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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.

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.