five kenyan banks

Five Kenyan banks fined under AML laws

Five commercial banks were imposed a fine of $3.75 million in Kenya for failing to report suspicious transactions under anti-money laundering regulations, according to the Chief Prosecutor, Noordin Haji. KCB Group and Equity, which are among the biggest banks in the country, were fined. Others such as Co-op Bank Kenya, StanChart Kenya and Diamond Trust were imposed with penalties.

Nearly a hundred million dollars were stolen from the National Youth Service (NYS). Many government officials and businessmen were charged with numerous crimes. This was a second time the banks had encountered fines. In 2018, the five banks were fined $4 million for not reporting suspicious transactions. Further investigations found that the lenders had failed to place appropriate systems to fight money laundering and were unsuccessful in knowing their customers as the law required.

The Chief Prosecutor was trying to defer the prosecution to notice if they improve their services within a specific time. The Chief Executives of the five banks stated that although the banks had failed to report suspicious transactions, they were not part of the corruption crime itself. In a statement, Standard Chartered Kenya announced that it had agreed to a settlement of 100 million shillings with the chief prosecutor, who had agreed to defer prosecution against the bank.

Patrick Mumu, an analyst at Genghis Capital, believes that the fines will not have a significant impact on the bank’s conduct. According to him, “The bigger impact will be at the operational level and how stringent banks will be on the movement of money and depositors, but not on their lending activities,”

Top 6 Trends in Anti-Money Laundering for 2020

Top 6 trends in Anti-Money Laundering for 2020

To enhance the scope of AML compliance, new regulations were brought into force throughout last year. In this demanding regulatory atmosphere, financial institutes are expected to adapt to the needs of evolving and competitive financial ecosystems.The key concept of 2020 for AML compliance is the investment in the collaboration of credible data, human intelligence, and advanced technology. So far many achievements in this regard proved to be just a tip of the iceberg but 2020 is expected to be a fruitful year to witness real enhancements in this field. AML practices are required by businesses across the globe to perform customer due diligence.  It is not an uphill task as it may seem. It is an investment of a few thousand dollars to demit the loss of millions. 

AML Regulations for Businesses

Anti-money laundering (AML) screening has been employed by financial institutions to detect suspicious transactions and analyzing customer data. AML is to filter customer data, classify it according to the level of suspicion and inspect it for errors like any sudden and substantial increase in funds or a large withdrawal or many others. AML screening is used to detect money laundering, terrorist financing, and tax evasion, etc. The businesses are required to conduct proper AML due diligence to comply with AML regulations. Global organizations need to keep check and balance and devise a proper AML program. Relevant customer data is screened through official and non-official high-risk watch lists to identify potential risk customers. Moreover, businesses must have the legal documents of their distributors and resellers to verify that they are complying with global AML regulations.

6 Trends in AML to Watch out for

According to the European Banking Authority(EBA), AML is the top priority for the EU in 2020 as money laundering and terrorist financing are the main threatening risks. To address the issue EBA will form a new committee to ensure a collaborative approach towards the problem by working on a superimposable implementation of different policies. The aim is to investigate the breaches of AML regulations and take necessary actions. Following are some trends of AML to watch in 2020:

Get ready for more information on Ultimate Beneficial Owners

The many creative ways criminals use shell companies and offshore structures to hide their laundered money have become public knowledge after Panama Paper leaks. To counter this, this year we expect ultimate beneficial ownership legislation to become a vital feature of the financial crime landscape. Global focus on UBO transparency will ramp up this year as a consequence of many legislative actions from last year. Steps are taken in the UK to introduce the ultimate beneficial ownership register for businesses by the end of this year and we are expecting to see further progress in all these jurisdictions. 

Regulatory Regimes get an Overhaul

In 2019 money laundering scandals were never far from the headlines. For instance, the Danske Bank scandal which exposed the threatening level of suspects that flowed unchecked through European banks in past years. This year European authorities will be less lenient and more assertive with enforcement when dealing with financial crimes. As the UK is committed to being a leader in fighting financial crimes and delivering effective financial regulations, this year the enactment of sanction and AML bill will give the UK the power to introduce its own AML legislation bill. Except for the UK, the US will maintain its regulatory financial footing by introducing new Fintech regulation. 

Standard AML rules for Crypto-businesses

As global cryptocurrency adoption continues, 2020 will be the year that such organizations get serious about AML compliance. Crypto poses AML risks for years and authorities have wrestled a lot for it. Now is the time that exchanges and mining will take a considered approach allowing for trade and investment under tight restrictions. The uneven landscape of cryptocurrency has prompted the development of the global regulatory framework.  The EU’s Fifth Anti-Money Laundering Directive AMLD5, implemented on 10 January 2020, will blow AML obligations for cryptocurrency exchanges which are to be compiled this year. All this enlightens that influencing big moves are expected in the global regulation of cryptocurrencies to prompt the industry to adopt new monitoring tools. So such exchanges will have to adhere to AML compliance this year as there is no other way. 

FinTech drives Demand for Automated AML

In 2020, a large number of firms will move to automated AML checks to scale faster in this increasing consumer adoption and subsequent transaction volume in this competitive FinTech climate. Manual AML generates a  massive amount of false positives which makes it difficult to onboard customers and process payments. Among so many false alarms there are high chances of missing the actual money launderers. So businesses are adopting digital solutions for AML and KYC to check who they are dealing with. This automation takes less time and is cost-effective. 

6AMLD is in the Next Big Change

Another AML directive by the EU is in the pipeline this year. This time the EU is keeping up with changing the international regime and targeting for uniform AML and CFT practices across the member countries. The new directives are to be integrated into national laws of member states by December 2020 and the reporting entities are required to fully implement the laws by June 2021. This new directive is well-drafted to close any loopholes left in AML and CFT regulations previously.

Enhanced Transaction Monitoring Solutions

This year, financial regulators will place an increased focus on the monitoring of AML risks which will include a push for businesses to adopt proper transaction monitoring processes. Regulators will expect businesses to have an effective system in place to monitor transactions. NYDFS Part 504 legislation will drive this requirement as a general move towards controls measured by the quality of outcomes. To help financial institutes configure a range of monitoring scenarios and analyze data more efficiently genuine suspicious activities need to be separated from false positives. In this regard, the availability of new transaction monitoring software platforms will become essential in 2020. Firms will gain a competitive advantage if they identify suspicious behavior patterns while cutting operational workloads.

KYC in Crypto Exchanges - Hitting the Nail on the Head

KYC in Crypto Exchanges – Hitting the Nail on the Head

A few years back, startups related to ICOs (Initial Coin Offerings) were in full swing, driving the cryptocurrency businesses and making their own set of regulations. However, it is not the same case now. The financial revolution in the form of virtual currency has introduced several challenges that require a standardized structure of rules in place. The regulatory scrutiny and evaluations resulted that anonymity in crypto businesses is the root of diverse financial crimes.  

After the analysis of the complex crypto environment and working, regulatory bodies around the world declared that the exchanges promoting decentralized platforms are prone to several threats. The intimidating factors in crypto businesses refer to financial crimes such as money laundering, terrorist financing, crypto gambling, and other criminal activities. The reason is an open invitation for bad actors who enter legitimate systems and perform malevolent activities.

The concern of regulatory authorities is that the crypto exchange businesses lack identity verification measures that facilitate the bad actors in the system. Therefore, due diligence measures such as Know Your Customer (KYC), Anti-money Laundering (AML), and Combatting the Financing of Terrorism (CFT) need to be ensured by crypto businesses. These measures identify the investors before allowing them to engage in the token sale. Therefore, improve the security of the account/wallet in crypto exchanges and discard illicit transactions immediately. 

The dawn of KYC in crypto exchanges

In no time, virtual currency exchanges have laid strong foundations globally. The digital assets providers are not regulated accordingly as per the requirements of regulatory bodies. However, the reputable crypto exchange platforms are moving ahead to prepare themselves towards the consideration of regulations that could help them filter out the bad actors that opt to participate. Gemini is a New York-based prime exchange that is fully regulated and always takes into account the regulatory compliance and their obligations. There are some other exchanges such as Coinbase, itBit, Kraken, Liquid, butFlyer, Bitstamp, OKCoin, and many others that require stringent identity verification measures that could facilitate only honest identities through crypto exchanges. 

The need for KYC compliance emerged as a result of money laundering and terrorist financing using virtual assets and currencies. The financial regulators noticed that the consumers face financial loss in crypto exchanges and has paved the road for money launderers and other financial criminals to perform illicit transactions across the world without using their real identity. In this way, encapsulating the dirty money gets easy for money launderers in the crypto environment where they are anonymous. Therefore, regulatory scrutiny declares identity verification mandatory for crypto businesses with which investors will be verified beforehand.

The approach of crypto exchanges towards KYC, AML & CFT compliance

The anonymity in cryptocurrency exchanges demands identity verification as well as transaction monitoring throughout the customer lifecycle. Just like all other financial institutions, virtual currency providers need to monitor the ongoing transactions closely to enhance observance in financial systems and immediately take action against suspicious transactions. As in cryptocurrency, transactions are almost untraceable which is a loophole in this system to which most of the fraudsters take advantage. Identifying this, global and local regulatory bodies across the world came up with the regulations that could help reduce financial crimes by allowing only honest identities to participate in the system. 

The whole KYC process is divided into the following levels:

  • The first is, Customer Acceptance Policy (CAP) in which the exchange determines documents of identity and enlist the detailed related to it.
  • In the second level, the Customer Identification Program is conducted in which the Customer Identifiable Information (PII) is collected and identity is verified against it. 
  • The collected information of the potential customer is then verified as per CAP. 
  • A risk management approach should be taken in which continuous monitoring of transactions should be done to identify if the system contains suspicious transactions.

Risk management in Fiat-to-crypto and crypto-to-crypto exchanges

For identity verification, the collected information is examined and verified. The information refers to the personal details of investor who opts to invest in crypto business. The identity authentication is performed that covers the KYC as well as AML procedures. In the whole process, details are identified and AML screening is performed against updated global watchlists, sanction lists, and Politically Exposed Persons (PEPs) records. These are risk assessment practices whose compliance is important for crypto businesses to deter the risk of fraud in the system.

Crypto exchanges are divided into two main groups; fiat-to-crypto exchanges and crypto-to-crypto exchanges. In fiat-to-crypto exchanges, fiat money enters the market of cryptocurrency. These exchanges allow investors to exchange fiat currency such as dollars for the bitcoins, ether, libra or some other supported cryptocurrency. Whereas, in crypto-to-crypto exchanges, one cryptocurrency is exchanged with another one. In both these types of crypto exchanges, due diligence needs to be ensured to make sure no entity is using the crypto platform a medium to launder money, finance the act of terrorism, perform gambling or any other criminal activity. 

Crypto regulations are going to stay

Financial services providers including cryptocurrency exchanges are vigilant with respect to financial services they provide to the customers by ensuring a secure platform. Regulating crypto assets is under the agendas of crypto businesses. Crypto investors have faced substantial monetary loss as a result of exchange scams and hacks that ultimately plague the crypto market. With the plan of preventing the future crypto investors from loss, regulators across the world have declared KYC, AML and CFT regulations mandatory for virtual currency providers. For instance, in AMLD5 (Fifth Anti-money laundering Directive), identity verification in virtual currency businesses has declared mandatory to combat the actions of money laundering and terrorist financing. 

Now before the next regulatory evaluation, crypto businesses have to come up with KYC identity verification strategies to ensure accountability and transparency in the digital currency system. Any discrepancy with respect to non-compliance can result in harsh fines and penalties by regulators. 

Qatar’s new AML laws leave no room for Cryptocurrencies

Qatar’s new AML laws leave no room for Cryptocurrencies

A number of countries across the globe are coming with up stringent policies to inhibit the illegal use of Cryptocurrencies for Money-laundering and Counter Financing of Terrorism. Qatar has also joined the league following the adoption of new financial regulations by the Qatar Central Bank that primarily focused on restraining money laundering and terrorist financing, adjusting them in accordance with the regulations set by the global regulatory authority, Financial Action Task Force (FATF). 

To effectively combat money laundering and terrorist financing, the new regulation sets out legally binding requirements for businesses, financial institutions, non-profit organizations, and money transfer services. Furthermore, it also imposes harsh penalties including financial sanctions and imprisonment for anyone convicted of violating the law. They have also called out for the widest possible collaboration and exchange of financial information with international countries such as the United States, Australia, China, Pakistan, India, etc for maximum efficacy.

According to Al-Watan, Qatar has also introduced countrywide restrictions regarding the use of Cryptocurrency and other types of digital assets, as an attempt to restrict money laundering and financing of terrorism. The Qatar Financial Center Regulatory Authority (QFCRA) also stated that all processes involving the use of digital currencies have been banned throughout the Qatar Financial Center until further notice. However, other digital financial or monetary instruments, regulated by the QFCRA, the Qatar Central Bank, or the Qatar Financial Markets Authority, are not included in the ban.

Despite the embargo, Qatar is still looking for ways to devise an effective FinTech strategy to inspire innovation in the cloud-based digital payment gateway.

KYC in blockchain with a focus on data protection and AML laws

Supplementing blockchain with KYC offers endless possibilities

While you may be tempted to think that decentralized and anonymous blockchains are safe because they are free of control from a single authority and work transparently, the reality, however, is a bit different, they are constant targets of scams. Even though the encryption makes it difficult to hack a blockchain system, its anonymity makes it a haven for criminals. Bitcoins and other cryptocurrencies based on blockchain are used by the criminals for illicit money transfers.  

Blockchain technology based on a distributed ledger system has great potential and is increasingly being adopted in different industries. However, there are some challenges and concerns over the design and implementation of distributed ledger systems. One of the major concerns over the decentralized ledger system is data integrity and data protection. As recent developments in data privacy and protection laws proffer the user an authority on their data, the businesses are answerable to the user on how or where the data is being used. 

Realizing this, technologists and researchers are coming up with new technologies that can help embed blockchain-based businesses into the existing legal framework for data protection, customer due diligence, and Anti-Money Laundering (AML). Artificial Intelligence-based due diligence solutions are considered the best bet for this purpose but before discussing it let’s look at how blockchain works.

Blockchain and Distributed Ledger systems  

In a nutshell, a blockchain is a form of distributed ledger system representing a digital data structure in which records are organized in cryptographically sealed blocks. These blocks are time-stamped, replicated, and synchronized. Distributed over peer to peer networks they are often maintained by consensus algorithms. Blockchain technology is also referred to as a status transition machine where the specific token is assigned a status using cryptographic values within a blockchain.

Data Protection and Blockchain

Blockchains are designed with a high level of transparency to ensure trust in the system. However, this transparency also makes it challenging to comply with data regulation and protection regulations such as GDPR and AMLD5. BLockchains transparency is considered incompatible with data protection regulation because it is pseudonymous, not anonymous. A person is represented in the blockchain system with a public key created with cryptographic values. GDPR, on the other hand, defines it as personally identifiable information (PII). And once the data is written on the blockchain it is impossible to alter or delete that data. 

Moreover, the dualistic categorisation of data processors into controllers and processors by the GDPR raises issues such as no controller in the blockchain. Therefore many of the rights individuals are granted towards a controller cannot be addressed, as blockchain technology is not controlled by any centralized entity. These tensions between data protection regulations and blockchain in many challenges like unknown provider, alien jurisdiction, conflict of laws and many more.

Integrating Automated KYC verification solutions with blockchain

 

However, blockchain can guarantee more data privacy as well as data security, if the personal data is kept off the blockchain and only the key to transactional data is transformed into the blockchain. Data protection is crucial when using a distributed ledger system. To keep the system secure from hackers and bad actors, the personal information could be verified by performing customer due diligence for every entity entering the blockchain system, this way the consumers will be verified easily without entering their data on the blockchain.

The problem that constitutes here is that the time required for manual KYC verification contributes to rigid customer experiences and the errors that could lead to fatal losses. Nevertheless, employing an automated KYC verification solution could solve this problem easily.

Blockchain and Anti Money Laundering

Another major consideration in blockchain technology is security for users and businesses in general. Unfortunately, in almost any sort of blockchain both public and private, including cryptocurrencies, token networks, or Initial Coin Offerings (ICO) related blockchains, the security is watertight on one end and the other if a successful hack or phishing attack is successful it is not traceable.

The anonymity of blockchain means that the stolen data remains visible but untouchable. 

With such a possibility, in an unregulated space succumbing to massive speculation, regulators around the world are formulating protocols to govern everyone’s best interests in the blockchain era.

AML and KYC regulations around the wold have wider implications than the cryptocurrencies alone, but the main display of their implementation happens in the digital world. Applied to blockchain technology, AML implies KYC processes and, at times, conducting due diligence on the origin of the assets by tracing transactions or asking the bringer of the funds to prove the source of income. However, there lie challenges in (i) the early implementation of KYC/AML standards and (ii) the ability to understand the technology underlying the Blockchain to be able to identify the origin of the assets. When implementing a blockchain-based business, a company should work with KYC/AML tools even when raising private funds.

To enhance the KYC verification process companies can utilise AI-based verification tools that could be integrated into the registration process on a website, into which customers enter their basic personal information. Online fraud management and AML scanning tools can undertake background checks and document whether a source of funds seems plausible.

Harnessing blockchain 

Understanding Blockchain enables comprehension of its potential challenges and risks. It is important to understand the tools at hand before initiating or evaluating a Blockchain-based project. Supplementing blockchain with KYC verification has many possibilities and can help to fight against data theft, identity fraud, money laundering, and other illicit crimes that could be conducted by negatively exploiting blockchain technology. 

clearview

Clearview AI will be facing the legal claims after critical NYT report

Clearview AI is an artificial intelligence firm providing facial recognition technology to US law enforcement. According to BuzzFeed News, the firm may be exaggerating that how effective its services are in catching terrorists and preventing attacks.

In a story published earlier this month in New York Times, the company claimed that it proactively identified the New York suspect from video footage who placed three rice cookers disguised as explosives around New York City last year in August. After that incident, Clearview has been claiming in promotional material that law enforcement linked the suspect to an online profile within five seconds using its database.

 However, the city police declined the claim saying this is simply false. An NYPD spokesperson said in his statement. 

“The NYPD did not use Clearview technology to identify the suspect in the August 16th rice cooker incident. The NYPD identified the suspect using the Department’s facial recognition practice where a still image from a surveillance video was compared to a pool of lawfully possessed arrest photos.”

Despite the company’s claims in promotional material and public websites, NYPD says that it has no official relationship with Clearview. Now, as per BuzzFeed’s report Hoan Ton-That, the CEO of Clearview, states that NYPD is using its technology on a demo basis.

 With all this criticism, Clearview published a blog on Thursday claiming that it has rejected the idea to make its facial recognition app public for the consumers. It only exists to help the lawn enforcement agencies and hence come up with strict guidelines to ensure it’s used for intended purposes only.

 Clearview has risen to the forefront of the national conversation and hence becoming a growing concern among politicians and activists that it may be used to violate civil rights or mislead people. The same thing happened with Amazon’s facial recognition product ‘Rekognition’ that faced criticism for selling its technology to law enforcement.

 According to the NYT report, Clearview is facing challenges from multiple platforms. Twitter has sent them a cease-and-desist letter clearly demanding the company to stop scrapping its platform for user photos to include them in their database. Moreover, twitter has also demanded them to delete any previous photos in the database because gathering user data without their consent is against Twitter’s policies. Not to forget that Clearview itself has acknowledged publicly that its database is built by scrapping social media platforms.

 The New Jersey office of the Attorney General has prohibited the state’s police departments from using the Clearview and a cease-and-desist letter to the company. It happened after the Department of Law and Public safety found out the picture of New Jersey AG Gurbir S. Grewal has been used by the company to falsely promote its products.

In addition, the Congress members are also expressing their concerns regarding the product. The vocal critic of Silicon Valley privacy practices and overreach, Sen. Ed Markey, sent the letter to Clearview’s CEO demanding crucial information about its practices and technology. This information includes which law enforcement agencies Clearview is working with, results of internal bias and accuracy tests if there are any, whether the company plans to market its technology to individuals or third-party companies beyond law enforcement, and its child privacy protections, among other info. 

Markey’s letter read

“The ways in which this technology could be weaponized are vast and disturbing. Using Clearview’s technology, a criminal could easily find out where someone walking down the street lives or works. A foreign adversary could quickly gather information about targeted individuals for blackmail purposes. Clearview’s product appears to pose particularly chilling privacy risks, and I am deeply concerned that it is capable of fundamentally dismantling Americans’ expectation that they can move, assemble, or simply appear in public without being identified.”

6AMLD of EU - A Detailed Insight

6AMLD of EU – A detailed insight

European union’s another anti-money laundering directive is in the pipeline. And this time the union is aiming for uniformity in AML/CFT practices across member countries while keeping up with changing international regimes.

The estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion. And in the EU money laundering accounts for up to 1.2 % of the EU’s annual GDP, or around $225.2bn (€197.2bn) in 2018, according to a 2017 report by Europol.

Recently the 5AMLD was implemented on 10 January 2020. The fifth directive mainly targeted loopholes in certain sectors. It addressed the loopholes in prepaid cards, virtual assets, and precious metal dealing. The major change that came due to 5AMLD is that the identity verification threshold for prepaid cards is reduced from €250 to €150. This threshold for remote transactions is €50. 

Now the 6AMLD is in the next big change in the AML/CFT regimes of the EU. The member states are required to integrate the new directive into their national laws by December 2020 and the reporting entities are required to completely implement the new laws by June 2021. The new directive is drafted well to close any left loopholes in AML/CFT regulations.

Key Features of 6AMLD

The 6AMLD is not only about fulfilling minimum regulatory requirements but about changing the attitude towards AML/CFT. The reporting entities need to go another mile to play their role in eliminating money laundering.

Key Features of 6AMLD

1. A list of predicate offences

A list of 22 predicate offences is provided in AMLD6. It includes offences related to environmental crime, cyber crimes, tax crime, and self-laundering. The directive includes ‘aiding and abetting’ and ‘attempting and inciting’, which means that criminal liability will be extended to people or businesses that are used in the criminal offence. Businesses will be liable for penalties if money laundering is channeled through their system due to a lack of preventive measures. 

The offenses are clearly defined in the official journal of the 6AMLD. The reason behind this measure is to create uniformity in the AML/CFT measures of member states. Because lack of uniformity is one of the major reasons behind money laundering scandals in EU member states. 

2. Increase in non-compliance penalties

The 6AMLD has clearly defined the penalties for businesses and individuals. 

Natural persons 

The individuals involved in money laundering are called “natural persons” in the 6AMLD. Non-compliance penalty is increased for the natural persons. Now a sentence of four years is non-compliance penalty, it was one year previously. As mentioned in the official journal

In order to deter money laundering throughout the Union, Member States should ensure that it is punishable by a maximum term of imprisonment of at least four years.”  

Also, the monetary fine is increased to five million Euros. 

Legal persons 

Businesses are described as “legal person”. In case a business is found to be a part of a financial crime due to lack of AML measures or negligence it will be liable for these below-mentioned penalties:

  • Exclusion from entitlement to public benefits or aid
  • Permanent or temporary disqualification to perform commercial activities
  • Judicial winding up
  • Temporary or permanent closure
  • Placed under judicial supervision

3. “Aiding and Abetting” and “ inciting and attempting” 

The scope of AML regulations is increased to” aiding and abetting” and “ inciting and attempting”. The 6AMLD official journal clearly states, “Member States shall take the necessary measures to ensure that aiding and abetting, inciting and attempting an offence referred to in Article 3(1) and (5) is punishable as a criminal offence.”

4. Alignment with international laws

The Journal states that the member countries are required to implement the 6AMLD while keeping their AML/CFT laws aligned with international laws. It will increase transparency in financial infrastructure. 

This means the reporting entities (businesses/ legal persons) will be required to follow the new regulations that will be aligned with international regimes.

5. FATF recommendations EU AML laws

The 6AMLD will require the member countries to align AML laws with the FATF recommendations. The tax crimes are defined as a criminal offence and the preventive measures are required to be designed in light of revised recommendations of FATF. 

6. Not missing on the virtual currencies

The sixth anti-money laundering directive requires the member countries to take concrete steps towards elimination of risk coming with these virtual assets. The reporting entities such as crypto exchanges, digital asset exchanges, cryptocurrency dealers, crypto wallet providers and businesses accepting cryptocurrency payments will be facing some major AML/KYC compliance scrutiny in 2021. 

How businesses should prepare for the change?

The ultimate effect of changing regimes is on the businesses. The new directive is drafted to change the perspective of businesses towards AML/CFT compliance. The new regulations of “Aiding and abetting”, and “ inciting and attempting” have changed the compliance requirements. Businesses will be liable for heavy penalties if they’re found to be involved in the criminal offence. Even if they’re used as a tool or a channel. 

The reporting entities are required to have an in-depth understanding of the risks and threats and to take necessary steps to eliminate the risk of any of the listed criminal offences being channeled from their platform. 

The businesses are expected to have a completely updated setup for compliance requirements. Digital identity screening could prove to be a reliable partner of the businesses in this regard. As it provides global coverage in the screening of individuals and businesses it helps reporting entities maintain a global risk cover against bad actors.

Find more relevant resources:

6AMLD of EU – A detailed insight

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

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. 

FATF-shaping-business-world

40 recommendations of FATF – Shaping the future of your business

Financial Action Task Force or simply FATF is an active global authority that never fails in surprising the world. It’s always in the process of finding loopholes in AML (Anti Money Laundering) or terrorist financing regulations. 

If you think the FATF recommendations are none of your business then your business might be in a grave situation. Let’s see how. 

History of FATF

FATF was formed in July 1989 by a Group of Seven (G-7) Summit in Paris, initially to examine and develop measures to combat money laundering and drug trafficking. But later, after 9/11 in 2001, the authority also incorporated terrorist financing in its efforts to mitigate the financial crime. Then in 2012, it added efforts to counter the financing of proliferation of weapons of mass destruction.

The primary motives of FATF are to mitigate the crimes that may prove to be a threat to the global financial infrastructure. In an effort to achieve this goal, FATF aims at developing and promoting effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing, and other such threats to a sound financial infrastructure. 

The primary goal behind all these crimes is monetary gain and FATF plans to close all the loopholes in the global financial infrastructure that might be used by criminal entities. So it is significant for governments to take these regulations seriously. Once your government takes FATF seriously, trust me you should be careful too.  

Members of FATF and Affiliated bodies 

FATF has 39 full members and one observer member, Indonesia. Recently Saudi Arabia became a full-time member of FATF after being an observing member for some time. On the other hand, Pakistan and some other countries are thriving to become a member of FATF and remove themselves from blacklist or grey lists of FATF. 

Other than countries, FATF also has some organizations as associate members and observing organizations. 

A brief of 40 recommendations of FATF

1- Identify financial crime threats prevailing in the existing policies and systems of a country. 

2- Draft and implement policies and procedures in the financial infrastructure of the country to counter threats highlighted in the previous stage. The policies should be drafted to prevent crimes such as money laundering, terrorist financing, drug trafficking, and weapon trading. 

3- Design risk preventive measures for financial institutions and other reporting entities to comply with. These preventive measures are designed in agreement with AML and CFT (Counter Financing of Terrorism) recommendations of FATF. These preventive measures include record keeping, transaction monitoring, customer due diligence, AML screening of customers, etc. 

4- The concerned law enforcement entity of the country must be equipped with powers and authority to implement laws and keep an eye on the reporting entities while taking risk prevention measures. 

5- To practice accountability at all levels within a system. To maintain a fair judiciary in the country.

How the recommendations of FATF affect your business

The ultimate entity that is affected by the regulations of FATF is the business community. And among all, the financial sector is the one that is exploited the most by financial criminals. Other industries affected by the recommendations of FATF are, Fintech, E-commerce, legal, precious metal dealers, art dealers, real estate, etc. 

The common AML/CFT regulations implemented on businesses as per the recommendations of FATF are: 

  • Performing due diligence on the customers
  • Performing AML screening on businesses (in B2B relationships)
  • Keeping a record of the customer data
  • Maintaining a compliance department
  • Reporting suspicious transactions of customers to the concerned authorities
  • Performing AML screening on the UBOs (Ultimate Beneficial Owners) in case of serving business as a client

So it is clear that the effect of AML regulations is two-fold. First, the country regulations and policies are drafted in light of these recommendations, then these regulations are implemented on the reporting entities. It might be businesses or government authorities. 

Compliance is not an option 

No matter if you’re a startup or enterprise if your industry is in the list of reporting entities, you must comply with the AML regulations. 

In case some new recommendations are given by FATF, reporting entities are affected by the new changes in their local regulations. For instance, the new regulations of FATF issued in 2019, for the cryptocurrencies, art dealers and legal professionals will affect these businesses in member states and observing members. 

Operating in FATF member country means more growth opportunities

Being a member of FATF is not an easy task. Countries that are referred to as complete members are considered as low-risk countries so the businesses operating in those countries are more likely to have growth opportunities. Businesses and investors prefer low-risk regions for business. 

On the other hand, the companies in grey/blacklist are considered as high-risk entities. So if your country is trying to implement FATF regulations then it will bear high profits for your business once it is a member or out of grey list of FATF. 

FATF regulations are implemented globally  

The AML/CFT regulations of FATF have a global impact. If your business is originated in a non-member state, you’ll be required to follow the stringent AML regulations while operating in a member state. 

As FATF plans to eliminate financial crime at a global level, the scope of its recommendations is also global. So, businesses have no other option but to take concrete steps to prevent financial crime risk. 

How automated AML helps in swift verification of your customers along with quick compliance

Automated AML screening conducted through Artificial Intelligence (AI) is an easy way to get done with stringent AML/CFT regulations. The AML regulations are becoming stringent with every passing day and it is not an easy task to conduct manual verifications on customers coming from every corner of the world. 

On the other hand, now FATF has also issued the first draft of digital ID system guidance so it means the regulatory authority is giving due significance to automated screening solutions. Now is the right time for businesses to avail this opportunity and share their compliance burden. Outsourcing an AML screening solution will share half of your compliance burden.

To wrap up, FATF is in a continuous process of financial crime mitigation in the world. It is expected that more countries will either become members or observing members of FATF to gain credibility in the global trade. It is high time your business should opt for compliance benefits over non-compliance penalties. 

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. 

CCPA: A Real Roller Coaster for Business Entities

CCPA: A Real Roller Coaster for Business Entities

One huge change in 2020 is the new data privacy law called the California Consumer Privacy Act or CCPA, which is effective from January 1st, 2020. Its results are expected to have impacts far beyond California State.

The CCPA is considered as Calfornia’s equivalent of Europe’s General Data Protection Regulation (GDPR). Signed by Governor of California in 2018, the CCPA grants California residents new online privacy and consumer protection. Even if you aren’t a resident of the Golden State, it may affect you.

What is CCPA and What it’s going to do?

This Act is going to give residents of California the right; to know what personal data is being collected on them and for what purpose is their data is used, who the data is sold to or shared with. They will also have the right to request that their data is not sold to third parties and could be deleted if requested. Furthermore, it also gives citizens the right to access their data collected online.

You may already have come across the impacts of CCPA in the form of the new privacy policy on different websites as they prepare for the implementation of this law. Even though the consumers will not notice a major difference daily, it has a great impact on businesses. The law completely changes how companies will treat customer data.

Even if your business doesn’t have a physical presence in California but you conduct business with residents of the state, then the CCPA may affect you too. While the CCPA is California’s state law, customers and businesses all across the united states will likely benefit.

Most businesses won’t want to deal with the extra overhead of applying to different privacy rules; one for California and one for the rest of the country. Just like the GDPR isn’t directly applicable to non-European countries, it paves the way for new data protection regulations across the globe. CCPA it’s self is inspired by GDPR and will now likely serve as an inspiration for other such laws.

Businesses Affected by CCPA

CCPA will affect the businesses selling products or rendering services to the residents of California. If your company buys or sells data on at least 50000 California residents each year, you are obliged to disclose to those residents what you are going to do with their data and they also have the right to not sell their data.

Moreover, companies generating revenue equivalent to, or more than $25 million or get 50% or more of their annual revenue by selling customer information are affected by the CCPA.

Firms that need to Comply with CCPA

Businesses operating online and collecting any sort of customer data needs to comply with CCPA. Following are some businesses that must comply with CCPA regulations:

Identity Verification Services

As identity verification requires sensitive identification data on customers, the verification services are most vulnerable to data breaches and need to place stringent checks on how to protect customers’ data. CCPA requires that all identity verification services implement their privacy policies amid Califonia Consumer Privacy Act.

Social Media Platforms

Being an important part of customers’ online journey, social media is a preferable platform for targeting the audience of interest. Different social media sites are used to advertise products and services and data available on social media platforms, even though mostly unstructured, contains sensitive information. Mostly personal data from social media platforms are bought and sold without prior user consent and which is why CCPA is going to affect social media platforms.

Are Businesses Ready for California’s New Consumer Protection Act?

As with GDPR, no one’s certain about what it means to be compliant with CCPA. With the start of a new decade, the law is in effect and it looks like consumers, businesses and even the regulatory authorities in California are not ready. Draft regulations for enforcing the act is still to be finalized at the state level.

Despite a lot of concerns before it’s official adoptions last year, GDPR went smoothly at least swifter then what was expected but the CCPA is likely to be a greater compliance challenge. Being the United States’ first data privacy law that gives customers control over their data, the CCPA is expected to create a lot of uncertainties.

Most online companies view the CCPA as being in their long term interest as it’s the first step towards data privacy. The companies, however, are not quite sure whether the law is comprehensive enough to cover all the data protection aspects and deal with all the challenges faced by firms and customers online.

Anyhow, California’s Attorney General says that even though widespread enforcement of CCPA isn’t likely until July, companies shouldn’t consider the first six months as a grace period. He further said, “We are going to help companies understand our interpretation of the law.”

Seeing the hesitations and all the uncertainty built around the implementation of CCPA, businesses consider it to be a real roller coaster ride for both the regulators and the firms that aim to comply with CCPA.   

digital currency

Digital Currency ‘Sand Dollar’ Launched by the Bahamas

The Central Bank of the Bahamas (CBOB) has introduced a digital version of the Bahamian dollar, starting with a pilot phase in Exuma in December 2019. The digital currency will then be extended to Abaco in the first half of 2020.

This initiative is termed as ‘Project Sand Dollar’ and the digital currency is also the name given to the proposed central bank digital currency (CBDC). The initiative is a continuation of the Bahamian Payments System Modernization Initiative (PSMI) which began in the early 2000s. 

The CBB said in a statement, “The Bahamian PSMI targets improved outcomes for financial inclusion and access, making the domestic payments system more efficient and non-discriminatory in access to financial services.”

The bank did mention that the digital currency is not a stable coin or a cryptocurrency but is just a digital version of the existing paper currency. The intention behind the digital currency is to help smooth things over for people who don’t have access to a physical bank. 

The press release further stresses that the bank is doing its best to make sure the services are available to everyone and streamlined to be as fast as they can be. This process includes accelerating payments system reform, adding new categories of financial service providers and using the digital payments infrastructure to ensure the accessibility of traditional banking services for everyone. 

There will be certain limitations on the sand dollar as well. For now, businesses cant have more than $1 million in their digital accounts and residents max out at $500. Businesses aren’t allowed to transact more than one-eighth of their digital wealth per month as well. 

According to the Governor of CBOB, John Rolle, the conditions are favorable for the more widespread adoption of electronic payment systems. 

e kyc services

e-KYC services introduced in Malaysia by InstaREM

Residents and expatriates in Malaysia can now make overseas payments safely and regularly through digital Know Your Customer Services launched by Singapore based company InstaReM. This zero-margin remittance service is going to facilitate hassle-free onboarding and provide cost-effective solutions. 

An e-KYC framework was established for remittance companies in 2017 by the Bank Negara Malaysia (BNM), Malaysia’s financial regulator. Since then, InstaReM has been a pioneer in digital cross-border remittance FinTech and is now powered by the NIUM payments platform.

Previously, customers faced challenges in complying with KYC norms through traditional methods. Tedious and time-consuming processes have led to high drop-off rates in the past. 

With the digitization of identity verification, they can now just log in to their account and upload required documents and photos to make transfers to over 60 destinations. It can be done from the comfort of their homes and offices with a simple smart device. The customer onboarding process is therefore made painless and transparent. 

Financial institutions need to implement such solutions at a large scale in order to authenticate and validate customers with swift onboarding solutions. This will improve risk assessment and fulfill legal compliances with KYC and AML regulations. Long term goals also include combating money laundering and terrorist financing. 

Having raised $59.5 million in initial rounds of funding, InstaReM claims to be the only company providing low-cost e-KYC services in more than 60 countries and caters to financial institutions, SMEs and individuals. This initiative is part of their effort to improve efficiency in financial service delivery and provide supplemental services to traditional banking.

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. 

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!

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.

More posts