Anti Money Laundering: The Ultimate Tool to Combat Financial Crime
Money laundering is one big problem for corporate entities and customers alike. Bad actors are always in pursuit of making dirty money through illicit ways and means which ultimately takes a toll on the legal financial system. The amount of money laundered annually is nearly equal to 5% of the global GDP that makes a staggering $2 million in total.
Anti Money Laundering is the appropriate solution for financial crime since it is based on robust policies and procedures. AML obligations imposed by global regulators allow businesses to conform to compliance standards while catching criminal figures to prevent their malicious acts. Let’s find out how an Anti Money Laundering solution can assist businesses in combating money laundering.
What does Anti Money Laundering Mean?
Anti Money Laundering is a set of rules and procedures that an organization develops to monitor transactions and customer behavior, to detect and report financial crime. Companies develop AML compliance programs to tackle money laundering by using state-of-the-art AML regulations.
AML compliance first emerged in 1989 when the Financial Action Task Force (FATF) came into existence. The primary concern was to develop internationally accepted standards to prevent money laundering and other forms of crime such as drug trafficking, tax evasion, and corruption.
The Emergence of AML Solutions
In the past, Anti Money Laundering laws have played their part in taking down criminals, but lack of proper infrastructure has made implementation of these regulations a challenge. As a rule of thumb, banking institutions need to perform Customer Due Diligence (CDD) to make sure they are not associating ties with any potential criminal. Since there has been an influx of digital solutions, consumer behavior and needs are also changing. To address money laundering concerns related to digital transactions FATF and other regulatory watchdogs are focusing on efficient and reliable strategies for financial crime prevention.
These regulations are a mandatory requirement for any business operating in the financial industry. In this regard, banks and other financial institutions started adopting automated AML screening methods to streamline their CDD procedures in light of AML regulations.
Automated AML Solutions for Effective Compliance
Today, with the emergence of intelligent solutions, the finance industry has all the essential tools it needs to keep fraudsters at bay. AI-based solutions are:
Automating data analysis tasks
Detecting unusual transactional behavior
Filtering falsely triggered alerts
Flagging suspicious customers
Performing a reliable risk assessment
Today, banks use these AML checks to categorize high-risk customers and transactions and identify bad actors before they cause any harm. Considering the benefits AI provides in meeting compliance standards, automated AML screening solutions have become a need of the hour.
Enhanced AML Checks
When it comes to banking, Enhanced Due Diligence (EDD) plays a crucial role in identifying likely fraudsters through background AML checks. These potential customers are screened through parameters such as:
FATF blacklist and greylist
Politically Exposed Persons (PEPs)
Sanction lists by the OFAC (Office of Foreign Assets Control)
These checks help in assessing the risks that a customer poses to a particular organization. Carrying out business with these types of customers required EDD and ongoing monitoring of their transactions.
Automated Monitoring System
Financial organizations develop an AML monitoring solution based on a risk-based approach to detect and prevent potential instances of crime. Considering the regulatory requirements, these are purpose-built for catching any unusual transactions and creating Suspicious Activity Reports (SARs) that are sent for investigation to the FinCEN or similar financial crime prevention units.
Categorizing High-risk Customers
Automated AML solutions are quite effective when it comes to identifying high-risk customers. Rather than Anti Money Laundering experts going through hundreds of lists to complete background checks on a customer, they can now get the job done in a matter of minutes. Checking if the customer is a politically exposed person is a compulsory requirement for firms before they initiate a business relationship.
PEPs, according to FATF, are individuals assigned with a high role or designation in the public or are associated with any kind of political or international organization. Although they may not be criminals but still pose a particular risk because they can misuse the authority given the authority they possess. PEP screening is part of the AML compliance program and is performed as a regular part of the onboarding process.