‍Why Everyone Needs to Understand AML

Every business owner has an implicit responsibility to prevent money laundering attempts at or through their business. Many may not realize that they have to meet sanctions compliance requirements – but they do. Having a strong risk management framework helps to protect the business, employees, customers, and even vendors or partners.

If businesses unknowingly participate in money laundering, it can not only cost money and reputation - the entire business can be at risk. If doing business with other countries, this adds another complex layer because every business has to follow foreign regulations in addition to domestic ones. With the right screening practices and business technology, money laundering schemes can be avoided and sanctions compliance requirements can be met.

How the COVID-19 Pandemic Impacts AML in 2022

We’ve experienced an increase in fraud during the COVID-19 pandemic era. Fraud and money laundering go hand in hand, so we will continue to see money laundering attempts increase, too.

Money laundering risk assessments will require risk management teams to implement strategies including:

  • Broader scope
  • More frequent assessments
  • Process automation

Compliance regulators are expected to crack down on risk management worldwide. The International Compliance Association (ICA) is taking steps to assist with these higher expectations of business owners. The ICA is expanding its reach in an effort to offer stronger risk assessment tools to business owners.

2022 AML Trend #1 – Virtual Assets

Virtual assets represent any type of digital money or resources. Examples of virtual assets that are susceptible to money laundering include:

  • Cryptocurrencies
  • Cryptocurrency assets
  • Non-fungible tokens (NFTs)

These virtual assets are appealing to money launderers because the Crypto industry is largely un(der)regulated. Blockchain technology is a mere decade old and it is already challenging the traditional financial model. On one hand, blockchain technology offers transparency so that transactions are easier to track.

However, cryptocurrencies also offer anonymity (at different levels) which is very appealing to money launderers. It is especially attractive since there is no overarching authority that regulates and monitors digital assets like cryptocurrency and NFTs.

How Money Launderers Use Virtual Assets

A common way to launder money through virtual assets is to buy, trade, and cash in on virtual values as a way of hiding a financial trail. However, other more complex trends are emerging.

Hackers have used ransomware for years to attack computer systems and hold them hostage. Now hackers are demanding payment in the form of cryptocurrency. These hacks are a prime example of how fraud and money laundering are related to one another.

Preventing Virtual Assets Money Laundering

The best way to prevent money laundering is to know the signs. Red flags to look for in virtual asset transactions include:

  • Structuring transactions to create a high volume of low-value transfers
  • Having several unusually high-value transactions in a row
  • Dispersing virtual assets among many service providers
  • Making deposits and withdrawals in rapid succession
  • Accepting funds that are linked to known fraudsters

The Financial Action Task Force (FATF) is a global organization with a goal of unifying efforts to prevent money laundering. It has extended its reach to virtual assets and now challenges businesses to ensure appropriate handling of transactions. The FATF standards offer a great outline for tracking virtual asset transactions and ensuring compliance.

2022 AML Trend #2 – Effective AML Technology

How can we prevent money laundering if we don’t have adequate systems? Even with stringent regulation standards, money launderers stay one step ahead of business owners when systems are outdated.

One of the top AML trends in 2022 is implementing effective AML systems at all levels. The question is: How is the global industry tackling AML system concerns? There are four key drivers that have the potential to elevate AML efforts in 2022.

Collaborative Development

Global organizations like FATF, FinCEN, and the Financial Conduct Authority (FCA) are working together to launch better regulatory requirements and frameworks. We already address money laundering of currency at a global level, but we need stronger collaboration.

Real-Time Decisions

Currently, there are long hold times on transactions that go across international borders. It may seem counterintuitive to initiate real-time transaction screening to approve transactions quicker. However, tightening up regulation closes loopholes that money launderers are currently using to get around the current restrictions.

Universal Identification System

Every country and state has its own identification system. We have ID cards, driver’s licenses, passports, etc. However, there is no universal way to confirm a person’s proof of identification is valid. The European Union (EU) is currently implementing a digital ID that offers more security when transacting online.

Streamlining Data

Your business has a rich library of customer data, but chances are it exists across multiple systems. This lessens data quality because teams have to use manual methods to assess the data for fraud trends. Businesses are increasingly using outside data sources to offer a bigger view of how customers transact.

2022 AML Trend #3 – Beneficial Ownership

Beneficial ownership describes a person’s control over financial assets. Accounts and Businesses may have one or more beneficial owners that can make decisions about transactions or are beneficiaries of a business.

Many times beneficial owners are hidden behind an intransparent network of mutually related shell corporations and Financial experts are hoping to make this more transparent by implementing a universal database of information about beneficial owners. This type of registry has the potential to identify money laundering faster and offer more transparency to both domestic and global financial transactions.

Changes to Beneficial Ownership Record Keeping Requirements

Recent changes to beneficial ownership rules are helping to close gaps where money launderers slip through. Beneficial owners with a stake of at least 25% on an account must meet all necessary identification requirements. If more than four people are listed as beneficial owners, institutions must list one person as the primary account controller.

Additionally, financial institutions must meet due diligence requirements when opening new accounts. It is important for financial institutions to know how a beneficial owner intends to use an account. You may ask questions about the types of transactions they anticipate as well as the transaction amounts.

This helps to create a customer risk profile for ongoing monitoring. Your risk department can establish a business pattern and identify suspicious transactions through automation.

2022 AML Trend #4 – Expanding Beyond Financial Professions

AML responsibilities extend beyond financial institutions. However, the burden of meeting regulatory requirements has traditionally fallen on financial institutions and not other types of businesses. This is changing as money laundering evolves also outside of the usual financial sector.

Business owners like attorneys, accountants, and realtors also have AML compliance requirements, but they don’t tend to be as stringent. However, with many businesses showing a pattern of not meeting AML compliance standards, the focus is shifting. The Basel AML Index uncovered three areas where businesses can improve AML efforts in 2022.

Better Understanding of AML Efforts

Teams at financial institutions work under the umbrella of AML regulations on a daily basis. Other types of businesses may not need to utilize AML standards as frequently. This makes it easy to miss small details that can add up over time. With better training and resources, businesses can empower their teams with the knowledge they need to prevent money laundering.

Properly Implementing AML Measures

Even with a good understanding of AML standards, many businesses fail to implement measures like they should. This leaves loopholes that money launderers can identify and take advantage of, largely going undocumented in their money laundering efforts.

Even if businesses track money launderers effectively, gaps in documentation may mean that money launderers won’t be caught or prosecuted. If more businesses implement and enforce AML strategies, it benefits everyone.

Consistent Monitoring and Supervision

Regulators realize that they have an important role in ensuring AML measures are taken seriously by all businesses. Global organizations are committing to being better partners for all types of businesses – not just financial institutions.

One of the first steps every business can take to lay a foundation for proper AML processes, is to implement a comprehensive Sanctions Screening and monitoring process. Screening solutions such as sanctions.io help to automate this process and reduce manual efforts.

Kickstart your Sanctions Screening Process with sanctions.io

sanctions.io is a comprehensive API-first solution that businesses can use to scan their clients and business partners against global Sanctions Lists, Crime lists and PEP lists. If you would like to take the first step towards becoming more compliant, you can start a free 7-Day trial here.

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