The United Kingdom implements new Anti-Money Laundering regulations

The United Kingdom implements new Anti-Money Laundering regulations

The United Kingdom’s finance and economics department has announced the incorporation of new Anti-Money Laundering (AML) regulations. The extra measures would diminish the chances of money laundering and other crypto-related crimes, according to the UK Finance and Economics Department. In a speech on March 6, the Director of Retail and Regulatory Investigations, Therese Chambers, stated that the new Money Laundering Regulations places the UK’s Financial Conduct Authority (FCA) as the Anti-Money Laundering supervisor for some crypto aims. 

Storm-7 Consulting tweeted regarding the news:

She further stated that the new regulations go beyond the 5th Anti-Money Laundering Directive (5AMLD) and encompass a wider set of activities, including initial coin offerings or ICOs, as advised by FATF the last year. The 5AMLD was implemented by the European Union last Summers and it was effectuated in January 2020.

According to Chambers, virtual currencies allow anonymous financial transfers. The FCA’s regulatory supervision mainly aims towards business dealings within the virtual space. The new regulations concern crypto exchanges that extend fiat pairings and deal in crypto pairings as well. Wallet service providers are also included. According to Pawel Kuskowski, the CEO of Coinfirm, the new regulations indicated that crypto can no longer be closed by banks. 

FCA risk assessment, customer due diligence, transaction monitoring, record-keeping as well as suspicious activity reporting are some of the things that crypto firms should possess to conduct business. Many Crypto firms have started evacuating the United Kingdom and European Union due to their ongoing stringent regulations.

The EU passed new Anti-Money Laundering regulations in July 2018, called the 5th Anti-Money Laundering Directive (5AMLD). The 5AMLD regulations caused various crypto exchanges to leave UK and EU related countries. Two Crypto platforms, Simplecoin and Chopcoin, have closed down their services due to 5AMLD.

Simplecoin indicated that these requirements are against the fundamental motives of cryptocurrencies, such as privacy and decentralization.

Politically Exposed Person - An unsaid threat to Businesses

Politically Exposed Person – An unsaid threat to Businesses

A politically exposed person or PEP is the one who has been assigned to perform prominent public functions or the one who has a high profile role in society. Due to their position, they can commit money laundering offences and other related corrupt activities like terrorist financing. This thing has already been confirmed by many case studies and analysis reports. There is a proper list available that has all names of PEPs known as the PEP list. Such people are a high risk for the financial sector as they are more likely to become involved in financial crimes like money laundering and financing of terrorists than other people. PEP status highlights additional risk involved, so businesses must apply additional AML/CFT measures when establishing a business relationship with these persons. 

PEP status does not predict criminal behaviour but signals the businesses to be more vigilant. Businesses must conduct proper monitoring to ensure that they do not miss a change in PEP’s risk profile. PEP monitoring requirements are not indicative of criminal behaviour but are just preventive in nature. The evident potential risk factors associated with PEPs justify the application of additional preventive measures when it comes to establishing business relationships with PEPs. In order to avoid reputational and regulatory damages, organizations should understand how to recognize a politically exposed person (PEP) and their associates. 

Defining Politically Exposed Persons

This term first emerged as “Senior Foreign Political Figure ” in the wake of an Abacha Affair which was a money-laundering scandal in Nigeria, this case jolted global efforts to secure the abuse of financial institutes by the public figures. 

PEP, according to FATF Recommendation is defined as following

“Individuals who are or have been entrusted with prominent public functions in a foreign country, for example, Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important political party officials.”

According to EU Third Anti-Money Laundering Directive:

“Natural persons who are or have been entrusted with prominent political functions and immediate family members or persons known to be close associates of such persons.”         

Three Major Types of PEPs:

The AML and CFT Act identifies three major types of PEPs which are as follows:

Domestic PEP

A person who has a prominent public position or has a role in a government body.

Foreign PEP

Someone who holds a prominent public position or a role in some other country is considered as a foreign PEP. 

International organisation PEP

A person who has a high position in an international organisation, such as the United Nations (UN), the World Trade Organisation (WTO) or the North Atlantic Treaty Organisation (NATO).

List of PEPs- A Detailed Insight:

Financial institutions and businesses can categorize PEPs as:

Government Officials

Current or former government officials that are in domestic or foreign government positions including heads of states, individuals working in executive, administrative, legislative, military or judicial institutes in various elected or unelected roles.  

Political Party Officials

Officials that are appointed to senior positions in major political parties at home or in foreign countries. 

Senior Executive:

Individuals who are serving in senior executive roles, for instance, directors or board members in government owned or foreign organizations.

Family Members

Family member, the immediate one, of a political or government official, or of a senior executive. For instance, spouse, parents, children, siblings, or spouses’ parents or siblings. 

Categories of PEP

Categories of PEP

 

The Subjective Nature of PEPs:

To define politically exposed persons there is no single international standard so far. Subjective judgment has to be made in order to decide if an individual is politically exposed by taking into account the associated risks. These may be influenced by their seniority and time spent out of the office if they were ever in an eligible PEP position. In the same way, there is no defined objective on whether an individual qualifies as a family or a close associate. 

FATF Recommendations for PEPs:

There are confirmed risks associated with PEPs that justify stringent measures to be taken to put a halt on financial crimes such as money laundering, terrorist financing, and others. Businesses are required to take preventive measures before establishing a relationship with such persons. Businesses to perform a proper PEP list screening whenever a new customer is onboarded to check the criminal history and associated risks. FATF requires countries to ensure that financial institutions implement measures to prevent the money laundering through financial institutes by PEPs and to detect potential misuse whenever it occurs. The requirements are preventive and to be on the safe side. Moreover, businesses cannot refuse business relationships with PEP just because the client is in a PEP list. FATF measures extend on a broader spectrum to fight against financial crimes such as money laundering and not to put PEPs behind bars. 

Identification of PEPs:

To comply with AML regulations and to trace and tackle PEPs, businesses need to have a proper procedure in place. Any business entity should know when to check for a PEP and why to check for it. PEP record should be integrated in the system of every business so that the onboarding customer is screened against it and to nullify the associated risks and criminal activities. In this regard, strict Customer Due Diligence along with PEP screening must be performed before establishing a business relationship with any customer.  

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 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. 

police busted a massive

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

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

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

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

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

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

AML solutions: Eliminating the risks of money laundering

AML Solutions: Eliminating the Risks of Money Laundering

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

What is money laundering?

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

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

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

Know more about money laundering process in this demo:

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

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

Risk of money laundering for small businesses

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

Protecting your business against money laundering

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

What is Anti Money Laundering?

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

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

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

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

Automated AML solutions for enhancing AML process

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

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

6 Ways AML Solutions can prevent Small Businesses from Money Laundering

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

Enhanced due diligence

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

Monitoring transactions and activity

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

Reviewing odd patterns of transactions

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

Identifying Politically Exposed Persons (PEPs)

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

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

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

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

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. 

danske to face 2 billion fine for money

Danske to face $2 billion fine for money laundering

According to Jyske Bank, Danske will probably be fined around 13.5 billion kroner (around $2 billion) over the money laundering case by authorities in Denmark, the USA, and the UK, as the investigations in Europe’s biggest money-laundering scandal draw to a close.

Danske Bank was previously indicted for suspicious transactions of 200 billion euros at there Estonian unit. The Denmark-based bank is cooperating with probes by the U.S. Department of Justice and U.S. Securities and Exchange Commission, among others. Another writ, which was filed on December 27th, 2019, in the district court of Cophengan by law firm Nemeth Sigetty, is for about 1.5 billion kroner, according to a statement.

Penalties tied to investigations will drive up Danske’s operating expenses to 42.4 billion kroner this year, according to an analyst at Jyske Bank. The costs are expected to return to normal next year.

As Danske Bank released the full dimensions of laundering scandal in September 2018, it’s shares have taken a beating. It now trades at large discounts to peers and Jyske, which recommends buying the stock, says the current price more than incorporates the consequences of the money-laundering scandal.

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

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

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

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

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

According to Simplecoin, 

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

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

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

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

British Columbia Makes Regulatory Change to Combat Money Laundering

British Columbia Makes Regulatory Change to Combat Money Laundering

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

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

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

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

Eby expects the change to be effective and says, 

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

EU’s AMLD5: What does it mean and how will it impact the AML regulation regimes?

EU’s AMLD5: What does it mean and how will it impact the AML regulation regimes?

From the Panama papers, Paradise leaks and Danske Bank case to the most recent revelations about SEB bank, money laundering scandals over the last few years have taken the world by storm. As general awareness about money laundering strengthened, so did the pressure on the regulatory authorities across the globe to counter build proper anti-money laundering laws and regulations

With every new revelation, lawmakers gain a great insight into how the financial system can be exploited and, as a result, find better ways to devise new amendments in already existing laws.

This is one of the reasons why the European Commission proposed the 5th Money Laundering Directive only a year after the legalization of AMLD4. Although published in the official journal of the EU in June 2018, AMLD5 was originally proposed in July 2016 as a part of its action plan against terror financing and money laundering, after the Paris and Brussels attacks, and as a reaction to Panama paper published in 2016.

The primary intention to make changes by January 2017 looked over-aggressive; a final devised text was reached in December 2017. 5th Money laundering Directive came into force in July 2018, and member states are required to make amendments in national laws accordingly before 20th January 2020.

What are the Key Changes in the 5th Anti Money Laundering Directive? 

AMLD5 serves greater prospects and shows the European Union’s leadership role in AML legislation. One of the key features of AMLD5 is that it proposes changes in already existing legislation in AMLD4, instead of replacing them.

The precise amendments that the fifth directive proposed are:

  • The scope of money laundering screening is extended to virtual currency providers, art worker traders, e-wallet providers, and tax-related services.
  • European member states require to develop a list containing all public offices and its functions nationally that qualify as politically exposed (PEP) for enhanced due diligence.
  • Financial flows from high-risk non-European states are subjected to high due diligence.
  • AMLD5 makes it obligatory to consult beneficial ownership registers while performing AML screening.
  • The directive also recommends that access to beneficial ownership information for EU based businesses should be made publicly accessible. In AMLD4, this information was not publicly accessible.
  • It also ends the anonymity of saving accounts and safe deposits across all the banks under the European Union.
  • Information on real estate holders is to be made centrally available to public authorities across Europe.
  • The payment threshold for prepaid cards and e-money is to be lowered. Previously, the threshold was a maximum of 250 euros. AMLD5 requires this threshold to be lowered further to 150 euros.

What are the Key Changes in the 5th Anti Money Laundering Directive?

Following the spirit to become AML leaders in the world and to stop money laundering across Europe, the European Commission requires member states to implement these changes in national laws by January 20th, 2020. And as the deadline imposed by the EU ends almost in a month, let us have a deep dive into how it will impact the AML regulations landscape for businesses across Europe.

How will AMLD5 impact Anti Money Laundering Regulation Regime?

Virtual Currency Service Providers in Scope

Since the virtual currency is the talk of the town for a while now and regulators are finding ways to regulate decentralized cryptocurrencies such as bitcoins, AMLD5 will apply to virtual currency service providers as well as electronic wallet providers, to cover the risks associated with cryptocurrencies. In addition to this, the traders of artwork and entities rendering tax-related services are also in the scope of AMLD5 regulations.

Enhanced KYC including access to Beneficial Ownership Information

The business across Europe are obliged to consult related registers while performing KYC. However, for now, it is only applicable to the businesses registered and operating under the European Union.

Public Access to Beneficial Ownership Information

AMLD4 required the member states to maintain central registers for beneficial ownership information and required interested parties to demonstrate legitimate access to beneficial ownership registers. Under the AMLD5, this information is to be made publicly available except for trusts and similar legal arrangments. 

In such cases, legal information about beneficial ownership will be granted to anyone demonstrating a legitimate interest. The beneficial ownership information will be comprised of; the name of the beneficial owner, date of birth, nationality, country of residence, and the extent of the beneficial interest held in that particular business.

Access to Information on Real Estate Holders

Money Laundering through real estate is estimated to reach $1.6 trillion a year. Owing to this, the AMLD5 makes information on real estate holders, available to the public authorities. This does not require to maintain a central register for the information.

Lower Prepaid Card and E-Money Threshold

Prepaid cards are being used in money laundering across the globe. According to the FBI, drug cartels utilize prepaid cards to launder illegally earned money from drug sales across the United States. For identifying prepaid cardholders, AMLD5 lowered the threshold of prepaid cards from 250 euros to 150 euros. Furthermore, E-money transactions using prepaid cards are lowered to 50 euros. 

No member state is allowed to increase this amount, however, these amounts can be lowered further. AMLD5 not only lowers this amount but also includes strict restrictions on anonymous prepaid cards issued in non-member countries.

Regulations for Bank Accounts and Safe Deposit Box

One of the stricter regulations in AMLD5 is the abolishment of the anonymity of bank accounts, saving accounts, and safe deposit boxes. Member states are obliged to design central registries or data retrieval systems by September 10, 2020, which will be directly accessible by the Financial Intelligence Units and competent national authorities.

Once the directive is transformed into legislation, the financial institutions will require to build or render digital KYC services for the onboarding process and it is important for the financial institutes to attain clear guidance on this directive and formulate strategies accordingly.    

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.”

EU Takes First Step to Set Up Anti-Money Laundering Supervisor

EU Takes First Step to Set Up Anti-Money Laundering Supervisor

The European Union should contemplate creating an independent agency to supervise anti-money laundering compliance, the bloc’s finance ministers said Thursday. 

The finance ministers have urged the executive arm of the EU to evaluate and develop legislative proposals to establish a new supervisory body. 

In the EU, anti-money laundering supervision is largely handled on a country-by-country basis in the EU rather than through one central agency. 

The push by the finance ministers comes amid a plethora of allegations of weak internal control at some of the largest banks in the region. In a July report, the European Commission accepted that this fragmentation is the cause of the increased criminal activity in the financial system. 

A statement issued by the Council of the European Union, comprising of the bloc’s finance ministers said that the commission should explore the “possibilities, advantages and disadvantages” of creating an independent, EU-level body. The council also asked for more inclusive harmonization of anti-money laundering regulations across all the member states. 

A critical issue in the topic of a central agency for anti-money laundering is the level of authority an EU-level body should have. On Thursday, representatives from several countries raised their concerns about proposals that could limit the power of national supervisors.

Kaja Tael, permanent representative of Estonia to the EU, said 

“National authorities have a lot to offer—they have the local know-how, the ability to react quickly. But international cooperation needs to be improved.”

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.

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. 

More posts