legitimate entities turn out not to be compliant with the AML (Anti-Money Laundering) regulations. This increases the probability of bad actors to finance terrorists and drug dealers. Any legal entity that knowingly or unknowingly became part of money laundering or terrorist financing will suffer from enormous regulatory penalties. Therefore, it is crucially important for FIs to establish a strong internal system of controls that, even when criminals are using the best effort and abilities to elude the rules. It allows them to identify fraudulent entities and unusual money flows. 

What is Money Laundering?

Money laundering is a process wherein criminals attempt to hide and obscure the ownership and origin of their proceeds of criminal activities whereby avoiding prosecution, confiscation, and conviction of the criminal funds.

When an entity makes substantial profits, it finds ways to use or save funds without moving the attention of inspectors on underlying suspicious activity or on criminal entities that are doing so. In money laundering, criminals disguise their sources of money, change the form or transfer it to a place that seems less likely to grab attention. Embezzle funds are converted into good money to ‘enjoy it’. 

Palermo Convention or United Nations Conventions Against Transactional Organized Crime states money-laundering as:

“The conversion or transfer of property intentionally knowing that it is a proceed of crime, to conceal the illicit origin of money or helping an individual who is involved in predicate offence and wants to evade legal consequences of his action.”

“The concealment of the true source, nature, location, movement, ownership, property or disposition, intended that it a proceed of crime.”

“The acquisition, ownership or use of property, which at the time of receipt was known that it is a proceed of crime.”

Financial Action Task Force (FATF) is an inter-governmental body established in 1988 by a group of seven industrialized nations to combat money laundering. FATF cleared the notion that money laundering only takes place with cash transactions. Actually, it’s not the only case. Money laundering can be performed by any medium virtually, could be a financial institution or any business. 

Sources of Dirty Money

In simple words, money laundering means “the conversion of dirty money into good money.”

Following are some of the sources of dirty money:

  • Drugs and arms Trafficking
  • Criminal Offences
  • Gambling
  • Smuggling
  • Bribe
  • Online fraud
  • Tax evasion
  • Kidnapping and many more…

Methods and Stages of Money Laundering

Money laundering involves three stages; placement, layering, and integration.

  • Placement

This process is the movement of illicit funds from its source. At that time, the origin is manipulated or concealed. This process is followed by money circulation through FIs, shops, casinos, legal sector, or other businesses (both abroad and local). In simple words, in this phase, illegal funds get introduced into the financial system.

The process of placement includes many other methods:

Currency Smuggling: The physical movement of currency out of the country.

Bank Complicity: When FIs are involved with criminal entities such as drug dealers or organized criminal groups. This makes money laundering an easy process. Lack of AML procedures and checks also pave ways for money launderers. 

Currency Exchanges: Foreign currency exchange service providers open ways for money launderers for seamless currency movements.

Securities Brokers: The money laundering process can be facilitated by brokers by structuring enormous funds in such a way that it conceals the original source of illicit money.

The blending of Funds: A small number of illicit funds are blended with a huge deposit of legal funds. 

Asset Purchase: Assets are purchased with dirty money. This process is the most common method to hide dirty money. The real estate sector is misused by money launderers and real estate agents knowingly or unknowingly facilitate bad actors.

  • Layering

This process involves the transfer of funds to several accounts or FIs’ accounts to further separate the original money source. This makes complex layers of transactions that help conceal the source and ownership of illegal funds. Hence, makes it difficult for law enforcement agencies to track the money flow. 

The methods of layering include;

Cash Conversion into Monetary Instruments: After the successful placement of money into FIs or banks, proceeds are transformed into monetary instruments. In this, the banker’s money orders and drafts are involved. Material assets are bought with this cash and sold locally or abroad. In this way, assets tracking becomes more difficult to trace.

  • Integration 

In this process, laundered money is moved into the economy through the banking system. Such money appears just like business earned money. In the integration process, laundered funds are detected and identified through informants. 

Integration methods include;

Property Dealing: Among criminals, property sale to hide dirty money is a common practice. For instance, criminal groups buy properties using shell companies.

Front Companies and False Loans: Front companies, incorporated with secrecy laws in the countries are used by money launderers that lend them laundered proceeds that appear to be legitimate.

Foreign Bank Complicity: Money laundering is conducted using foreign banks. It gets hard for law enforcement agencies to point them out due to their sophisticated systems. 

False Invoices: Import/export companies create false invoices and have proven to be an effective way of hiding illicit money. This method includes the overvaluation of products to justify the funds. 

What is Terrorist Financing?

The processing of funds to facilitate criminal activity. It involves financial support to non-state actors or terrorists.

This is today one of the major threats we are facing. Who knows, if our services are used for terrorist financing? Even, sometimes the legally earned money is also transferred for the financing of terrorism. 

For terrorists, no matter how small the money amount is, it is a lifeblood for them.

Just like money laundering, terrorist financing is a predicate offence. Early detection and immediate counter steps are the only ways to combat it. 

For terrorists, no matter how small the money amount is, it is a lifeblood for them.

Concerns of Countries and Governments around the World

United Kingdom

MLR-2017, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) regulations came into force in the UK on June 26, 2017. The new regulation of the UK is tightening the reins on money laundering in resourceful ways. 

To combat money laundering, UK regulations include identity verification of customers before providing services to them. AML compliance is mandatory when it comes to screen the customers against Politically Exposed Persons (PEPs) list, sanction lists, the high-risk customers’ records, and updated criminal databases. In addition to this, employee training is also declared mandatory. Previously, regulations covered only casinos holders which now extend to all gambling providers.

China

Anti-money Laundering (AML) regulations in China primarily focus on KYC (Know Your Customer) verification of customers through identity verification protocols. China’s government has issued AML/CFT regulations on online financial institutions. FATF report for the People’s Republic of China states that China has a strong understanding of money laundering and terrorist financing risks. 

In AML/CFT regulations of China, legitimate entities are required to verify their customers with identity proof (such as government-issued ID cards). In addition to this, regular identity checks are declared important in case of a change in records of beneficiaries or regulations. In the case of any suspicious transactions crossing the minimum transaction threshold, it should be reported immediately to the relevant authority. China is taking stringent measures in the AML compliance program to combat money laundering and terrorist financing criminal activities.

The United States of America

In the USA, Bank Secrecy Act (BSA) is residing. With several amendments, this act is quite detailed and covers broad perspectives of money laundering risks of financial institutions. BSA was designed to identify the source, volume, and movement of laundered money and monetary instruments. According to BSA, banks and other financial institutions are supposed to report transactions over $10,000 through currency transaction reports. 

Not only this, CDD processes are mandatory for businesses operating in the USA. AML screening of customers against several criminal databases are updated records is necessary to comply with AML regulations. Additional federal laws are passed to strengthen the rules and regulations under BSA. Anti-money laundering programs in the USA come up with changes and scope will be extending with time.

Canada

FINTRAC, Financial Transactions and Reports Analysis Centre of Canada has recently released a final version of rules and regulations that depict amendments in the regulations to Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). The changes in Canada’s regulations ensure the compliance procedures and policies to be significantly stringent. 

According to these regulations, the financial services industry needs to be dynamic in nature for the reduction of money laundering and terrorist financing activities. Virtual currency services and digital payment methods have opened ways for fraudsters to transfer their embezzled funds across the world. Moreover, regulations extend to prepaid card issuers, virtual currency providers and foreign Money Services Businesses (MSBs).

Risks for Banks and Financial Institutions 

Money laundering and terrorist financing affect the overall economy of the world. As regulated entities such as banks and financial institutions are primary sources that deal with the money in a country. These entities are opportunities for fraudsters through which they can transfer ill-gotten gains in different corners of the world. There are several risks associated with the maintenance and supervision of banking relationships to which FIs and employees should be aware of. The interconnection of banks should be secure and well-organized to track the unusual flow of transactions. Otherwise, regulatory scrutiny can subject hefty penalties which include monetary fines, imprisonments, business abandonment temporarily or permanently and assets freezing. 

What are KYC and KYB?

Know Your Customer, KYC is a process of identity verification of the customers. It is part of Customer Due Diligence (CDD). To combat high-risk customers, identity verification plays an important role. KYC is the term most commonly used in banks and financial institutions for customer verification. Now, it is needed for almost all industries because of the extended scope of fraudulent tricks and region. 

Also, to comply with the obligations of global and local regulatory authorities, businesses need to verify their onboarding customers. To verify the credibility of customers, the KYC verification process makes sure that the person is actually who he says he is. Not only customers, but the scope of KYC extends to agents, businesses, corporate entities, and third-party verification. This is what we call ‘Know Your Business’ or KYB. 

KYB involves the verification of businesses your company is dealing with. This is important to verify that your business operations are running in association with honest and registered entities. To avoid regulatory fines, verification of Ultimate Beneficial Owners (UBOs) is declared mandatory. AML regulations of FATF have explicitly stated UBO screening importance for businesses to combat money laundering and terrorist financing. 

What is EDD?

Enhanced Due Diligence (EDD) includes additional information of customers as compared to the one collected during the CDD process. To combat the risks of high-risk customers in an organization, thorough screening is performed. In-depth verification of customers is conducted by verifying their identity, not only by collecting personal but also financial information. Following is the EDD information that is collected at verification time:

  • Business/ occupation
  • Financial status
  • Income
  • Location
  • Private/corresponding baking information
  • Continuous transaction monitoring, etc. 

Enhanced Due Diligence Factors

High-risk Customer Factors

 

  • Verification of customers if they are foreigners or non-residents
  • Personal vehicle information of legal identities
  • Verification of customers if their relatives or family members are in the list of PEPs
  • Businesses that are cash-intensive
  • Risk assessment of company against AML policies and parameters

Geography Risk Factors

 

  • Countries that lack AML/CFT practices and are prone to money laundering and terrorist financing. 
  • Countries that lie in sanctions lists or have high criminal records
  • Countries that are blacklisted for facilitating criminal activities
  • Countries that do not lie under the hood of FATF members, etc.

Importance of Watchlists and PEPs

Bad actors are spreading all around the world. Your business that is providing services across the globe should be well-aware of the policies and regulations under which businesses operate. Similarly, your businesses should know high-risk entities of friend countries. Updated records of criminals, money launderers, terrorist financiers, online fraudsters and hackers, and several other watchlists should be maintained issued by law enforcement agencies, to verify each onboarding customer and secure the organization.

In addition to this, identities should be verified against the list of PEPs and their relatives to make sure that no fraudulent identity is facilitated through your legitimate businesses. In case of any discrepancy, businesses can be subjected to inevitable heavy regulatory fines. Hence, it is a regulatory requirement as well as a security concern for the protection of business from malicious entities in the financial system.

Reporting Suspicious Transactions

In a financial system, any suspicious transactions should not be ignored. To prevent money laundering and terrorist financing activities, on an immediate basis, transactions should be reported. Under the requirements of regulatory authorities and anti-money laundering laws, reporting entities are supposed to submit Suspicious Transaction Reports (STRs). It should be reported regardless of the number of fraudulent transactions. A suspicious transaction is:

  • That appears unusual
  • Appears illegal
  • Transaction performed above the specified threshold
  • Frequent transactions from one identity
  • With no clear economic purpose
  • Shows indication of money laundering or terrorist financing

Discussed in the AMLA section, failure in reporting an STR is an offence which can be subjected to a regulatory fine.

Indications of Money Laundering

The features below are recorded in the money laundering case studies that came onto the surface after investigations:

Indications of Money Laundering

Conclusion

Anti-money laundering and countering or terrorist financing is the responsibility of every business and employee of a country. Strict regulatory requirements came into force as a result of its adverse effects od money laundering and terrorism financing on the global economy. Fraudsters that are violating the legitimacy of financial institutions should be tackled by all means. This very first step is the scrutinization of organizations against AML policies and procedures. The government can impose heavy criminal and civil penalties as a result of violations of regulatory obligations. 

Before the law, ignorance is not even an excuse.  

Swedish Bank SEB Accused of Money Laundering

Swedish Bank SEB Accused of Money Laundering

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Investigations done by the news agency TT and broadcaster SVT revealed that 25 SEB clients recorded transactions with 18 corporate entities linked to the Magnitsky case. Tax lawyer, Sergei Magnitsky, died in a Russian prison in 2009 after he accused Russian officials of siphoning money from the firm he was working for, Hermitage Capital. Hermitage Capital was the largest foreign investment fund in Russia at the time and Mr. Magnitsky accused the Russian tax officials of embezzling $230 million from the firm. 

Approximately 194 clients at Skandinaviska Enskilda Banken AB are doubted using the bank to launder money through Swedish and Baltic accounts with about 474 million Swedish kronor ($49.4 million) connected with the Magnitsky case. 

The accusations come days after Australia’s Westpac bank was accused of 23 million breaches of anti-money laundering and counter-terrorism financing regulations. Similar accusations were made at Swedbank and Denmark’s Danske Bank. The Danske Bank is being investigated on allegations that around $230 billion in dubious funds from Russia and other former Soviet states entered Europe through its branch in Estonia.

SEB Chief Executive Johan Torgeby told Reuters after SVT reported on the story, 

“In the comprehensive analysis that we have made of our business in the Baltics, we have not seen that SEB has been used for money laundering in a systematic way.”

Torgeby also talked about the actions required of this report and said, “The program showed us nothing new which we need to act on today.” 

SVT reported that the SEB client list contained ‘red flags’ – names associated with familiar proxies for Russian non-resident corporations suspected of money laundering. The report by SVT was based on a cache of leaked information provided by the Organized Crime and Corruption Project investigative reporting consortium. 

Providing past date, SEB showed that nonresident money flows in Estonia. In between 2005 and 2018, around 25.8 billion euros ($28.4 billion) moved in and out of its nonresident Estonian customer accounts related to low transparency customers. 

“These flows cannot be equated to confirmed money-laundering activities, but there is rather an increased risk for money laundering here,” the bank said.

SVT said its report was based on a cache of leaked information provided by the Organised Crime and Corruption Project investigative reporting consortium. 

fintech

FinTech Market Gaining Traction in Asia, Slowing Down in US

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The Financial Technology (FinTech) market is booming in Asia, especially in China according to a New York-based data firm, CB insights. Investments in China fell into a slump earlier this year and now they are seeing a new surge.

Until now, FinTech has raised $25.6 billion which is already huge compared to 2017’s total of $18.8 billion. According to the report, the market is not so hot in the US where FinTech deals have fallen to an 11-quarter low. Asia saw investments spike and nearly surpasses the US investments in the third quarter. The US suffered the falls of the deals as the result of a withdrawal in early-stage deals which is also the reason for the overall drop in global deals in 2019 in the third quarter. 

 

FinTech Market Gaining Traction

 

In the third quarter, India and China continued to battle over the title of Asia’s top fin-tech hub. India remained behind with 33 deals while China saw deals surge to 55 in the third quarter. China had $661 million of funding narrowly lagging behind India’s $674 million. China has reclaimed the lead from India as Asia’s top deal hub for the third quarter.  

Source: (Twitter)

The FinTech market in Southeast Asia topped new heights with $701 million raised across 87 deals through the third quarter. The third quarter of 2019 also saw the top two deals since 2015; a $100 million Series B to Singapore-based Deskera and a $100 million Series C to Vietnam-based MoMo. 

 

 

Australian Bank Westpac Accused

Australian Bank, Westpac, Accused of 23 Million Money Laundering Breaches

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Australia’s financial intelligence agency, The Australian Transaction Reports and Analysis Centre (Austrac), has initiated legal action against one of the biggest banks of the country, Westpac. Austrac has accused Westpac of more than 23 million breaches of anti-money laundering and counter-terrorism finance laws involving $11 billion in transactions, including money transfers conceivably linked to child exploitation. 

Austrac said, in a report filed with the federal court, that Westpac had failed to “carry out appropriate due diligence on customers sending money to the Philippines and South East Asia for known child exploitation risks”.

Austrac has said that each breach carries a maximum penalty of $21m AUD which is £11m or $7.5m. Westpac, Australia’s second-largest bank, said these issues ‘should never have occurred’.

Between 2013 and 2018, Westpac allegedly neglected to report more than 19.5 million international funds transfer. Over a period of six years, the unreported transactions amounted to more than $11 billion AUD. The bank is also accused of negligence of retaining records and performing certain due diligence functions with possible high-risk overseas banks. Those banks revealed relationships with sanctioned or high-risk countries like Iraq, Ukraine, and Zimbabwe. 

Austrac said in the statement,  “The risk posed to Westpac was that these high risk or sanctioned countries may have been able to access the Australian payment system through these nested arrangements, unbeknownst to Westpac.”

According to Nicola Rose, Austrac’s Chief Executive, Westpac’s negligence to properly report the transfers threatened ‘the integrity of Australia’s financial system’ and ‘hindered its ability to track down the origins of financial transactions, when required to support police investigations’.

Austrac also mentioned that there were a number of transactions on accounts that were possibly connected with ‘child exploitation risks’. Westpac failed to perform the necessary automated detection procedures on these transactions. 


Brian Hartzer, CEO of Westpac, said he was “disgusted” by the revelations but rejects the claim the bank has not treated the breaches seriously. He said, 

“We have absolutely not been indifferent to this topic. So I just want to be really, really clear that as far as I am concerned at a senior executive level, for the board, for me personally, in no way have we been indifferent on this.”

The Prime Minister of Australia, Scott Morrison, said he was “appalled” by the allegations but this lawsuit has proved that Austrac is doing its job well.

Last year, Westpac’s rival bank, Commonwealth Bank of Australia, agreed to pay $700m AUD in settlements against a similar lawsuit in which the regulator alleged more than 53,000 breaches of anti-money laundering and counter-terrorism financing laws. 

German Parliament Passes Anti Money Laundering Laws

German Parliament Passes Anti-Money Laundering Laws

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On Thursday, the German parliament passed a draft of anti-money laundering measures to make sure the national law is in accordance with the EU directives. 

The anti-money laundering measures impose stricter regulations for notaries, real estate agents, auction houses and precious metal dealers in order to prevent terrorism financing and money laundering. Although the parliament has passed the laws, approval by the upper house of Parliament, the Bundesrat is remaining. 

Notaries and real estate agents in the property sector will now be faced with tighter regulations to report any suspicious money laundering activities. This includes a lease of more than €10,000 ($11,024) per month.

In its annual report last year, the Financial Intelligence Unit (FIU) regarded the real estate market of Germany at “extreme vulnerability”. According to the FIU, there were 3800 cases involving the real estate sector out of 77,252 cases of money laundering in Germany last year. 

The new laws will also demand precious metal dealers to notify any unusual activity of more than €2,000, from €10,000 previously. Regulations around art dealers also include warehouses, intermediaries and auction houses. 

Several lawmakers complained during the closing remarks that the US Embassy and tech giant Apple had wanted to mediate with the Chancellery to stop a section of the law from passing. This attempt was linked to a regulation which demands digital platforms to open their interfaces for payment services and apps such as Apple Pay. The payment apps of Banks do not have access to the Near Field Communication chip in the iPhone or Apple Watch but have to resort to cumbersome data transfer methods such as QR codes.  

esa aml compliance

AML Compliance in EU Member States and Risks of Businesses

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Making regulations is just the first step, the true game starts when it comes to implementation, the European Supervisory Authorities report gave this clear message. 

European Union regulatory authorities are always in a wake to improve Anti Money Laundering (AML) and Counter Financial Terrorism (CFT) regulations. Currently, the fourth AML directive is in action in the member states of the EU. Europen Union Supervisory Authorities (ESAs) recently gave a joint opinion based on the AML and CFT data collected from the member countries and expressed their concerns regarding the CFT and AML compliance in the reporting entities. 

The member countries are required to give this joint opinion on money laundering and terrorist financing risks in the EU financial sector every two years based on Article 6(5) of (EU) 2015/849 (the 4th AML directive). The ESAs (EBA, EIOPA, ESMA) report showed concerns regarding monitoring transactions and suspicious transaction reporting, cryptocurrencies, Brexit, and the risks associated with operations of businesses that handle a large number of financial transactions. 

Major Concerns of ESAs

The ESAs expressed some major concerns regarding the risks lurking in the financial infrastructure of EU countries. The detailed report contained the data proof of how credit institutions are exposed to more risk as compared to previous years. 

Inconsistent implementation of 4th AML directive

 

The uniform implementation of the 4th AML directive is a challenge as the legislations in a country are influenced by several stakeholders. The report of Joint Supervisory Authorities (JSA) highlighted that political and regulatory entities in the countries influence the implementation of the EU AML and CFT regulations. The countries often don’t understand the regulations properly and there is a lack of uniformity in the regulations across the EU so it leaves a loophole for the companies that plan to do illegal business. For example, if one country is rigid in AML and CFT compliance then the businesses or the criminals move to other countries with relatively lenient regulatory compliance requirements. So, it affects the effectiveness of AML and CFT regulations. 

Brexit

 

The United Kingdom is all set to leave the European Union in some time. The report of the ESAs identified that the firms working in the EU will be affected by this change in the EU landscape. The firms listed in the UK will have to update their operations as per the new UK regulations. Also, the firms outside the UK will have to get themselves registered with the UK as per the new regulations. 

This huge change in the infrastructure will affect the regulatory landscape of the EU. Most probably it will make loopholes for financial criminals. The UK was used by the shell companies in the past, and now this sudden shift in regulations will definitely take some time, so, the criminals are most likely to gain over this delay. 

Nicola Gratteri a public prosecutor in Calabria predicted that Brexit might aid the Italian mafia in pooling in their illegal money to the UK. Shell companies will be the safe haven of criminals to legitimize their cash proceeds from drug dealing, human trafficking, etc. 

Regtech and Fintech

 

Technology is a freeware that is used equally for fraud and fraud prevention. The advent of Fintech and Regtech definitely improved the operations in the financial sector but it also increased the risk. Lack of regulations and minor regulatory compliance in this sector is the source of risk. Fintech and Regtech are widely adopted by people and are very dear to legitimate users due to the ease created due to these solutions. 

Lack of legal and regulatory understanding among the Fintech and Regtech businesses is a point of concern. The businesses that don’t practice are more likely to fall prey to identity thieves and criminals. The in-depth understanding of regulations and regulatory compliance by Regtech solutions is vital to deliver quality risk prevention, so the businesses should be careful while choosing one such solution. 

Cryptocurrencies

 

Cryptocurrencies are major concerns of the JSAs. Although the AMLD5 and AMLD6 are drafted to address this risk. Lack of regulatory awareness and commitment in the cryptocurrency ecosystem are some major concerns expressed in the report. The EU is also planning to increase the scope of “virtual currencies” to “virtual assets” as per the FATF regulations. This is because there is a lack of awareness among the businesses offering the cryptocurrency services. 

Internal control

 

The internal controls of businesses are found to be lacking in their internal controls. Some major issues were found are Customer Due Diligence (CDD), lack or suspicious transaction reporting, lack of transaction monitoring, etc. 

Lack of effective compliance 

 

The businesses in the EU countries are found to be lacking in AML and CFT compliance, the report stated that sanctions screening is not enough. The businesses have to keep an eye on the transactions of their customers as well. Complete reliance on CDD is the loophole in the internal controls of firms. 

Also, businesses are required to practice compliance in a smart manner. In case they completely disown the customers based on the high risk associated with them, it will increase the chances of money laundering in the EU. 

Credit Institutions

 

The report highlighted that some credit institutions are exposed to major risks due to their business operations. Financial transactions as the key part of their operation so the risk of being exploited by money launderer sand terrorist financiers is high. The businesses are required to practice proactive fraud prevention and CDD. 

To wrap up, the businesses in the EU and outside the EU will be affected by the increased pressure on AML and CFT compliance among the member countries. The businesses from non-member countries will also be affected by this. The EU has also recommended the reporting entities to practice the EU regulations outside the region (Non-EEA states). The Brexit is also expected to happen in the near future so it will also affect the operations, regulatory compliance of the global businesses. Proactive fraud prevention, thorough regulatory compliance, and timely decisions will help businesses in achieving high returns in the future.