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Anti-Money Laundering – A Recapitulation

Anti-Money Laundering Software is as straightforward as it sounds – It works against Money Laundering.
But, in efforts to understand Anti-Money Laundering, we need to understand money laundering first.

So, what is money laundering?

The term ‘Money Laundering’ originates from the innovative methods used by the Italian Mafia to channel the large amounts of money they acquired from illegal occupations, into financial institutions without raising a concern or being subjected to taxation.
For a brief explanation, ‘money laundering’ encapsulates the numerous ways in which people convert illegally obtained funds into legal money.

To prevent this from happening, many laws got put into place in the late 1900s to ensure that financial institutions (FIs) were safeguarded against illicit activities including, but not limited to, money laundering. The Financial Action Task Force (FATF) also makes sure that financial institutions also do not indulge in malpractices by implementing many protocols that FIs needed to follow.

With the addition of these security protocols and compliances, the paperwork that FIs generated suddenly grew manifold. Keeping up with all the new rules and laws was also proving difficult for bank officials. This is why Anti-Money Laundering software came into existence.

Anti-Money Laundering (AML) Software helps banks and other legal/ financial organizations collate, sort and manage customer data and transaction history to identify problematic clients and simultaneously helps them oblige to regulatory compliances.

To gain a deeper understanding of AML software, let’s look into the 4 basic types of AML software –

1) Transaction Monitoring systems – They help monitor and identify suspicious transactions based on transaction patterns and long-term user behaviour. These transactions would include abnormal behaviour, large sum transactions, and multiple consecutive transactions. These systems also put together Suspicious Activity Reports (SARs) or Suspicious Transaction Reports (STRs) that help identify long-term customer behaviour.

2) Currency Transaction Reporting systems – These specifically deal with keeping a record of large cash transactions. The sum varies from region to region. Some systems also have real-time tracking and allow FIs to verify customer identity before allowing large cash transactions.

3) Customer Identity Management systems – Customer Identity Management is an important part of KYC (Know Your Customer). It helps financial institutions identify potentially dangerous customers by checking various databases for fraudulent activity, identity theft, blacklisted persons, and other suspicious behavior. Most countries maintain an elaborate list of suspicious identities as well as PEPs (Politically Exposed Persons). These candidates are generally flagged by the customer identity management system through its name screening capabilities.

4) Compliance Management systems – As stated before, to ensure the security of FIs, many regulatory compliances have been put into place. Keeping up with these and making sure that a FI is truly compliant can be taken care of with compliance management systems. They create audit trails, keep records of proof of compliance, track employee records and training, and help handle non-compliance situations.

Some modern AML Tools utilize Artificial Intelligence (AI) to streamline the above-mentioned processes. These tools function on static and dynamic sets of rules, are capable of integrating with third-party security tools and databases, accumulating and organizing data, and can automatically screen customer profiles for potential risks.

Anti-Money Laundering and Compliance in Peer to Peer (P2P) network

Peer to Peer (P2P) network

P2P network comprises various computers interchanging data, files, transactions from multiple interfaces and channels without the intervention of a middleman. In simple words, every computer or mobile on a P2P network works on a client/server principle in which the user makes a request, and the server executes the requests without third-party intervention. Some of the familiar P2P programs encompass Kazaa, Morpheus, Bit Torrent, and others. These programs link to a P2P network allowing computers to connect with multiple systems within the framework. This software provides access to other entities’ computers, allowing sharing of files and information leading to piracy and fraud issues.

P2P method of functioning is also known as equal client system as the task is distributed evenly, data is exchanged swiftly and fulfilled smoothly.

P2P works on two models, one is Pure P2P and the second is the Hybrid P2P model.

Pure P2P network does not have a structured and centralized platform; the service requests from peers go directly to other peers who respond or fulfill such requests. In such a scenario, all the peers who are transmitting information and the peer on the receiving end are treated equally. In other words, one is acting as a server and the other as a client. Gnutella12 and Freenet are examples of Pure P2P networks.
A hybrid P2P network has a centralized platform in which the peers have access to each other’s files and data connects through more than one type of technology or topology via Wi-Fi and ethernet cables. A hybrid P2P is a commonly used network on the P2P platform. Few famous examples of “hybrid” file sharing Peer-to-Peer networks include Kazaa and Bit Torrent.

Skype, Web Logic application server, PayPal, Darknet, and Bitcoin currency are few examples of P2P network applications used globally.

With a greater number of enterprises adopting P2P network the security risks and frauds associated with P2P network is also increasing at an alarming rate. As the payments are made in a speedy manner, the fraudsters perform frauds in a sophisticated way. The criminals take advantage of instant payoff by hacking into their systems and embezzle data from the users and the banks. You will be perplexed to know how these fraudsters hack and attack all such types of live payments. Along with the transactions they also obtain contextual and sensitive details from all channels and sources they could trace. They will keep committing such frauds unless such accounts are blocked, or till some stringent action takes place.

One of the main frauds in a P2P network is Identity Fraud, which is a kind of crime that steals and misuses all the user information. Users’ capital /money is accessed and transferred to the criminals’ accounts through illicit ways for their selfish motives. Identity thefts are rapidly growing across the financial domain hence cited as the fastest growing crime problem of the digital age. Some types of Identity thefts are mail identity theft, online shopping/e-commerce theft, social security number theft, and credit card theft. Due to the increasing rise in such frauds, all companies using the P2P platforms must be vigilant and need to have Anti Money-Laundering (AML) software in place to combat and mitigate such frauds. Banks are adapting updated technologies in AML solutions against the legacy methods to prevent and combat identity thefts, AML solutions provide information helping people to safeguard their personal information and private records such as credit reports.

Some traditional AML solutions are unable to keep pace with the increasing magnitude and convolute nature of financial transactions that need to be scanned for laundering activities. Meanwhile, money launderers are continuously exploring innovative ways to conduct illegal financial transactions, the institutions attempt to pace up with these increasingly sophisticated criminals. It’s imperative and necessary to have an inventive technology that can battle against money laundering in an adaptable, pocket-friendly, and extensive way.

Anti-money laundering and Compliance in Peer to Peer (P2P) network

Basic types of software addressing AML and Compliance in Business Requirements

  • Transaction Monitoring Software- This software helps in detecting and preventing malicious activities and anomalies catering to money laundering activities in P2P networks. Lastly reporting all such suspicious transactions to the relevant or concerned department and preventing them from happening again. In AML software, some of the modules covered are Watch List Screening, Transaction Monitoring, and Alert and Case Management.
  • Currency Transaction Reporting– This segment of AML software detects transactions comprising a large amount of capital or a plethora of small transactions compiling a large amount of cash or capital, and such activities are flagged compulsorily.
  • Customer identity management systems – This category primarily focuses on all black-listed customers and individuals who have been blocked and flagged to an institution. Some features like sanction checklist, politically exposed person (PEP) checklist, fraud identifying system, false positives, and entities receiving unfriendly media attention are detected by AML software and lastly auditing and reporting.
  • Compliance software – This bent helps in adhering to AML regulatory essentials, preserves detailed records of employees, scheduled audits, and trace reports submitted to government authorities. Know your customer (KYC) / Customer, Due Diligence (CDD) Due Diligence Screenings and Enhance Due Diligence (EDD) are also included in the compliance parameter.
  • ML for anti-money laundering identification – ML for AML is future banking since the financial sphere is experiencing revolutionary transformation, tech-savvy customers expect banks to deliver a smoother and swifter experience. Due to this, banks and financial institutions are embracing new technology innovations and integrating intelligent automation ML into their AML compliance solutions. This helps in empowering banks to manage large volume datasets, combat and prevent frauds quickly thereby optimizing operational efficiencies, reduced costs, and maximizing profit.

While purchasing AML software, it’s important to do the right homework for your company and get customized AML software designed for your company.

Anti-Money Laundering (AML) Challenges | Identity Thefts & Data Breaches

Rapidly Increasing Incidents of Identity Thefts and Data Breaches Across the Global Regions

Identity thefts and data breaches are rapidly growing across the financial domain hence cited as the fastest growing crime problem of the digital age. Banks are adapting updated technologies in AML solutions against legacy methods to prevent and combat identity thefts and data breaches. Updated technologies in AML solutions provide information helping people to safeguard their personal information and private records such as credit reports.

Identity theft is stealing personal information or identity then utilizing it intentionally without the owner’s consent for making transactions, online purchases, or getting a tax rebate. Personal information can be social security numbers, credit cards, driver’s licenses, bank details, etc. With evolving technology fraudsters acquire one’s information from digital wallets, mobile banking, internet resources, from lost or stolen wallets or phishing frauds.

Major types of Identity thefts are

  • Financial Identity theft
  • Medical Identity theft
  • Identity Cloning
  • Criminal Fraud
  • Child Identity theft
  • Bank Account fraud
  • Government benefits fraud

AML Challenges_Identity thefts and data breaches

Data Breach is a data leak of confidential and sensitive information, stolen from systems without the consent of the owner/enterprises into unsafe surroundings and utilizing that data intentionally for wrongful acts. Identity theft and Data breaches go hand in hand although all data breaches cannot be identity theft. Both Identity theft and Data Breach are interconnected but they are different from each other.

  • Different types of Data Breaches are
  • Cyber-attacks / Hackers
  • Stolen, loss of devices of Mobile, USB, etc.
  • Employee negligence /error/ data leak of sensitive data or employee data
  • Human error

AML Challenges_Identity thefts and data breaches

It’s imperative for banks to take a stronger approach in AML solutions in combating the increasing identity thefts and data breaches.

Anti-Money Laundering (AML) challenges | Intelligent Automation, AI and Machine Learning

Intelligent Automation, Artificial Intelligence (AI), and Machine Learning (ML) are increasingly being incorporated into AML Technologies:

Financial outlook is experiencing a revolutionary transformation, tech-savvy customers expect banks to deliver smoother and swifter experiences. As a result, financial enterprises are embracing new technology innovations and integrating intelligent automation with AI and ML into their AML compliance solutions which is the future banking. Intelligent automation, AI and ML are crucial as it empowers banks to manage large volume data-sets, combat and prevent frauds quickly thereby optimizing operational efficiencies, by reducing costs and maximizing profits.

AI and ML identify patterns and supports the systems in acquiring configuration rules based on the patterns and information detected. Furthermore, ML aids in detecting suspicious financial transactions and money-laundering activities thereby flagging suspicious activities and helps in reducing false positives. Hence, it is crucial for banks to adapt to intelligent automation, AI, and ML and incorporate them into AML solutions.

AML Key Drivers_Intelligent Automation, AI and Machine Learning

The AML software, when coupled with intelligent automation, Al and ML can offer a lot of benefits like reduction in compliance costs, enhanced transaction monitoring process thereby providing an enhanced and effective solution.

Anti-Money Laundering trends and challenges – Data Security & Privacy

Growing Concerns about Data Security and Privacy (Data explosion)

The ever-growing universe of technology, threats, and intricacies in the cybersecurity landscape is evolving at an increasing pace in which data security and privacy are a persistent challenge. Owing to the increased use of personal data in digital transactions; creates vulnerabilities and dependencies in two major threats – data security and privacy. To combat such threats data privacy rules and regulations complying with GDPR is necessary to be implemented and play an integral part of any best-practiced compliance program thereby thinking about the safety and security of consumers. Data privacy laws are designed to provide entities control on the process of information gathered, exchanged, and used whereas Data security laws lay emphasis on securing data from thefts and breaches and both data privacy and security have a common goal to protect sensitive data and mitigate risks. Data Security and Privacy Laws are created to provide companies control across their personal data as to how it is consolidated and handled. As a result, constraints on data protection can lead to severe issues.

Integration of AML solution with Data Security is becoming essential

The significance of embedding Data Privacy and Security Measures into Anti-Money Laundering and compliance programs is becoming of utmost importance for all financial institutions. Data privacy and security features in various stages throughout the KYC and EDD cycle. Due to which banks must ensure data privacy compliance is always their priority and point of focus. Enterprises are required to conduct enhanced due diligence in knowing their customers, thereby mitigating money laundering and corruption risk. If Banks fail to comply with the government regulations, there are chances they will be penalized. With transforming technology, regulators should ensure the Anti-Money Laundering environment has the clarity and flexibility to adapt to new technology innovations to prosper while safeguarding customer data and privacy.

Anti-Money Laundering Trends & Challenges in Digital Age

The new Age Digital Transactions are significantly Increasing Enterprise Risk Landscape and Vulnerabilities

Digital transformation is the foundation of most enterprise strategies today and its increasing pace is significantly impacting technologies thereby drifting towards the integration of cashless economy, cloud adoption, mobility, the explosion of the Internet of Things (IoT), and deploying new solutions. The integration of all these systems, technologies are enabling a data-driven approach posing various security threats, as these inter-connected systems accelerate the speed and threats of attacks across the financial globe. Enterprises are battling security issues with the increasing network complexity, rising gaps in security protection, polymorphic attacks, and compliance issues. It is imperative for businesses to be secure, vigilant, and follow security best practices such as integration, automation, using technology and data to drive innovation. With the ever-growing digital transactions, enterprises are digging into real-time data analytics and blockchain integrated with cognitive learning to prevent risks arising from digitization.

The continuing technology advancements and combating financial crime in a digital age

Digital evolution is continuously pacing up, you will see more companies switching to cloud technologies for many channels such as analytics security, KYC/CDD verification, risk scoring, financial transactions, and much more. Digital augmentation is followed with a bang of cybersecurity and it is building curiosity as to how will this impact AML compliance and security management across the financial space.

The outlook of businesses conducted over the last few years is very different as compared to the forthcoming years. In previous years, AML compliance has been drifting and evolving with increased government policies and regulations. Money laundering activities and terrorist funding have been growing for many years, keeping pace with new technologies, crimes have evolved and are becoming a critical issue to battle. Owing which banks must continuously keep updating their AML solutions and processes and adhere to compliance regulations else they can be penalized. So, adopting new technologies, updating frameworks, policies and being flexible is becoming a necessity for all Banks to combat the ever-growing AML threats. Financial institutions must concentrate on digital payment issues, regulatory framework, and money laundering risks related to internet payment methods such as mobile e-wallets and online payments and transactions.

Enterprises should think to switch from conventional risk methods to innovative technology. It’s time now companies should leave legacy systems and leverage new technologies along with intelligent automation in their compliance programs to combat financial crimes in the digital age. This is how technology innovations can support banks to fight fraud and provide security to their customers in the continuous battle against threats and cyber-crimes today.

The Convergence of CyberSecurity, Fraud, and AML

In recent times, many financial organizations are integrating many technologies to manage compliance and anti-money laundering frauds. With increasing demands in risk management, many businesses face new challenges. For instance, there is a lot of new software and technologies in the market to combat such risks; hence it’s difficult for banks to scrutinize them and consider their specific requirements. This is where AML, cybersecurity, and anti-fraud systems are converged together to streamline detection management from suspicious transactions.

Battling financial crime is challenging, hence fraud and anti-money laundering functions need to be integrated for a holistic approach to the solutions and users. For instance, if a customer opens an account with a bank, the bank can check for fraudulent activities, cybersecurity, and money laundering activities simultaneously and not separately. If there is any suspicious activity, the customer will end up receiving three different calls from the AML team, cybersecurity team, and fraud team, hence convergence of all three is a must.

Typically, any financial institution has a fraud and compliance segment. The fraud team is responsible for fraudulent activities and losses whereas the compliance team is responsible for the legal processes, government regulations, and tax evasions. If there is any suspect or any financial crime detection both the departments may have captured similar information and will have to take the right action. But in most such cases, both these departments do not share such information which doesn’t provide full proof information and a picture of the customer, leaving investigations incomplete. This means multiple systems are maintained in the same company, but the information is not transferable. Imagine such scenarios can be frustrating for customers as they will get calls from different departments asking for the same information repetitively when the pool of information is available with the Bank. To streamline investigations, they’ll need to converge their cybersecurity, AML, and anti-fraud solutions.

Challenges in CyberSecurity, Fraud, and AML

The road to convergence is quite challenging and tough, depending on the nature, size, and complexities of the organizations. Many factors must be focused such as which areas can be integrated now or in the future; some areas could be kept separate and combined at a later stage, some segments can be quickly converged, some segments can be added at a later stage. Another challenge is one solution will not be suitable for all organizations, it must be tailored for organization-specific needs like demographics, nature, and type of company, client type, legal rules, etc.

Increasing demands of customers, expecting payments, and other requests grow swiftly, hence converging has become a necessity. As to perform this, banks will have to detect behavioral patterns and assess them quickly, so converging is crucial as it will lead to faster payment processing and quick services.

Cryptocurrency and Money Laundering

Cryptocurrency and Money Laundering

We all have been hearing since last year about cryptocurrency and the lucrative profits it offers which is attracting all the money-launders, terrorism financing, and other financial fraudulent activities. A lot of news of crypto scandals is floating in the market. Due to emerging trends of cryptocurrency and the fraud activities involvement, the government authorities and regulators have increased their focus on all the institutions dealing with cryptocurrency in making them compliant and ensuring them to follow the regulations.

How fraudsters use Crypto to launder illegal money?

Fraudsters and criminal use crypto money laundering to conceal all their illicit funds in a lot of ways. The most dignified form of money laundering is bitcoin money laundering. There are three main stages in money laundering, and these same stages are applied to crypto money laundering as well.

Let’s understand what is Money Laundering first –

Money laundering is a process where a large amount of proceeds is generated by criminal activities and terrorist funding such as drug trafficking, arms trafficking, gambling, tax evasion etc.

Three stages of Crypto Money Laundering or Money Laundering

1. Placement – The first stage is introducing illegal proceeds into purchasing cryptocurrency, creating a digital wallet to do financial transactions just like a bank account. Cryptocurrencies or can be acquired with cash or other types of crypto, online cryptocurrency trading exchanges, or through licensed exchangers which may or may not require customer identification. Legal transactions follow the regulatory process for identity verification and are AML compliant.

2. Layering – The second stage is where the illicit money is separated from its source and where the funds are concealed through various ways such as transferring funds to different wallets or shifting services to hide the fund source.

3. Integration – The final stage is the funds that were laundered money goes back to the owner who uses the money to make purchases or invest in new business. Cryptocurrencies could be switched to fiat currencies through the exchange process. This exchange process mostly follows a stringent identification process and supports popular coins such as Bitcoins etc. Offshore fiat currency bank account sometimes can be used to launder dirty money through an online company that is accepting bitcoin payments and can be created to allow income and switch dirty cryptocurrency into white/legal bitcoins. Cryptocurrency can be used to purchase goods also digital wallets can be stored on phones, online devices making it possible to sell crypto coins for physical cash/money.

What is AML Transaction Monitoring ?

What is AML Transaction Monitoring?

Transaction Monitoring system (TMS) is an integral part of an efficient anti money-laundering solution. Monitoring financial transactions help detect anomalies and mitigate fraud risks.

The main purpose of the AML transaction monitoring platform is to detect frauds, protect the banks from any illegal transactions or illicit transactions dealing in money laundering and terrorist financing.

Transaction Monitoring is very important in the banking sector due to new ways of fraud introduced in the market with evolved technology these days. TMS can be defined as a formal process for identifying anomalies with a method of monitoring such anomalies then raising alerts and filing SARs if required.

On a daily basis, customers’ financial transactions are monitored, assessed, and analyzed including customers’ historical financial transaction data like withdrawals, deposits, cash transfer, online transactions, investments, etc. TMS has a significant impact in reducing false positives, helps in the analysis of high-risk profiling, and improves operational efficiency.

A well-designed and structured TMS system is a crucial component of a robust AML compliance program. It helps in combating and preventing money laundering and terrorist financing activities, ensuring compliance and managing customer data.

AML Transaction Monitoring System

Let’s understand the AML-Transaction Monitoring Process:
  • Firstly, it monitors each customer’s financial transactions utilizing all contextual data spanned across all channels.
  • Secondly, it detects and raises alerts for any suspicious activities.
  • Thirdly such alerts or cases are assigned to the investigation team who review and scrutinize if these activities are genuinely unusual or not, if activities are found suspicious then such activities are escalated, and suspicious activities reports (SAR) are filed or flagged.
  • Lastly, it creates risk-scoring model management for transactions using rules, ML, and statistical algorithms.

What is SAR?

SAR is Suspicious Activity Reporting. If any alerts are triggered for anomalies, the case is reviewed by the investigation team, and if found suspicious, SAR is raised. SAR filings are based on many criteria such as client type, demographics, ownership, enterprises, and other customer factors.

To conclude, the Transaction Monitoring System is the backbone of the AML process which helps in identifying fraudulent activities and mitigating fraudulent risks.

KYC and AML, Know Your Customer and Anti-Money Laundering

What is Anti-Money Laundering (AML)?

Anti-Money Laundering system refers to a set of legal laws, policies and procedures to detect, monitor, scrutinize and report suspicious banking transactions, thereby combating and preventing money laundering and terrorist financing activities. It helps in ensuring compliance and managing customer data.

Know what’s KYC and its functions:

KYC stands for “Know Your Customer”. KYC is a small but crucial part of the AML program and helps in combating the financing of terrorism (CFT). KYC is the process of acquiring contextual information from structured or nonstructured data in the form of identity proof, residential or office address, photo and other such details to know who their customers are. KYC procedures are a crucial function to assess customer risks and determine any involvement in any fraudulent activities and comply with AML laws. It includes identity resolution, regulatory reporting, risk score assessing & management, and, customer lifecycle management.
KYC is popularly also known as the Customer Identification Program. Even after the account is approved in the customer lifecycle the customer’s transactional activities are monitored and shared on KYC.


Main steps of KYC Compliance:
  • Data integration – AML platform enables data integration of customers’ historic transaction data and contextual information across all interaction channels. In other words, all details of customers are collected and stored in KYC Database.
  • Identity Verification – The details provided by the customer are verified for authenticity and appropriacy.
  • Validation – Checking the data through trusted sources and government regulations to examine that customers are not politically exposed persons (PEP) and are not showing on the Sanction (OFAC) Lists.
  • Risk Scoring – KYC helps to find inconsistencies and anomalies in customer risk scores across all processes and databases. Customer risks are evaluated and assessed by performing background checks. The real-time risk scoring process helps in analyzing customer historical transactions in various segments like professional, enterprises, demographics, etc., and then assigned a risk score. A statistical structure is demonstrated to analyze customer risk scorings used in the AML platform.
  • Account Approved – Once an account is validated, the customer account is approved and they are welcomed on-board.

What is CDD?

Customer Due Diligence (CDD) is a subset of KYC which performs background checks by verifying the customer’s identity, assessing risks before opening customers account which helps in preventing identity fraud and money laundering activities.

What’s the difference between AML and KYC?

AML is the whole framework that prevents money laundering activities and KYC is a process and small part of the AML framework in which customers’ data and identity are verified before opening customers’ accounts with banks.

Why are KYC and AML so important?

AML and KYC matter to all financial organizations and ensures the services are not misused or compromised; hence banks and businesses are becoming big supporters of KYC. It also enables banks to understand their customers and their transactions to serve them efficiently and manage risks sensibly. KYC plays an important role in preventing and mitigating frauds and avoiding association with money laundering activities and other illegitimate funds.