The risk of financial crimes is rising over time. Businesses have suffered huge losses because of it. Also, they face fines and sanctions from regulatory authorities for not having a solid resistance solution against these crimes. The reason for crimes in businesses is caused due to poor mitigation methods. Money launderers always seek loopholes and weak verification in the system. Then they transfer their black money in it through multiple ways.
Money laundering along with terror financing is the major financial crimes that need to be fought essentially. Businesses have to adopt anti-money laundering (AML) compliance against these crimes.
AML compliance is the collection of rules, regulations and practices stopping the illicit flow of funds in the system. Global watchdogs issues guidelines and directives for AML compliance.
Let’s have a deeper look at the latest laws and regulations of anti-money laundering (AML)
Financial Action Task Force
Formed in the late 90s by the G-7 summit FATF served as a strong barrier for financial crimes. It was established to fight illegal funds flows and funding of terrorism. Being a global regulator FATF issued set standards for AML compliance. USA, UK, Germany, Chine and some other countries are members of FATF totalling 39. FATF regularly issues recommendations for countries and businesses. Countries are responsible for making strict laws for business operating within their territory. They have to make sure zero illegal cross border transfer.
Below are the FATF Recommendations for Businesses:
In this businesses have to identify, classify and analyze the value of risks. After that necessary measures should be taken. Different levels of risk need to be investigated before applying AML compliance.
Customer Due Diligence
Financial services providers are obliged to perform customer due diligence (CDD) checks. Customers are firstly identified and verified through their ID documents. The process of customer verification is known as know your customer (KYC). It is an extensive process in which customer name, age and address are verified. KYC is done to eradicate identity frauds.
FATF requires businesses to maintain customer records for at least five years. These records have all the personal information and financial history of the customer. It can greatly help in the investigation.
Politically Exposed Persons
After CDD/KYC, the customer is screened through the PEPs list. This list has the data of high-risk entities from all countries. People that are involved or have a close relation to money launderers are called high-risk entities.
In this step, customer transactions are monitored. Suspicious activity reporting (SAR) is a part of this step. Any unusual customer request is reported to the concerned authorities. For instance, an account holder listed his business as a coffee shop performing transactions of millions. This is a suspicious transaction and it needs to be reported.
The authorities are native law enforcement agencies of that business.
FATF also issues fines and sanctions on business for not having good AML compliance. According to a report, financial institutions faced fines worth $10.4 billion associated with ML and TF.
In the financial system where millions of transactions process in a single day, how will a business conduct AML verification? Just in case, where a bank has 200 branches in a country, the number of customers will be in the thousands. Would it set a verification department and train employees on screening and CDD? Would employees manually check the customer documents? Certainly not, the AML solution will be automated and robust. The verification and screening will be done through AI-powered AML software.
The AML software will conduct all the necessary in real-time, giving the results in minutes. Background screening and ongoing monitoring can be performed easily using AML compliance software.
Wrapping it Up
FATF recommendations can heavily help a business in resisting financial crimes. To comply with the above recommendations, businesses need to have AML software. Businesses can make their channels crime-free by AML compliance programs.
AML compliance will also save businesses from hefty fines and sanctions by regulators. They can have a secure trading environment and the customer will like to choose a secure business.