AML solutions: Eliminating the risks of money laundering

AML Solutions: Eliminating the Risks of Money Laundering

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

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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

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. 

Kyc documents for customer verification

Which KYC Documents are Required for Customer Verification?

Name, Rank, Brigade, and Serial Number. That’s the only information military organizations across the globe use to identify their members. Unfortunately, financial institutes can’t use the same simplicity for the identification of customers and businesses. Owing to the increasing number of fraudulent activities, financial firms must follow stringent regulatory laws when onboarding customers or doing business with counterparties.

What is Know Your Customer?

Know Your Customer or KYC is a commonly used term in the banking sector and refers to the process of clients’ identity verification when indulging in business with them. Banks, digital payment service providers, or financial firms are required by banking norms to have customer’s KYC process completed before allowing them complete access to all services.

KYC verification process is deemed necessary to mitigate illegal activities such as money laundering, bribery, or corruption. It assists authorities and businesses to keep track of customer activity and detect fraudsters beforehand. Apart from a legal perspective, performing KYC also helps companies to keep fraudsters out of their systems.

Why is KYC important?

KYC helps bankers to ensure that the application and other identity details provided by the client are real. Owing to instances like money laundering and siphoning money off from bank accounts, verifying the identity of an individual is essential to prevent fraud.

KYC has been in practice for many years now and all customers have to comply with KYC regulations. Without KYC compliance, it is not possible to open a bank account.

However, banks have been practicing manual KYC, which requires a lot of human effort as well as time. Additionally, the risk of human error is always there involved. Error in such processes could lead to a great financial loss to the institute. Banks need to adopt a better approach to KYC verification.

A better way

To enhance the KYC verification process, the financial sector should employ a digital system that could reduce the time required for verification and manual labor. Based on the principles of automation, digital KYC can reduce cost and human effort, while increasing accuracy. The manual process that could take hours and even days can be cut down to seconds by utilizing AI-based verification solutions.

By employing automated systems, businesses can onboard, secure clientele that too in real-time. The tiresome procedure of manual onboarding sometimes results in losing customers. 

Moreover, digital KYC not only helps in identification, but it could also filter and sort customers based on the risks involved with specific individuals or entities. Businesses and banks can remain vigilant and perform ongoing monitoring for high-risk individuals. Also, due to globalization, real-time onboarding and verification are considered a basic requirement.

How is Digital KYC performed?

Same way as the manual KYC, the digital verification process involves the collection and verification of user information. However, the process is performed digitally and doesn’t require a user to be physically present at the time of verification.

Digital KYC Verification Process

While manual verification demands the user to fill out long forms and attach documents, the digital KYC just requires the user to upload a picture of a valid identity document. 

The information from the document is automatically extracted using Optical Character Recognition (OCR) technology. This extracted data is sent to an artificial intelligence-powered system, which analyzes the information and verifies if the information is correct or not. Some cutting edge systems such as Shufti Pro’s, even synergize artificial and human intelligence to further improve the accuracy and deliver perfect results.

Find more resoures on KYC.

Which KYC Documents are Accepted and What Information is Analyzed?  

The documents required for verification vary, depending on the regulatory requirements of a country, however, some generic documents are acceptable in almost every country.

For proof of address, if it’s not mentioned on the above-stated documents the following are acceptable for address verification:

  • Utility Bills
  • Bank Statment
  • Rent Agreement
  • Employer Letter
  • Insurance Agreement
  • Tax Bills

However, the documents must not be more than 3 months old. 

All of the above KYC documents can be used to collect the needed data. The data that most countries and jurisdictions require for verification is:

  • Full Name
  • Document Number
  • Address of Residence (For Address Verification)
  • Image of the Person
  • Date of Birth (Mostly needed for Age Verification)
  • Document Issue and Expiry Date
  • Nationality

To verify that the uploaded document is original and contains the required information, an AI-based document verification system checks for the originality of the document as well.

Conclusion

To sum things up, the KYC verification process is essential for banks and financial institutes and using digital verification for KYC is necessary to demit frauds and scams. Furthermore, it will increase security, ensure accuracy, and most importantly enhance customer experience. 

AML compliance checklist for efficient AML screening in 2020

AML compliance checklist for efficient AML screening in 2020

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. 

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.

7 Best KYC and Fraud Prevention Tips for Online Businesses

7 Best KYC and Fraud Prevention Tips for Online Businesses

With the explosion of internet and web applications, the online interaction between consumers and businesses is continuously increasing. The digitization of business operations is raising the demand for advanced technological solutions to deal with the growing digital fraud and create trust among consumers to stay ahead of competitors in the market.

With every passing year, the fraud cases are growing eventually resulting in great losses for businesses and individuals. As per the study conducted in 2018, 63% of the business have experienced either the same or increased number of digital frauds. This increased ratio in online frauds is intensifying the need for quick and effective verification processes.

As we are approaching the data-driven market, customer experience is equally important for secure business growth. As per the study by Experian 2018, 75% of the business expressed their interest in acquiring the security measures and authentication processes that have an impact on customer experience as well. No matter what the business domain is, every digital enterprise needs to maintain an effective and compliant KYC (Know your customer) onboarding process.

Understand the Onboarding Process Thoroughly

An effective customer onboarding process plays a significant role in developing a strong and long-lasting relationships with new clients. The streamlined onboarding of clients facilitates businesses in filtering the good clients from suspicious and fraudulent ones. But in order to do so, it is essential to understand the KYC onboarding process in detail. 

The process is not much complicated and contains almost the same steps. The foremost is to gather relevant data and identification documents. The collected data and documents are authenticated through in-depth background checks linked to previous employment history, financial transactions, and other activities. The authentication doesn’t end here, further investigation is carried out to get a clear history of the client in terms of fraudulent or criminal activities.

KYC Verification also includes the mapping of client data against fraud prevention and anti-money laundering (AML) protocols to figure out any red flags. Moreover, the customer is also investigated for involvement with Counter Financing Terrorism (CFT). Lastly, based on the findings and resulting information, the businesses assign clients risk rating i.e. low, medium or high. 

Once you completely streamline the onboarding process, it would be very easy to meet the regulatory compliance while building a secure customer base.

Collect Extensive data

Know your customer (KYC) and know your business (KYB) processes are specifically designed to curb fraud and financial crimes like terrorist funding and money laundering. Meeting the KYC requirement not only facilitates your business in risk management but also increases overall security and compliance with CFT and AML regulations.

To ensure comprehensive KYC compliance, the collection of relevant data is essential. When you will have inclusive information regarding the client it would be more productive to carry the KYC process seamlessly.

Use Third-Party Identity Verification Services

Digital problems need digital solutions. Manual KYC and verification processes are prone to error, time-consuming, and costly. Multiple SaaS companies are coming up with enhanced digital security measures and services. Outsourcing your identity verification and authentication processes to some third party is quite an effective, convenient and affordable solution.

The security requirements often vary from business to business depending on the type of risks associated. For instance, in the case of financial institutes, the monetary fraud risks are higher as compared to other industries. Various digital identity verification solutions and KYC services decrease the likelihood of online businesses from being targeted meanwhile complying with KYC/AML regulations. 

Enhancing Authentication Checks

In online businesses, account takeover fraud and identity theft are significantly cultivating frauds. To prevent such frauds, the best way is to enhance your authentication processes. Cybercriminals and fraudsters have become sophisticated in exploiting user credentials – which means simple password protection is no more reliable. Implementing biometric and multi-factor authentication in your business can keep the attackers at bay.

These technologies verify and authenticate the identities on the basis of their unique biometric features which are nearly impossible to steal or exploit. Moreover, as per Visa Study 2017, 71% of the respondents think biometrics are easier than passwords and 46% find biometrics more secure.

Exercise Common KYC Tests to Combat Identity Fraud

Identity theft is a major concern for online businesses these days. According to the Federal Trade Commission’s (FTC) report, around 1.4 million identity theft fraud reports were processed in 2018 with a total loss of around $1.48 billion. To prevent these frauds, your business can use some common KYC practices every now and then. 

These checks are quite imperative for every type of online business. There can be some other tests as well that you can design in a similar way to curb identity theft.

Ensure secure Payment Methods

For the startups, managing a few transactions a day is no big deal. But as you scale to hundreds of transactions per day, throwing caution to the wind can land you in big problem. Whether your organization accepts credit cards, PayPal or Skrill payments, it is essential to be aware of their security policies that are likely to impact your business.

According to Statista 2018 report, US merchants lost around $6.4 billion due to payment card frauds. Among the victims, small businesses suffered most – i.e. an estimated loss of $155,000.

To familiarize yourself with your payment service providers’ policies and applying security measures to secure the payment methods is a great business practice. Doing so prevents fraud while tightening reins on cybercriminals and imposters.

Fight against Chargebacks

Chargebacks are becoming a major issue for online businesses. They are mostly the result of consumer fraud contrary to identity fraud – occurred due to unauthorized payments from customers’ accounts or cards. Different credit card companies have different chargeback policies, so it’s better to go through them thoroughly. 

It is better to take precautionary measures than suffer chargeback loss. You can always track your payments. It helps you to claim your proof against chargebacks. By providing the delivery receipts and invoices, you can have the case in your favor and prevent financial loss. 

ukraine passes anti money

Ukraine Passes Anti-Money Laundering Law based on FATF

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.”

5 Technology Trends To Disrupt Banking in 2020

5 Technology Trends To Disrupt Banking in 2020

Living in the digital era, technology is driving major changes in almost every industry. Whether it’s about introducing automation for improved business operations, enhanced cybersecurity for data protection, cloud computing for instant collaboration, data analysis for insights extraction, or personalized customer experience, technology is becoming an integral part of businesses.

The banking industry is no more of an exception. In fact, it is the most technology-driven industry in the world. Considering the rising trend of technology, more than 81% of banking CEOs are already in favor of the digitization in financial institutes – as reported by PwC study. To strive for the world of immense competition, financial institutions are proactively adopting the latest technology trends which include, but not limited to, artificial intelligence (AI), chatbots, blockchain, big data, etc.

While the businesses are competing to attract maximum customers, the only competitive edge is to keep track of the latest trends in the market and implementing them in your business in the most effective and useful way. 

Here are some of the latest technology trends all set to disrupt the banking sector in upcoming years.

Artificial Intelligence

Artificial intelligence has been there for a few years now and is gradually taking over the industries. The majority of the professionals and decision-makers in financial institutes are investing in artificial intelligence as reported by PricewaterhouseCooper study. Executives and business professionals are well aware of the business advantages that AI is bringing.

The significant potential of artificial intelligence for the industry is the cost savings in business operations. As per the Business Insider Report, the cost savings in the banking sector due to the smart use of AI are expected to be $447 billion by 2023.

The financial institutes are introducing artificial intelligence technology to save costs in their three-tiered business structure, i.e. front office, middle office, and back office. The fruitful applications of AI across these bank’s offices are offering extensive cost-saving opportunities for the institutions.

The following AI use cases across the main channels of banks are enhancing the operations and providing recommendations for the financial institutes that how they can implement AI-enabled digital transformations in their organization.

Front Office (Conversational Banking)

By leveraging AI technology on the frontend, banks will continue to enhance customer identification and authentication processes seamlessly, build strong relationships with customers by providing personalized insights and recommendations. Moreover, by introducing voice assistants and chatbots, the financial institutes are able to mimic live employees, handling customer queries 24/7.

Middle Office (Anti-fraud)

With the increasing trend of the digital frauds and stringent compliance requirements by the regulatory authorities, banks are being forced to incorporate the most advanced AI technology to meet the KYC/KYB and AML compliance. In middle-office functions, AI is facilitating banks to improve their anti-money laundering (AML) and know your customer (KYC) checks to prevent payment frauds and financial crimes.

Back Office (Underwriting)

Banks have started incorporating AI solutions to improve their underwriting decisions by utilizing multiple factors that provide better transparency about the borrowers than traditional underwriting systems. It helps the institutes to assess the consumers that are considered “at-risk”.

These AI-enabled transformations exercised by banks may seem much advanced but they are revealing how to capture the opportunity efficiently. Understanding the need for a holistic AI strategy, some organizations – including Citi, JPMorgan Chase, HSBC, and U.S. Bank – are already employing AI.

Chatbots

The explosion of the internet is making processes quick and reliable by providing customers opportunities to get their work done remotely. Henceforth, in the customer-driven market, they don’t wait long to get their queries resolved and demand fast and adequate services to resolve their issues.

The invention of AI-based Chatbots has paved new roads for banks by making conversational banking more convenient and automated. Many financial institutions are using chatbots to meet dynamic user expectations while reducing costs. They are eliminating the use of traditional methods of two-way communication, i.e phone calls, emails, and physical visits. 

The banks, for instance, Capital One and Bank of America, are using chatbots to resolve simple customer queries. However, with the advancement in technology, bots will not only be able to answer queries but also detect fraudulent activities, offer a financial trip and assist the customers in registration processes.

Chatbots are able to provide personalized customer experience to meet their ever-changing expectations. It facilitates banks in making smart conversations with customers eradicating the need for human customer agents, saving the cost. With the right chatbot development company, banks can provide centralized financial management and improve customer service by replacing human agents. 85% of the customer service interaction is expected to be handled by Chatbots in 2020, states Gartner.

Big Data

Moving into the fourth industrial revolution, the data-driven market is overtaking the businesses. To survive the competitive market, data analysis is the key. But with a large amount of data generated every day, it is becoming nearly impossible to extract useful information and insights. To deal with it, big data is the answer.

This technology is causing significant disruption in the banking industry by collecting and putting all the banking data in one place and processing it to get valuable information to stay ahead of competitors. The collected information includes ATM withdrawals, money transfers, debit/credit card transactions, customer data, etc. 

Due to big data analytics, the banking industry is going through a major transformation. It is helping financial institutes to perform their operations in a better way. According to IDC Semiannual Big Data and Analytics Spending Guide of 2016, the investments in big data analytics totaled $20.8 billion, alone in the banking sector. It will grow in the upcoming years. Undoubtedly, big data will become a bespoke tool for banks in 2020 and beyond.

Blockchain

Blockchain technology is commonly known for cryptocurrency like Bitcoin. It efficiently keeps track of transactions in a verifiable way. The blockchain market is rapidly growing and is expected to reach an annual revenue of $20 billion by 2024. It explains the increasing demand for block technology across multiple industries and financial institutions is no different.

Blockchain will disrupt the banking sector because they are highly secure, economical and easy to operate. The adoption of this technology will rise as more financial institutions will realize how blockchain can improve the customer experience while enhancing security and reducing the cost. Due to its ease of use and transparency, blockchain will be used in banks for digital payment and currency exchange.

Blockchain technology protects the customer’s data (both personal and financial) as it acts as a decentralized database by storing all the data on multiple blockchain servers. Through blockchain, banks can eliminate the need for third parties in loan and credit processing. Moreover, blockchain makes payments more secure while reducing interest rates.

Robotic Process Automation

Businesses are dealing with voluminous data every day, which means there are high chances of human errors. Several banks, including Axis Bank and Deutsche Bank, are incorporating RPA to effectively manage business operations while reducing human errors and efforts. With the advancement in the digital world, the process turnout time is reduced from weeks to minutes and seconds, all thanks to robotic process automation.

Banks are benefitting from RPA technology, by automating their several processes. It does not only help them in minimizing errors and saving cost and human resources but also enables them to focus on customer engagement and business growth. Some of the processes include:

Know Your Customer (KYC)

Know your customer is a customer identification and verification process imposed by regulatory authorities on every financial institute. This process involves in-depth customer verification and due diligence that may require up to 1,000 Full-time equivalents (FTEs) to successfully carry out the process. Moreover, the banks spend around $384 million per year on KYC compliance.

Taking into account the resources, time and cost involved in the KYC process, banks have started incorporating digital KYC solutions – a domain of RPA. Through eKYC, financial institutes can fulfill the KYC checks in real-time, hence, improving customer experience. 

Meeting Compliance

The rise in digital frauds, money laundering, and terrorist funding incidents, the compliance rules are becoming more stringent and banks are sternly obliged to comply with each of them. The applications of RPA are making it convenient for banks to comply with rules in an efficient manner.

According to Accenture’s 2016 survey, 73% of the surveyed compliance officers find RPA a key enable in compliance, in the next three years. Through RPA, productivity can be increased, henceforth improving KYC/KYB, AML, CFT compliance processes.

KYC Verification Process three Steps to Know Your Customer Compliance

KYC Verification Process – 3 Steps to Know Your Customer Compliance

Do you know the three components of KYC?

The entire identity verification procedure encompasses a lot, however, the most important ones are:

  • Customer Identification Program (CIP)
  • Customer due diligence
  • Ongoing monitoring 

This blog post highlights the importance of the KYC process followed by 3 steps to the KYC verification process.

Introduction

In this modern era, fraudsters and criminal groups have come up with enormous resourceful ways to fulfill their malicious purposes. It is a common practice of such criminal groups to misuse the systems of legitimate entities such as banks and other financial institutions, credit unions, e-commerce, etc in order to avail free services, commit frauds and convert ill-gotten gains into ‘clean money’. However, financial institutions mostly rely on the system of controls which aimed at collecting knowledge about customers. This is also known as ‘Know Your Customer (KYC)’. 

Similarly, another major issue is that businesses are knowingly or unknowingly used for money laundering activities which at the end turn out not to be compliant with global and local AML regulations. This dirty money is then used for terrorist financing, drug-related financing, and other criminal activities. The businesses that do not comply with the obligations of regulatory authorities are subjected to harsh penalties. AML compliance is, therefore, compulsory for businesses to consider at first hand.

Proactive security measures ensures complete elimination of any sort of fraud on an immediate basis. For instance, data breaches, identity theft, account takeover frauds, and money laundering and terrorist financing. 

A large number of fraudulent activities take place as a result of unauthorized access to online platforms. To combat this, banks and online businesses are required to perform KYC for each customer during the onboarding process. It not only serves the purpose of fraud prevention but also meets the regulatory obligations of KYC compliance.

With the news of Panama Paper leaks, the global KYC regulations have become more stringent. FinCEN that is the US regulatory authority, declared amendments in regulations to combat money laundering and extended the scope of customer identity verification. These changes were proposed as a result of loopholes that were residing in the framework of financial institutions. 

Impact of regulatory changes in financial sector

KYC Verification Process Steps

Just like the way traditional banking institutions were used to verify an identity, online KYC verification is performed. KYC verification process steps include;

Collection of Information

The first step in KYC verification involves the collection of personal information from an online user. The user is supposed to enter all the personal details at the time of account registration.

Ask the user to Upload an Evidence

After collecting information, in the second step, ask the user to upload a supporting piece of evidence as an identity proof. This helps the system verify that the user-entered information is not fake and holds authentic data.

Verification of information

Once the user uploads a document as proof, the document template is identified and examined against several checks. It is to ensure the uploaded document is not tampered or photoshopped. Once it’s validated, the data is extracted. There can be two ways to fetch the data from documents:

  1. Data extraction through OCR in which the system automatically extracts the data from the identity document and check the authenticity of the information.
  2. Data extraction without OCR in which the user manually enters the information and the IDV solution checks the user-entered information against the one present on the identity document. 

Check out the KYC Verification Process demo:

Customer Identification Program

In the KYC procedure, the Customer Identification Program (CIP) is the initial step. The identification of high-risk customers should be done beforehand to mitigate the risks. The mandate of CIP is to ensure that the entity performing a financial transaction is verified. This is necessary to curb money laundering, terrorist financing and other illegal criminal activities that disrupt the overall financial system. 

In CIP, financial institutions are supposed to collect the user information to open a bank account. This information includes;

  • Name
  • Address
  • DoB 
  • Identification number

After collecting this information, it is verified against supporting shreds of evidence that could be in the form of biometric verification or document verification. In addition to this, CIP includes risk assessment of customers and business accounts. This helps financial institutions build parameters against which each customer will be given a risk rating. KYC procedures, therefore, are predefined that contribute to the prevention of the frauds. At this point, businesses decide CDD and EDD procedures.

Customer Due Diligence

This is a process in which a customer’s information is screened against KYC protocols. In KYC compliance, this is the second step in which basic customer information is collected online in real-time. In CDD, the information collected includes;

  • Name
  • Address
  • Age
  • Date of birth

All this information is used to verify the onboarding customer. After this, the customer is assigned a rating as per credentials after the AML screening procedures and financial credibility. In case, if the customer ID is found in watchlists or PEP records, the risk is considered high and further Enhanced Due Diligence process is performed. 

CDD concludes that how much a customer profile is a risk for an institution. In private and offshore banking, CDD is supposed to be done more deeply to inspect any suspicious identities in the system. CDD should be a scalable method that could ultimately reveal the involvement of money laundering and terrorist funding in the financial system by identifying the identities. 

AML Screening

KYC compliance does not end here. One time customer verification does not conclude the inevitable credibility of that identity. Instead, a continuous identity screening should be performed in an institution to deter the risks of fraud from even the authorized entities. The ongoing financial transaction monitoring is important to identify suspicious transactions and unusual money flow in the financial system. 

For this, a risk mitigation strategy is defined that includes parameters against which monitoring needs to be performed. These indications include;

  • Transaction above the specified threshold
  • A large number of frequent transactions
  • Unusual/suspicious activities

Read more about ‘Indications of Money Laundering’:  Guide to Anti-money Laundering and Countering of Terrorist financing

Corporate KYC

Know Your Business or ‘KYB’ is a process that ensures verification of corporate entities or businesses you are dealing with. This is as important as KYC compliance. Business verification includes verification of Ultimate Beneficial Owners (UBOs), third-party businesses, and other corporate entities. KYB deters the risks associated with fraudulent business entities. Not only this, as per regulatory requirements and regulations about UBOs verification, KYB has become more than necessary to build a clean customer base as well as business relationships. 

It all adds up to

An efficient KYC solution is the need of every businesses sector. To comply with the changing KYC and AML requirements, organisations need a KYC solution that adequately follows all steps of KYC compliance. Shufti Pro is a one-stop solution for enterprises to cater to your KYC practices. We offer real-time KYC services with the global support of 3000+ documents and 150+ languages. Incorporating data protection standards, Shufti Pro is secure and reliable for quick customer onboarding.

Have more questions on how Shufti Pro can help you? Share your concerns with our team and get a solution as per your business needs!

bank of ghana

Bank of Ghana to Introduce Digital Currency in ‘Near Future’

The Governor of the West African nation’s central bank, Ernest Addison, announced the news of Ghana’s plans of digital currency at an annual banking conference last week. Addison said that the central bank is in discussion with ‘key stakeholders’ to explore a digital currency pilot project ‘with the possibility of issuing an e-cedi in the near future’. 

The CBDC pilot initiative is in accordance with the country’s efforts to digitize the financial and banking sector. Through this effort, the electronic payment systems in Ghana such as mobile banking can grow and enhance. Mobile money transaction statistics, for instance, increased to 1.4 billion last year as compared to 982 million in 2017 according to Addison. He added, 

“The digital age provides enormous potential for the financial sector to re-orient itself to satisfy the new consumer and business demands for financial services.”

Addison also announced that the country’s largest bank in terms of total operating assets, Ghana Commercial Bank (GCB Bank) has been authorized to issue e-money. 

Africa is seeing a surge in cryptocurrency with 64 blockchain and cryptocurrency firms available across the continent. These include 11 sub-categories including exchanges, wallets according to research from The Block Crypto. 

The Expected No-Deal Brexit and AML/CFT Laws in the UK

The Expected No-Deal Brexit and AML/CFT Laws in the UK

The current prime minister of the UK Mr. Boris Johnson made a statement that the UK should be ready for no-deal Brexit in 2020. In case the UK is unable to get the Brexit deal done by the end of December 2019, it’ll have to go for no-deal Brexit in January 2020. And the prime minister is all set to get the Brexit done by the end of 2019. In case the Brexit is done, December would be the transition period and the UK will get some time for getting things on the track.

Brexit – A Timeline

In June 2016, the UK voted to leave the EU and then prime minister David Cameron resigned the other day. Since the UK took the initiative of leaving the EU, it’s political infrastructure faced some significant changes including the resignation of the last two prime ministers and the delays in the Brexit day. The latest delay was of 31st October 2019. It was expected that the UK will leave the EU with the deal designed by former prime minister Theresa May but it got postponed and now it is expected to be completed in December or the UK will have to leave the EU with a no-deal. 

What is a no-deal Brexit?

A no-deal Brexit is a scenario that depicts that the EU and the UK were unable to reach a joint agreement on Brexit and the UK would leave the EU immediately without a transition period. The UK will leave the single market and the customs union and will have to follow the laws of the World Trade Organization (WTO). Also, the UK will have to introduce its new regulations for AML compliance and the country will face a major shift in its legal framework. The country will also have to form new trade agreements with neighboring EU countries and might face delays in trade due to this shift. 

No-deal Brexit will have an impact on the seamless implementation of AMLD-5. In case the UK leaves the EU without a deal it will have problems in data sharing that is to be practiced in case of implementation of the AMLD-5. 

What is a deal Brexit?

A deal Brexit is what the UK seems to be struggling for the past few years. It means the UK and the EU will agree on certain “Divorce terms” related to trade, law enforcement, data sharing, immigration, etc. 

So far it seems that the UK will be forced for a no-deal Brexit due to the approaching deadline of the end of December 2019. 

What will be the consequences of no-deal Brexit on the financial infrastructure of the UK?

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. 

AML laws and AML compliance 

The current AML laws of the UK are aligned with the EU. But in case of a no-deal Brexit or a deal Brexit, the UK will have to form its own laws. The only difference is that in case of a no-deal Brexit it’ll have to form new laws quickly as there’ll be a gap between law enforcement and this gap will be exploited by the criminals. 

The businesses in the UK and the EU will have to change their AML/KYC compliance practices as per the requirements of the new laws. The EU countries will be in a transformation period and the businesses will have to follow to cope up with the changing laws. 

AMLD-5 and its implementation

The AMLD-5 is expected to be implemented in January 2020. AMLD-5 increased the scope of AML regulations. The identity verification threshold for the prepaid cards was reduced to EUR 50, in case of remote transactions. 

The UK has always been very keen on implementing AML/KYC regulations in the country. In case the UK leaves EU with no-deal Brexit it’s AMLD-5 implementation will be affected by this shift. It’ll no more be liable for AMLD-5 compliance in its country. But it is also expected that the UK will change its Money Laundering Regulation (MLR) as per AMLD-5 regulations to practice thorough risk prevention. 

The businesses in the UK are now swinging between two scenarios, either they should prepare to follow AMLD-5 in 2020 or not.

Trade friction

Not only this but the UK will face friction in its trade and it will no more be a part of the single market and it will cause regulatory friction. As the UK will not have any transition period to settle things down unless the new laws are formed and implemented properly. 

In case the UK-leaves with a no-deal Brexit it would have the opportunity to make trade deals with other countries without long delays. In case of a deal, the scenario would be the opposite and the UK would follow the EU laws during the transition period. 

How Brexit will impact businesses in the UK and the EU?

Brexit is bound to affect the business community. It is expected that the community will face a plethora of changing regulations while continuing trade in the EU region. The businesses will have to change their AML/KYC compliance practices. In case the EU adopted the AML regulations of the EU, things might become easier for the businesses. 

The AMLD-5 implementation is also a headache for businesses these days as they are uncertain if they should follow the instructions or not. 

The uncertainty in the financial regulatory landscape of the UK is most likely to be exploited by financial criminals looking for loopholes in the regulatory framework of a country. 

How Digital AML/KYC screening will help businesses in the upcoming plethora of guidelines?

Also, the businesses dealing in the EU and the UK will face problems in aligning their AML/KYC compliance practices as per the regulatory requirements in both the regions. The digital KYC solution is designed to cater to the global AML/KYC compliance requirements of businesses. Using a global AML screening solution will help the businesses retain growth even if there is a crisis situation.

Brexit is expected to be completed in December 2019 and it is expected to change the financial landscape of the UK forever. In order to come out of this storm of changing regulations, digital KYC and AML screening solutions will be helpful.

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

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

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. 

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. 

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

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. 

bank of england

Bank of England fines Citigroup £44m Over Poor Financial Information

The Bank of England has fined the UK branch of the US bank, Citigroup, a record £44m because the bank submitted incomplete and fallacious regulatory information to the Bank between 2014 and 2018.

According to the Bank of England, Citigroup didn’t come up to the expected standards between the above mentioned years and the problems were ‘serious and widespread in nature and the bank hadn’t presented an authentic picture of its monetary position. 

The Bank’s Prudential Regulatory Authority (PRA) fined the Citibank, which is responsible for monitoring the financial stability of about 1500 banks, building societies, credit unions, large investment firms and insurers in the UK. This is the biggest fine ever imposed by the Bank of England. 

According to the PRA, the bank’s systems were incompetent and Citi didn’t have enough people working for the regulatory accuracy, there was no proper documentation and that Citi’s failure and governance fell significantly below the standards expected’. The errors and oversights included ‘six substantive matters’, which is the reason for notable errors.

Citibank is a New-York based bank and is the third biggest bank in the US which has $2tn in assets and operations in 100 countries. It is considered as a global systematically important bank’

According to the PRA, 

“The pervasiveness of the errors and misstatements identified in the firm’s returns raised fundamental concerns about the effectiveness of Citi’s UK regulatory reporting control framework.”

Citibank would have faced a fine of £62.7m but since the bank cooperated with the PRA, it was given a 30% discount. It should be pointed out that Citi has better liquidity and capital requirements than the Bank demands at all times. 

Sam Woods, deputy governor for prudential regulation and chief executive of the PRA said,

“Accurate regulatory returns from firms are vital for the PRA in fulfilling our role. Citi failed to deliver accurate returns and failed to meet the standards of governance and oversight of regulatory reporting which we expect of a systemically important bank.”

Citibank has been extremely compliant with the PRA and the spokeswoman for Citi said, 

“Citi has fully remediated the past regulatory reporting issues identified by the PRA and settled this matter at the earliest possible opportunity.” 

fintech

FinTech Market Gaining Traction in Asia, Slowing Down in US

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

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. 

US to Rigorously Implement Anti Money Laundering in Crypto

US to Rigorously Implement Anti-Money Laundering in Crypto

A rule requiring cryptocurrency firms to share data about their customers will be strictly implemented by the US government. The rule is for such cryptocurrency companies that are involved in money service businesses such as digital asset exchanges and wallet service providers. 

The “travel rule” demand the cryptocurrency exchanges to verify their customer’s identities as well as identify the original parties and beneficiaries of transfers $3,000 or higher. The travel rule also includes the transmission of information to counterparties if they exist. The travel rule is part of anti-money regulations. 

On November 15, The director of the Financial Crimes Enforcement Network (FinCEN) said, 

“It (travel rule) applies to CVCs (convertible virtual currencies) and we expect that you will comply period. […] That’s what our expectation is. You will comply. I don’t know what the shock is. This is nothing new.” 

Blanco also informed further that the information required is not hard to obtain. He said, adding, “All we’re asking for is name, address, account number, transaction, recipient, and amount.”  

He also added, 

“So when you tell me you don’t know who’s on the other side, you’ve got a big problem. Because you are required to know, and that is what our expectation is going to be.”

The US government’s move comes after it was reported that the cryptocurrency crime soared into billions of dollars. Global investigators have been engaging with major money laundering hubs that are the center of the virtual currency. In a recent report released in August by Ciphertrace, cryptocurrency thefts, scams and fraud may exceed more than $4.3 billion this year. 

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