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Anti-money Laundering in Banking


— May 12, 2021

Digital solutions exist that takes care of these anti-money laundering measures swiftly and organizations should adopt such methods. 


Money laundering is a process criminals use to legalize their money that is gained through illegal means like drug trafficking, human trafficking, corruption, robbery, smuggling, etc. Since these funds are obtained illegally, the criminals cannot prove the source of the money, and they cannot deposit these funds in the banks. This is why they find different methods to “wash” their dirty money by integrating it with legal money so they can utilize these funds. To eradicate this criminal activity, there are AML – Anti-Money Laundering regulations. 

In order to revamp the scope of the anti-money laundering compliance, new regulatory measures were established. Financial institutions are required to adapt to the increasing need for regulatory requirements to survive in competitive financial ecosystems. The main concept of anti-money laundering compliance for 2021 is an advanced technology, human intelligence and credible data.

Let’s discuss in detail these regulations and how AI-powered solutions have enhanced them.

History of Anti-Money Laundering

There was an increase in money laundering activity in the 1970s when drug trafficking spiked from the USA to Columbia. Money laundering was occurring from one country to another and the governments were facing the consequences of this. To eliminate these endeavours, The Bank Secrecy Act was passed. This Act required all organizations, especially banks, to perform KYC and AML screening on all their potential customers. According to this solution, banks became obligated to record and identify each potential customer before onboarding them. They were also asked to verify the source of the money if the amount exceeded USD 10,000. If they detect any suspicious activity, they are to report it to the authorities. They are to perform a risk assessment on them and ensure their background to know that they have not been involved in any criminal activities before.

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A task force to oversee these measures was made in the 1980s known as the Financial Action Task Force. It’s a regulatory body that overlooks financial-related crimes in the USA. The organizations and banks that do not comply with these regulations have to face the consequences and penalties from FATF in the USA. When the 9/11 attack occurred in the USA in 2001, another Act was passed known as the US Patriot Act. This act further made these AML regulations more stringent.

The Problems in Conventional AML Method

These regulations have helped the banking industry from being safe from fraudsters but they still are facing the issue of performing the manual procedure of KYC. This procedure is long and requires vast labour. Managing the labour is another effort and the cost required to manage the whole manual procedure is also a strain on the banks. The employees could meanwhile lose their time on something so mind-numbingly boring while they could have put their energy and productivity on other tasks to enhance the business. Manual AML does not even give the guarantee of the accuracy of the verification procedure.

The Digital Solution of Anti-Money Laundering 

There are AML solutions that use AI-powered technology to check the background of the customer. The global regulatory bodies black-list people or entities that have been involved in money laundering activities. The AI-powered solution verifies the identity of the person first, then screens them against these watchlists provided by the global regulatory bodies. It only takes seconds and these solutions verify the customer’s identity along with their background check and risk assessment. This is to ensure that the person or the entity has not been involved in money laundering activity before. If they have been and they are on the list, the banks will then know the risk they might be dealing with. The banks not only save time and money but are also saved the consequences of regulators and bad business reputation.

Conclusion

Money laundering is done to hide the source of illicit funds so that the authorities do not trace it back to the owner of the funds. The criminals cannot just go around spending their funds without bringing attention to themselves. To avoid this attention, they use different methods to wash their illegal funds. However, regulatory authorities are already onto them and have made some legislative measures to curb such crimes. These measures require businesses and the financial sector to perform transparency measures like identifying their customers and verifying their identity. Manually verifying the identity can be a hectic and inaccurate task and can cost organizations money as well. This is why a more digital solution exists that takes care of these anti-money laundering measures swiftly and organizations should adopt such methods. 

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