Businesses often play an unintentional part in serving as a safe haven for money launderers. In return, this role drives AML compliance and reputational risks. Banks, payment processing firms, fintech companies, insurance agencies, real-estate consultants, gambling operators, and other such institutions are facing various challenges in combating money laundering. Due to inadequate AML security controls, criminal risks continue to rise.
Industries should tailor their operations to the customers’ risk levels for countering money laundering. Moreover, integrating AML solutions help financial institutions to draw a line between fraudsters and legitimate customers. As money laundering is a serious criminal offense for white-collar as well as street-based felons alike, industries require efficient countermeasures. This blog covers red flags linked to financial crimes and how AML solutions help identify them.
AML Systems – Spotting Traces of Money Laundering
Red flags associated with financial crimes help businesses stay aware of fraudulent activities and place necessary precautions in time. They enable industries to bring in more efficient risk-assessment mechanisms in order to create adequate anti-money laundering controls. Criminals are continuously adapting to changing markets, digital transformations, and loopholes to exploit businesses.
Companies involving the flow of money are criminals’ major targets as they assist in concealing the proceeds of crimes and converting them into clean money. This makes the integration of AML solutions a liability for businesses. Furthermore, timely recognition of the following red flags further aids in preventing money laundering.
Compromised Sources of Funds
Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) in its law 28 obliges businesses to evaluate transactions. Firms should ensure that the funds’ transfers are in line with the financial capability of customers. In the case of high-value transactions, deposits, and private investments, the client might be a white-collar criminal.
Despite holding a legitimate bank account, businesses should consider this transfer risky. Customers moving funds more than they earn is a warning sign regarding money laundering. Fraudsters use advanced techniques that are incapable of identifying these sources of money. Moreover, criminals target authentic financial systems to escape AML screening and convert their illicit funds.
Businesses need to integrate efficient anti-money laundering solutions for timely recognizing malicious efforts. For further security, the AI-powered financial crime prevention services cross-check the following documents to validate sources of funds.
- Account details
- Transaction histories
- Bank statements
- Papers confirming the source of high-value funds transfers such as sale/purchase agreements
Risk assessment of clients prior to their digital onboarding is one of the prerequisites to counter money laundering. Criminals often create synthetic identities to escape AML compliance and register themselves as legitimate entities. Furthermore, fraudsters target high-risk countries to launder their money as they hold less strictness and regulatory scrutiny. Where this helps criminals steer clear of legal monitoring, it exposes businesses to serious repercussions.
Red flags such as customers approaching from far-off regions, foreign nationals making a transaction from within a country they don’t have a bank account, and others enable businesses to identify criminal activities. Moreover, Customer Due Diligence (CDD) and AML monitoring further aid in safeguarding industries’ operations against the flow of illicit funds.
Unusual Transaction Patterns
In order to trick anti-money laundering controls, criminals use unusual transaction patterns. They either perform multiple under-the-limit funds transfers or a single one exceeding the threshold. Unusual transactions are a red flag that businesses should take care of while facilitating funds transfers. In the case of gambling, fraudsters make high-value payments to conceal their proceeds of crimes in minimal time.
Digital industries need to bring in efficient AML solutions to identify the financial activities of customers and stay aware of suspicious transactions. Moreover, they should report them to respective authorities for further action.
Discrepancies in Instructions by Clients
Criminals often use reasonable explanations to make their illicit financial claims look legit. This process involves changes in instructions by the customer which can either be regarding loans, account creation, transactions, and others. Giving fraudulent reasons not only help criminals divert the attention of AML compliance officers but also conceal the deal.
Businesses with lax AML verification checks are more likely to fall into this trap. Discrepancies in instruction involve account takeover fraud, card-not-present scams, identity theft, and other such techniques where criminals guide financial institutions instead of the actual holders. However, industries incorporating AML solutions can better authenticate institutions by cross-checking through various methods such as facial feature verification.
Criminals are deploying various techniques to exploit businesses and launder their proceeds of crimes. While enforcing strict anti-money laundering requirements for industries, regulatory watchdogs also highlighted several red flags. By recognizing these warnings in time, businesses can combat the fraudulent flow of cash through their systems. Furthermore, efficient AML systems identify risk-possessed entities, suspicious transactions, unusual instructions, and discrepancies in the information.