Financial institutions caught in money laundering schemes can face dire consequences. Whether the institutions were involved in the crime or not, the taint of money laundering can still undermine an organization’s legitimacy and cause it to lose the trust of its clients and investors. Being remiss in anti-money laundering (AML) compliance with regulators can also result in steep penalties and a difficult adjustment to evolving AML technologies in the long run. For these reasons, it’s always in the best interest of financial institutions like banks to learn about current modi operandi, improve their AML programs, and invest in technologies like dedicated anti-money laundering solutions.
What threats do institutions face when it comes to financial crime in the digital world, and what are the best approaches for pushing back? Here’s a briefer on money laundering and AML implementation for the benefit of your bank.
How Money Laundering Happens in the Digital Space
Traditional money laundering schemes typically involve criminals taking large amounts of “dirty” money—most of the time in the form of cash—and securing these tainted assets through the banking system. Once the money is introduced into the system, it circulates and creates enough distance between the criminals and their money trail. Since the connection between the dirty money and the perpetrators isn’t clear, the money can be unknowingly used for legitimate transactions. The “clean” money then returns to the perpetrators, and criminals get to run away scot-free.
Since traditional money laundering schemes involve the movement of physical cash, it’s easier for banks to detect suspicious transactions. This gives them enough time to call the authorities before the money successfully returns to the perpetrators. With digital money laundering methods, however, it’s more difficult to figure out where the crime was done and who orchestrated it. This keeps criminals’ real identities and motives hidden, allowing them to commit financial crimes with more ease. To avoid detection, financial criminals often use one of the following methods (or a combination of them):
Online Banking
Criminals can transfer money directly into their victims’ accounts and trick the latter into giving them their private information, which is then used to gain access to the accounts. This will then allow the perpetrators to make unauthorized payments using their victims’ funds.
Virtual Currencies
Due to the anonymity feature of virtual currencies, like Bitcoin and other cryptocurrencies, perpetrators have an easier time laundering their money and converting it into funds to be funneled through the banking system. Some virtual currencies are completely untraceable, and transactions are only recorded on a blockchain. Many virtual currencies also have weaker security since they aren’t regulated as heavily as fiat money. As a result, they present a convenient option for cyber criminals to move illicit funds around.
Business Email Compromise
Cybercriminals can also use computer intrusion techniques to gain access to the email accounts of legitimate businesses. By compromising their accounts, perpetrators can make unauthorized fund transfers right under their victims’ noses, especially when a target business conducts regular wire transfers with foreign suppliers.
Fighting Digital Money Laundering Schemes with Anti-Money Laundering Solutions
So far, technology offers the most promise when combating modern-day financial crime. To protect their businesses from money launderers and other cybercriminals with illicit intentions, banks and financial institutions can be proactive about their AML approaches and partner up with AML solutions providers for assistance. These companies can help them level the playing field by providing them with the resources to keep up with the fast-paced nature of financial crime in the digital age.
AML vendors can offer packages that are specifically designed to detect highly questionable transactions and suspicious money movements. Several solutions in the market make use of cutting-edge technologies, like advanced analytics and AI. Their products give financial institutions a hands-free and hassle-free way to minimize risk, as well as protect their clients’ finances and personal data.
When a bank or other financial institution upgrades their technologies and works with a trusted AML solutions provider, they’ll reap the following advantages:
More Accurate Digital Evidence
Using AI-powered technology and analytics, today’s AML solutions can recognize suspicious patterns and thus help uncover criminal activities. They can also make it easier to harvest all the internal and external data that cybercrime investigators need to quicken their investigations.
A Streamlined AML Reporting Process
Since AML software solutions rely heavily on automation and advanced analytics capabilities, they can speed up AML reporting and make it more efficient. You bank can use its new AML solution to generate suspicious activity and transaction reports and file them in a timely manner. Your solution may also be automatically programmed to follow the reporting guidelines and regulations given by global AML regulators, which will make compliance much less of a burden.
Smoother Know Your Customer (KYC) Processes
Know Your Customer (KYC) is a mandatory process in which financial institutions need to identify and verify a client’s identity before they can open an account. The process must also be conducted regularly to ensure that the client is genuinely who they claim to be.
However, monitoring thousands of existing clients and onboarding new ones daily requires a lot of time and effort to do correctly, and banking staff may have a hard time administering this process manually without compromising thoroughness and accuracy. Fortunately, the best AML solutions can smoothen this process and achieve regulatory KYC compliance by using seamless API integrations to automatically collect and process data. This gives businesses the resources to inspect their clients’ activities more closely, therefore making it easier to spot suspicious transactions.
Better Oversight of AML Policy
Global financial institutions report to the Financial Action Task Force (FATF), an intergovernmental body that ensures that its constituents’ anti-money laundering protocols meet the global standard for combating financial crime. FATF is also responsible for monitoring its members, seeing that the latter properly implement their recommendations, and conducting routine assessments of AML protocols. Modern-day AML solutions have FATF compliance baked into their system, so that banks and financial institutions can readily take the required steps to detect and report money laundering schemes to their regulators.
Final Words
Now that many people choose to conduct their financial transactions online, banks and financial institutions need to strengthen their efforts to protect their assets and their customers. As newer technologies emerge, tech-savvy financial criminals can create ways to bypass even the most robust security systems, thus gaining access to their mainframes and laundering money.
Cybercriminals may be better at working quickly and discreetly, and they may also be more difficult to catch in the act since their virtual trails can easily be erased. But thanks to more proactive approaches and interventions like AML solutions, banks and financial institutions are also better equipped to fight back.
