As the business world becomes increasingly digitized, complex, and globalized, the threat of financial crime also grows. As a result, the pressure from regulators increases, and implementing and sustaining effective AML policies becomes a more difficult task. An integral part of winning the war against money laundering and terrorist financing is the drafting, development, and implementation of effective AML rules and regulations.
For SMEs or startups, getting your head around AML can be a difficult task, but it’s necessary. Opting out of AML isn’t possible, so the only thing you can do is knuckle down and get compliant.
What is AML?
Anti-money laundering or AML refers to policies, procedures, laws, and regulations laid out to stop criminals from concealing the origin of illicit funds. AML regulations are implemented and periodically reviewed so they remain up to date with evolving threats and changes in the way criminals seek to circumvent the law.
These policies deter criminals by making it more difficult to hide the proceeds of crime. They also make it harder for the same funds to be laundered and used for further illegitimate purposes such as the financing of terrorism. The implementation of AML processes requires various institutions to monitor customer transactions and to report any suspicious financial activity.
AML policies are typically created by the government of each jurisdiction. They are often reviewed and are subject to change as per international best standards. In the European Union, AML is harmonized by the EU’s Anti-Money Laundering Directive which is currently in its 5th edition. Each time a new Directive is presented by the EU, Member States have a certain amount of time to transpose the laws into national legislation.
AML and the policies that regulate it are constantly evolving. As new rules come into place, criminals seek to find a way around them and as such, the cycle continues.
Which industries use AML?
AML is a requirement for businesses that are considered at a high risk of falling foul to financial crime. Examples include:
- Wire transfer companies
- Electronic payment providers
- Online gambling operators
- Forex brokerages.
AML requirements are also tough for businesses that allow online account opening and remote mobile deposits. Another sector considered high-risk is those that sell high-ticket items such as cars, yachts, and property. Criminals often like to tie up significant chunks of money in movable and immovable property.
Additionally, when the industry isn’t high-risk, sometimes the client is. Examples include Politically Exposed Person’s (PEPs). These individuals are politicians and their families with a high net worth, a significant amount of power and influence. Other examples of high-risk customers include those from countries subject to sanctions or appear on grey or blacklists.
High-risk customers can also be defined by unusual spending habits that are not consistent with their lifestyle. This includes having multiple accounts, demanding to pay large amounts in cash, or being reluctant to provide certain information.
AML key trends in 2021
To fight financial crime, regulators and businesses are seeking to integrate innovation, technology, and increased collaboration between stakeholders. Based on the developments encountered in 2020, these are the key trends expected to emerge:
1) Stricter rules for virtual asset providers
Cryptocurrency can be used to gamble, shop, pay for services, trade, and more. Due to increasing adoption, regulators have had to play catch up to bring their laws in line with this trend. This has been challenging as the very nature of many cryptocurrencies is that they’re anonymous or pseudonymous.
This year, we expect to see more regulations for service providers. The UK, Malta, Korea, and the Cayman Islands have already taken steps to do this and the EU is mulling its options. While it could be a headache for some operators, overall it will lead to greater confidence in the crypto sector.
2) Widespread adoption of electronic verification
The days of submitting a scanned passport copy and inputting your cat’s name and DOB as a password are almost over. Electronic verification of user identities via biometric, location-based, and device-based data is expected to be integrated into the onboarding and account accessing process. It can also confirm identity before any transactions being enacted. By using electronic authentication that is much harder, if not almost impossible to fake, the ability for criminals to exploit a range of laundering techniques is reduced.
3) Enhanced transaction surveillance
One of the big issues in the fight against money laundering is the way that many companies fail to adequately monitor or identify suspicious activity. But regulators and third-party software providers are developing new ways to monitor these, without the need for humans. Machine learning, big data, and artificial intelligence are being harnessed to sift through data, identify patterns, and create reports that can be processed directly by regulators. The data can also be used to improve algorithms continually and even to identify potential criminal activity before it happens. This might seem a million miles away, but this tech is here and is already being integrated.
Contact Fast Offshore
The key to successful AML policy creation is finding a way to get ahead of the criminals. Hence, you need to implement frameworks and safeguards that stop the crime. Contact Fast Offshore to discuss your business needs, we’ll be happy to assist and guide you through the process.
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