AML Basics: How to prevent money laundering

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AML Basics: How to prevent money laundering


This content is contributed or sourced from third parties but has been subject to Finextra editorial review.

In today’s globalised economy, money laundering is increasingly concerning for financial institutions worldwide. 2022 alone, the worst-recorded year for AML events, recorded over 16,000 AML events. In the UK, the government estimates that money laundering costs every single household £255 a year.

The problem is exacerbated by the fact that criminals often use complex methods to disguise the origins of ‘dirty’ money, whether that be shell companies, bulk cash smuggling, cryptocurrency, offshore accounts, trade-based money laundering or real estate transactions.

More than ever, banks need to ensure they have robust AML processes and software in place to detect, prevent and report suspected criminal behaviour. If not, financial institutions risk eight digit fines, legal punishment as well as reputational and financial damage.

How can banks prevent money laundering?

AML processes are multi-layered and typically involve verifications, checks and ongoing monitoring. There are a few elements that financial organisations need to pay attention to when optimising their AML approach:

1. Regulatory compliance

Regulatory bodies around the world have put in place several regulations and directives to address the growing issue of money laundering. Banks need to ensure that their processes and software are compliant with the legal frameworks in their jurisdiction. This typically involves customer due diligence (CDD) and enhanced due diligence (EDD) to build holistic and accurate risk profiles for each customer, having a comprehensive risk assessment and management process, having a system to report suspicious activity, record keeping as well as ongoing monitoring and training.

2. Technology

Technology is the cornerstone of any AML approach. Modern solutions take advantage of machine learning and artificial intelligence in order to enhance AML capabilities, separate serious potential threats from false positives, reduce the burden on AML teams, as well as expand the scope of searches. A factor that often stands in the way of efficient AML processes is the fact that many banks still rely on legacy systems that are not capable of efficiently communicating with those systems of other branches. Banks need unified systems in order to successfully tackle AML.

RegTech solutions have become a game-changer for financial institutions, as they allow for automation of various aspects of AML compliance (e.g., customer onboarding, CDD, EDD, transaction monitoring). By minimising manual processes, they also reduce the potential for human error.

3. Data analytics

Once the technology is in place, it needs a lot of relevant data in order to make accurate decisions. Money-laundering is a multi-faceted issue, and the more data the systems have, the better able banks will be to successfully spot patterns and detect cases of money laundering. Having a healthy data estate and technology that makes use of ML and AI, banks will be able to build risk profiles in real time and more accurately flag suspicious behaviour.

4. Ongoing training

Criminals are often more inventive and creative than fraud and AML teams, which means that the landscape of money laundering is constantly evolving. AML teams need ongoing training to ensure they are aware of what to look for.

5. Reporting

No matter the jurisdiction, record keeping and reporting of suspicious activity is mandated under the legal framework of most AML legislation and directives. Reporting failures can lead to a financial institution facing everything from increased scrutiny from authorities to hefty penalties, legal consequences and reputational damage. Banks need to have a well-established audit trail that regulators can trust.


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This content is contributed or sourced from third parties but has been subject to Finextra editorial review.