Money laundering is the process of reintroducing illegally acquired money back into the financial system. All illicit industries, including narcotics, human trafficking and terrorist financing, depend on large-scale money laundering operations.
Of course, “washing” large amounts of illegally acquired money is only possible through the exploitation of banks and businesses. Deutsche Bank, Swedbank and N26 are just a few recent examples of organizations that failed to prevent money laundering and subsequently drew the wrath of the regulators.
Unsurprisingly, the fight against money laundering has become increasingly important all over the world, and is now widely known as Anti-Money Laundering (AML). AML describes the measures and policies businesses and governments take in order to prevent money laundering on their watch.
Crucially, this involves continuously monitoring clients in order to accurately assess the risk of money laundering and prevent it whenever possible. Risk factors are fluid and include suspicious activity, sanctions screenings, location and many other factors.
As discussed in our history of money laundering, international legislation has become increasingly prevalent and the Financial Action Task Force (FATF) regularly recommends best practices across jurisdictions.
The FATF not only provides a framework to fight money laundering, but also singles out poorly performing countries in an effort to “name and shame” them. This approach acknowledges the importance of a rigorous, international approach to AML, as without it, well-intentioned measures will surely fail. Encouragingly, the FAFT’s 38 member countries seem to agree.
What does AML mean for your business?
As mentioned previously, it is crucial to ensure that your business is not misused for money laundering.
The first step is to create an AML Risk-Framework to help you accurately assess the risk of money laundering through your business. (You can download a free example framework here).
Next, it is crucial to identify your customers before doing business with them. This will help you to find high-risk individuals and known criminals preemptively. Tools like KYC-Chain allow you to receive, manage and evaluate customer data as quickly as possible. Once you’ve collected the data, make sure to use sophisticated sanctions screenings to identify high-risk individuals.
Once you’ve set up a risk-framework and know who your customers are, the next step is to monitor their activity. Suspicious transactions, strange activity or a relocation to a sanctioned country are the obvious things to look out for. That being said, you need to evaluate each potential behaviour and include it in your risk-framework. This is the only way you will be able to track and evaluate the risk of money laundering on a continuous basis.
Finally, when suspicious activity is registered, you need to intervene and file a report with the appropriate authority for your jurisdiction. Failing to do so is a criminal offence with potentially devastating consequences.