To combat money laundering, states have formed anti-money laundering rules and procedures. All the countries are thriving to fight financial crimes and minimize their impact. Black money along with terror financing creates a high-risk level for a state. These issues create multiple troubles for businesses operating within a state.
Why Money is Laundered?
Money earned through crimes and illegal practices like corruption, drug dealings, or arms sales is laundered. This ill-gotten money is very difficult to use in the financial system. For instance, a bank will always demand the source of depositing cash and monitor all transactions. Upon any suspicious transaction, the bank will report it to the law enforcement authorities. So to spend the money freely for doing business, it is covered with multiple layers also breaking the link with the original source.
For this first money is placed in the system through businesses having weak verification and complex financial records like car washes and lending corporations. Criminals manipulate the accounts of that business, showing more profit than normal. The illegal money is mixed in these businesses in such a way that it becomes very tough to separate it from clean money. For a successful prosecution, the authorities must have a connection with the source.
In this digital world where criminals use digital banking channels to launder their money. The traditional anti-money laundering practices are not enough, today there is a need for automated AML solutions. These will help in cleaning the market from illegal fund flows and criminal businesses.
The AML solution needs to be incorporated with online and artificially intelligent software. It will reduce the time and costs spending on manual AML screening. An AML software follows the AML compliance program developed by a business. Because of AI, the software is capable of detecting any misconduct or unusual activity. Furthermore, the software becomes smarter because of training on different data sets.
Below are the components of the AML compliance program:
Know Your Customer
The procedure of confirming the identities of onboarding customers through their Id document is known as know your customer (KYC). Through this process, businesses eradicate identity frauds from their channels. The KYC service makes sure that the customers registering on the business platform are genuine and legitimate. There are cases where money launderers join a business channel using some other person’s (stolen) information. KYC is performed by AI-powered software using AI and ML algorithms.
Here is the process flow of KYC
The customer gives his details to the business website
- Uploads the picture of an id document
- The software checks the authenticity of the document and extracts data from it
- The data undergo verification process
In this step, the name of the customer is screened through AML watchlists. These watchlists contain the data of potential high-risk customers. The screening results are delivered in seconds.
Not only customers but their transactions are also monitored and examined. Any unusual financial transaction or customer request is checked. Normally banks set some limit on the transaction, exceeding that amount is known as suspicious activity. The process of reporting these funds transfers is known as suspicious activity reporting.
Businesses should adopt extended anti-money laundering solutions that can verify and screen customers robustly. The AML system will help a business in compliance with regulatory authorities’ directives. This will save businesses from fines and help in earning a good market reputation.