Sanctions and AML Insights

The European Union’s AML directives aim to protect financial systems from money laundering and terrorist financing. Although each member state can design a unique framework to support these directives, they serve as common goals for each of them. Failing to comply with these legal procedures can also lead to punitive actions like fines and penalties.

KYC or Know Your Customer procedures are required for financial institutions, by law, in order to establish the legitimacy of a customer's identity and the risk factors associated with that customer. These procedures are designed to help prevent identity theft, money laundering, financial fraud, terrorist financing, and other financial crimes. In many instances, KYC doesn't extend to shell corporations or similar entities, which is why there is increasing pressure from regulators to impose laws that fall under the heading Know Your Customer's Customer (KYCC).

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A politically exposed person (PEP) refers to someone with a prominent public function or high-profile political role. A PEP represents a higher risk for involvement in bribery, corruption and money laundering as the position they hold makes them a higher target for criminals. Screening against PEPs is particularly important for life insurance products and InsurTech, as life insurance is a popular money laundering methodology. AML/CFT compliance officers should take care to detect PEPs that attempt to purchase their products or use their products to launder funds by implementing screening and monitoring tools and processes in their organization.

The conflict in Ukraine saw a number of banking sanctions levied against Russia. Concerns were raised early on about the possibility of sanctioned Russian parties using the less regulated crypto industry to exploit loopholes that allow them to move money out of the country.

Sanctions are an important tool the international community can use to change or influence the behavior of a country or regime that is violating human rights or committing other offences. While sanctions compliance is critically important, over-compliance may have serious commercial impacts on law-abiding businesses and even ordinary citizens of a sanctioned country.

The regulation of stablecoins has become an increasingly pressing priority after the catastrophic crash of Terra, an algorithmic stablecoin, which sparked a "crypto winter" and crashed the value of Bitcoin and other leading digital currencies. Since then, many exchanges and crypto companies have gone into liquidation or paused trading. The crash proved a harsh wake-up call for many consumers, anxious to see regulation of the riskier parts of the digital asset landscape. However, the fact remains that deregulation and innovation have always been significant drawcards for the DeFi community, and there are still many concerns over the way regulation may impact blockchain and distributed ledgers. The UK and the US governments have made significant moves toward regulating stablecoins as the first step towards connecting crypto assets to the broader financial system.