As everything becomes digital, technology has made a big difference in fighting crimes like money laundering and terrorist financing, but it’s not enough on its own. Humans still play a crucial role in solving problems in financial services. Surprisingly, even with all the progress, most laundered money goes unnoticed, and laundering makes up a significant part of the world’s money.
Due to increased money laundering scams, businesses are moving forward with AML software. The statistics provide information about the global market size of anti-money laundering software for specific years, from 2016 to 2017, and a projection for 2023. It predicts that in 2023, the revenue generated from anti-money laundering software globally will reach approximately $1.77 billion. This indicates the growing importance and adoption of anti-money laundering technologies by businesses and financial institutions to combat financial crimes and ensure compliance with regulations.
Money Laundering Stages Explained
Through money laundering procedures, fraudsters obtain funds and profits from illegal activities through human trafficking, smuggling, arms sales, trading, and bribery. To utilize these funds, they invest in shell companies (which only exist on paper). The primary purpose is to hide the money sources and cause chaos in transaction history.
There are different money laundering stages which assist in doing illicit activities:
Placement of money
Placement is preliminary in aml stages in which funds that are earned from illegal sources are transferred to authentic financial systems. This is done by dividing the large money amount into smaller amounts and then placing it in different accounts. This is done because placing such a large amount into one account can alert the relative authorities and it can cause trouble for imposters. This illicit technique is called smurfing.
Layering in Money Laundering
After placing the money into the financial system, layering is the technique used to hide the sources of funds by operating it through different financial transactions. This is done using the money in investments and purchases through different bank accounts in different countries in the form of loans or payment for services.
Money Integration
After successfully completing the first two phases of money laundering, integration of money starts in the third phase. In this phase, money earned from illegal sources are invested in businesses that will look like clean money. Once the money is integrated, it will again be used for illicit means and the cycle repeats. Thus, scammers make it harder to get caught by officials. Therefore, anti-money laundering regulations are encouraged to make the system accurate and reliable.
History of Anti-Money Laundry
The first rules to stop money laundering were made by a group called the Financial Action Task Force (FATF). They make sure that all countries follow the same rules to stop money laundering.
After the 2001 terrorist attacks, FATF also started to watch for terrorist activities to stop them from getting money. Now, they are also looking at cryptocurrency because it lets people stay anonymous. This makes it easier for criminals to do fraudulent activities without getting caught.
Secure Businesses with AML Stages – A Proactive Approach
Each country has different levels of AML, but in financial institutions, there are the following stages of AML to ensure compliance:
Customer Due Diligence (CDD)
In this stage, the identity of customers is authenticated and their risk profiles are analyzed to know if they are valid or if they are involved in any money-laundering activity.
Know Your Customer (KYC)
KYC is also a part of customer due diligence and used to gather all relevant credentials about the customer identity like address, source of income and previous business activities to understand their financial behaviors.
Monitoring of Transactions
Financial institutions and businesses monitor all types of transactions done by customers to find any suspicious or unusual activity that may help in indicating terrorist financing and money laundering.
Suspicious Activity Reporting (SAR)
If any illegal activity is identified in transaction monitoring, financial institutions will file a SAR to the related authorities of financial intelligence units (FIU) for further examination.
Reporting
AML regulations evaluate the previous records of customer KYC information, transactions, and SARs for a particular time, maybe for several years, to keep the record. It is done for smooth investigation and checks for regulatory compliance.
Enhanced Due Diligence (EDD)
In the case of identifying high-risk customer profiles, enhanced due diligence is implemented to facilitate the scrutiny, investigation, and monitoring to combat the possible AML risks.
Awareness Campaigns
Awareness programs are important aspects of AML to ensure that their employees understand the AML regulatory measures, reporting procedures and detection techniques for combating money laundering with the help of their organization.
Key Takeaways
With increased digital systems, the chances of monetary scams have also grown with time. Businesses are encouraged to comply with anti-money laundering regulations to secure themselves from fraudulent activities like money laundering. By following different AML stages, industries can ensure more accuracy and reliability in their systems.
SAM