US
IN
Money laundering activities spread like a virus in the economy.
While the exact amount of money laundering is impossible, the United Nations Office on Drugs and Crime (UNODC) suggests the figure is between $800 billion and $2 trillion US dollars.
That equates to 2-5% of the global GDP.
This figure is alarming and worrisome for national security. Ultimately, society faces the repercussions of money laundering in one way or another.
No wonder anti-money laundering (AML) practices are becoming more sophisticated than ever.
In the past few years, we saw the AML industry embracing automation and becoming more efficient in preventing fraud and money laundering.
Let’s examine some other practices that shape the AML trends and its future.
What is anti-money laundering?
Before understanding anti-money laundering, you need to know what money laundering is.
Money laundering is the act of hiding an illegal source of money and switching its source to make it appear legal. Since this money doesn’t have any legitimate origin, chances are it results from some criminal activity, like drug trafficking or terrorist financing.
AML regulations came into the picture to combat these issues. They aim to prevent and fight money laundering and financial crimes.
AML includes a list of policies, regulations, and laws for banks and corporations that prevent criminals from disguising illegally obtained money and mitigate the risks associated with money laundering. Some components of AML regulations include Know Your Customer (KYC), Customer Due Diligence (CDD), transaction monitoring, and so on.
Top AML trends for financial institutions
Some top trends in AML are:
1. The use of Artificial Intelligence and machine learning for KYC is on the rise
Every financial institution conducts KYC to understand customers and verify their identities and financial behavior before onboarding them. While KYC is an integral process in AML, this process was rule-based and manually intensive for financial institutions.
AML and KYC are paving the way for a more streamlined customer onboarding process using artificial intelligence. AI-powered Optical Character Recognition technology and biometric facial recognition tools enable banks to quickly onboard customers after automating their identity verification. Businesses leverage AI and machine learning technologies to assess customer risk levels by automating the review of data sets during customer onboarding.
Through machine learning-based AML software, banks, and financial firms can also analyze large volumes of transactional data and identify complex patterns that indicate risks or irregular activity. It essentially improves the accuracy of identifying transactions that bring bad news, reduces false positives, and flags suspicious activity well before it poses serious repercussions. This ultimately improves the team’s productivity and gives them time to investigate pressing matters.
Freo is a digital banking platform that allows users to borrow and pay off loans flexibly. For a platform that relies entirely on giving and getting back loans in digital wallets, it was important for Freo to follow a stringent process to stop fraudsters from using the platform at all costs.
To build a more reliable and credible onboarding process, Freo integrated HyperVerge’s KYC identity verification solution. Freo onboarded customers after thorough database verification, AML checks (global sanctions and watchlist checks), biometrics checks, and fraud detection.
With this solution, Freo could improve risk management, manage customer volumes, and improve collections.
Check out the case study in detail here.
2. Increasing adaptation of RPA
Businesses are also increasingly using advanced technologies like Robotic Process Automation (RPA) to automate mundane tasks in AML compliance.
RPA can scan transactions and apply predetermined rules to indicate financial crimes. It can also automate the generation and submission of Suspicious Activity Reports (SARs), which are crucial for timely reporting to regulatory authorities.
Robotic process automation in anti-money laundering also aids in data management, where it can automatically extract, transform, and load processes to maintain data integrity. As more financial firms deploy RPA technology, they can significantly reduce rudimentary work and increase the efficiency of the compliance teams.
3. Enhanced crypto regulations
Cryptocurrencies have a bad reputation as a safety net for scammers to enact financial crimes. A survey by a leading blockchain analytics company revealed that criminals laundered $8.6 billion in cryptocurrency.
While crypto was a buzzword in the finance industry for quite a while, the circumstances surrounding cryptocurrency make it easy for criminals to launder money. Cryptocurrency offers a high degree of anonymity, ease of cross-border transactions, and decentralized payments, making it an attractive option for criminals.
The latest AML compliance in cryptocurrency significantly focuses on creating a secure environment for crypto trading. For starters, the KYC process for crypto trading is becoming stringent and transparent.
The upcoming year will witness compliance in crypto through smart contracts, record-verified identification, and AI-backed technology solutions that help monitor crypto transactions. You can expect new legal regulations in the USA and EU Anti-Money Laundering Directive (AMLD).
4. Stronger AML compliance globally
The Corporate Transparency Act of the USA introduced a new list of requirements around beneficial ownership transparency on January 1, 2024. To combat money laundering, it requires companies to report their beneficial owners to the government and has even listed requirements around how businesses should record and report this information.
Similarly, Europe has listed a new set of legislative proposals to strengthen the EU’s rules on Anti-money laundering and countering the financing of terrorism (AML/CFT). The package includes regulations to establish a new 6th anti-money laundering directive for countries, guidance for obliged entities to meet the new regulations, and powers to impose sanctions and penalties. It also includes regulations for AML requirements for the private sector.
4. Improved AML compliance for Ultimate Beneficial Ownership
Ultimate Beneficial Ownership refers to individuals or legal entities that own more than 25% of the company’s shares or voting rights. It includes parties that exercise control over the management and operations and substantially own the entity through other means, even if they’re listed as the legal owner.
The UBO facade has also become a common means for money laundering where owners can use offshore accounts to gain access to foreign assets and digital assets or use other means to commit illicit activities.
Verifying Ultimate beneficial ownership is essential to storing and protecting user information. If the upcoming regulations are any indication, there will likely be increasing requirements to verify ownership. The new AML regulations aim to increase UBO transparency in ownership structures and mitigate attempts to misuse complex corporate hierarchies for suspicious activity and financial crime.
5. Increased collaboration among regulators and reg-tech companies
Regulators’ and reg-tech companies’ ultimate goals are similar. They both aim to promote the enactment of AML regulations in the financial systems. However, they have different purposes, which has led to a gap between the two.
The regulators enforce the laws, and Reg-tech provides means and services to facilitate the enforcement of these regulations. The coming years will see more cooperation between the two parties to reduce the discrepancies in regulatory processes. There will be more means for secure data sharing that facilitate easy identification of suspicious activities.
Prepare for the future of AML with HyperVerge’s AML solution
AML compliance’s future is rooted deeply in AI and intelligent automation. To implement successful and effective AML compliance practices, it is vital to integrate advanced tech like IA functionality and AI-powered identity verification for KYC for global coverage, etc.
HyperVerge provides AML compliance tools to get a complete view of customer risk identification, fulfill regulatory requirements, provide flexible pricing and technical support, and be implemented in 4 hours!
HyperVerge helps you make global sanctions and watchlist checks, Politically Exposed Person (PEP) checks, and adverse media checks—all activities that help you create a secure framework for AML and stay within the legal requirements of AML compliance. Book a demo to see how HyperVerge can be your AML compliance technology partner.
