Combating Money Laundering: Approach for Banks — Part 1

Abstract

Money laundering (ML) is guided by sheer means to earn profits and serves a very different purpose of legitimising illicit gains(money) as compared to terrorist financing. Money laundering is a threat to all nations and has global implications. Banks are in the forefront with the regulators to combat this imminent risk by monitoring financial transactions (cash or non-cash based). Banks must have a robust internal framework to combat ML, to ensure that all customers are duly screened to minimise risk(s) and scrutinise any emergent threat. Finally, banks must also adopt a robust and evolving system to assist its compliance team in analysing financial and non-financial transactions (for example, know your customer) and reporting all suspicious cases to the regulators. The literature review examines these various components that banks must consider for combating ML.

1. Introduction

Money laundering (ML) is the process of converting funds derived from unlawful activities into legitimate funds such that the source of these funds cannot be identified. Money laundering in a digitised world has a global impact that affects regional and national economic policies and economic growth. Banks must ensure that policies stated by regulators are adhered to, and effective internal controls are in place to identify and mitigate ML risks. Banks must also make sure that their institution is not used to launder proceeds of crime in any manner. Money laundering can happen through a variety of products and services offered by the banks. The question that arises then is, how can banks mitigate this risk? The paper outlines how banks can combat ML by identifying and implementing systems that aid detection and reporting to mitigate potential risk.

The series will outlines an overview of how banks can combat ML by taking into account various elements. The components covered are;

(1) A comprehensive Anti-Money Laundering (AML) Program

(2) Know-Your-Customer (KYC) framework

(3) An eye on Emerging Threats and

(4) AML systems to aid detection and reporting.

The components mentioned are amongst the many other possible ways to ensures that appropriate measures are taken by banks to identify and mitigate potential ML risk.