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AML regulations: Cleaning up dirty money scams in the financial industry

October 6, 2022

Telesign Team
A dollar bill being lured out of a wallet by a fishpole.

As the digital landscape evolves, so do the regulations designed to protect individuals, businesses, and governments around the globe.

One such evolution has taken place surrounding money laundering, whose impact has grown exponentially with new digital financial transaction options.

In this article, we look into money laundering, the anti-money laundering (AML) regulations put into place to prevent it, and how you can best adhere to these regulations to keep your business and customers safe.

Money laundering in the digital era

Money laundering is the process fraudsters undertake to hide the origin of their ill-gotten gains, accomplished by transferring the funds through legitimate institutions. The money, which was gathered through illegal actions, appears valid after being laundered.

Money laundering occurs in three stages:

  • Placement. After the criminal acquires the money illegally, they place it into a legitimate financial system.
  • Layering. The criminal initiates numerous transactions and transfers to hide the money’s origin.
  • Integration. The money is taken out and now used without fear of being traced to illegal activities.

In today’s world of digital processes, currencies, and businesses, money laundering has evolved into a more complex operation. In fact, there is a 2-5% global GDP loss per year from money laundering, which is roughly $800 billion to $2 trillion.

In response to money laundering, a variety of AML regulations were created.

What is AML?

AML refers to a group of regulations that help ensure the financial industry adheres to the proper procedures necessary to prevent money laundering.

AML processes implement checks that force businesses to better monitor their operations and the clients they do business with.

Where AML fits in to the fintech revolution

The fintech revolution evolved quickly during the pandemic, as businesses and consumers sought ways to move their financial activity online as the world shut down.

With more transactions taking place digitally, fraudsters took notice and financial institutions found themselves at greater risk of both fraud and resulting fees and penalties from failing to adhere to AML compliance laws.

Obeying new AML regulations adds a layer of difficulty to an already complex system. For example, even though your specific company adheres to the AML processes, your partners and clients may not. This is especially true with companies that do international business.

And as the financial revolution charges on, AML regulations have become stricter and are resulting in larger and more frequent penalties to businesses.

Best practices

Consumers are distancing themselves from financial institutions they feel don’t monitor money laundering and other crimes well enough. Part of this is because they have so many options, such as digital banks, neobanks, and more. A recent survey showed that more than 50% of consumers would ditch their bank if it was involved in a money laundering scheme.

To make sure your company doesn’t lose your customers’ trust, it’s important to follow KYC best practices. KYC (Know Your Customer) refers to processes that help companies and financial institutions determine customer risk as well as follow AML regulations.

Tied in with the KYC process is CDD (customer due diligence), in which greater financial transparency results from company interactions with customers. CDD processes aim to check customers, current and new, to determine whether they’ve onboarded correctlyÑwith valid information.

Customer due diligence plays a part in reducing money laundering risk by requiring continuous assessment of consumers to determine risk levels of fraud.

The core requirements of CDD are as follows:

  • Verify customer identity
  • Verify identity of company owners opening accounts
  • Create effective oversight of customer relationships to develop customer-risk profiles
  • Continuously identify and report suspicious transactions and update customer information

Telesign can help

One of the easiest ways to protect yourself from AML-related problems, such as fines and loss of brand loyalty, is to automate and enhance many of your onboarding processes with Telesign digital identity solutions. Telesign uses identity and behavioral risk signals to both improve upon customer experiences and identify fraudulent behaviors.

Before you onboard new customers, you need to know the following about them:

  • Are they who they say they are?
  • How do they behave?
  • Are they risky?
  • Where are they located?
  • How can they be reached/communicated with?

The above questions can be confirmed without added friction through Telesign’s onboarding solutions, which harness billions of digital interactions and traffic patterns to assess the risk of every interaction.

If you want real solutions to help prepare for AML compliance, contact Telesign today.