How can technologies help with anti-money laundering compliance

Every year between 2% – 5% of the world’s GDP is being laundered globally. This means roughly 800 billion to 2 trillion have been earned from illegal activities and made clean through financial and other institutions. Money laundering has become a global issue and part of the companies’ CSR (Corporate Social Responsibility).


What is money laundering?

Money laundering is the act of converting illegally obtained sources to such with legal status. It has been defined in the UN Vienna Convention Article from 1988 as:


united-nations-logo“the conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade the legal consequences of his actions.”


Moreover, the UN has launched a Global Programme against Money Laundering that aims at assisting member states in establishing and broadening their local anti-money laundering and CFT (Combating the Financing of Terrorism) regulations.

Countering money laundering is also part of the 17 SDGs (Sustainable Development Goals). It is part of 16th goal – Peace, Justice and Strong Institutions. The sustainable goals have been adopted globally by governments and business to fight for a brighter future of the society and the planet.


The Basel anti-money laundering index

There are multiple organizations that have made it their mission to combat money laundering and terrorist financing. One of them is the Basel Institute on Governance.

Every year the Institute publishes, the Basel AML (Anti-Money Laundering) Index. It represents an independent ranking system estimating the risk of money laundering and terrorist financing in countries around the globe.

According to the report from 2020, the country with the highest risk is Afghanistan with a score of 8.16 and the country with the lowest score is Estonia with 2.36.

Top 10 Countries with The Highest Money Laundering Risk (2020)
#1 Afghanistan* 8.16
#2 Haiti 8.15
#3 Myanmar 7.86
#4 Laos* 7.82
#5 Mozambique* 7.81
#6 Cayman Islands 7.64
#7 Sierra Leone* 7.51
#8 Senegal 7.30
#9 Kenya* 7.18
#10 Yemen* 7.12

* Countries not yet assessed with the fourth-round FATF methodology, limiting comparability.

Top 10 Countries with The Lowest Money Laundering Risk (2020)
#1 Estonia* 2.36
#2 Andorra 2.83
#3 Finland 2.97
#4 Bulgaria* 3.12
#5 Cook Islands 3.13
#6 Norway 3.19
#7 New Zealand* 3.24
#8 Sweden 3.32
#9 Slovenia 3.35
#10 Denmark 3.46

* Countries not yet assessed with the fourth-round FATF methodology, limiting comparability.


How can we fight money laundering?

As customers become more aware of the harms that money laundering causes to the economy and the society in general, they start to avoid companies that are considered to be part of these illegal activities. That’s why companies have started to take serious measures to prevent money laundering and combat terrorism financing.

With the advancement of technologies, it is becoming more clear that money laundering and terrorist financing attempts can be reduced through big data analyses and with technological solutions such as KYC (Know Your Customer), KYB (Know Your Business), PEPs (Politically Exposed Persons) and Sanction screening.

Incorporating technologies into business operations will provide deeper insights, improve the company’s workflows and generate more accurate assessments of risky transactions. As online payments are becoming more dominant in the financial sector, digitalization is of utmost importance for securing compliance.

Most importantly, fintech companies can fill in the gap between financial institutions and regulators and help them communicate better through the integration of technologies.


What technologies can help with anti-money laundering compliance?

KYC (Know Your Customer)

Knowing your customers and for whom you are providing your services is the first step of money laundry prevention. KYC is a customer onboarding check securing that the person is the one who they claim to be.

The KYC verification is usually performed in two main steps – scanning of the person’s identification documents and liveness detection. All of these prevent fraudsters from using fake IDs, photos and videos in order to obtain services as someone else and remain anonymous.


KYB (Know Your Business)

Know Your Business is another onboarding check directed towards verification of businesses, necessitating Enhanced Due Diligence (EDD).

Performing a thorough check of a business can be a slow and manual-intensive procedure as additional information such as identifying the intended nature of the business relationship, the source of funds, and enhanced monitoring should be secured.

Fortunately, fintechs have developed a KYB solution that can speed up and automate the EDD process and determine in no time who stands behind a business. KYB is used to perform a check on both corporate information and personal information of people at high management levels.

PEP & Sanctions

Another anti-money laundering requirement is for companies to run a check in the Politically Exposed Persons (PEPs) and Sanctions watchlists. Companies failing to perform the check are risking huge fines.

The screening processes, however, can be automated with technologies provided by fintechs. The developed modules are usually integrated with multiple global watchlists such as OFAC, HTM, EU, UN and others.

Artificial Intelligence and Machine Learning

Big data analysis can also be eased with the assistance of artificial intelligence and machine learning by reducing false-positive results. In this way, compliance coordinators can save time and focus on the rest of the suspicious cases.

Furthermore, machine learning can be used to recognize unusual activities and changes in the customer’s transactions, which is beneficial for regular screenings of existing clients as well as in cases undergoing investigation.


The role of fintech providers

With the advancement of technologies, the financial sector is booming with new business models challenging the status quo. However, with drastic changes come and strict regulations.

That’s why fintech providers should inform, consult and provide new and already established financial intuitions with technologies that can help them automate processes, reach full compliance and detect fraudulent activities.

Last but not least, fintechs should always stay on top of the development of new technologies as fraudsters are becoming more and more creative in finding ways to beat the system.


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