The business of money transfer is attractive to criminals looking to launder money or even non-criminals seeking legal loopholes to escape some form of legal payment imposed on their earnings by the law, hence the usefulness of anti-money laundering. Every year, an estimated US$800 billion to US$2 trillion, representing 2- 5% of global GDP is laundered globally.

As the remittance industry keeps evolving, criminals are constantly devising new methods to exploit money transfer networks through money transfer businesses. As such, there is a need for remittance firms to have suitable AML measures in place and ensure their compliance solution can detect and prevent any form of criminal activity.

To do this, money service businesses must first understand the AML risks their businesses are exposed to.

 

Content What is Anti-Money Laundering? Key Money Laundering Risks Money Transfer Businesses are Exposed to How Money Laundering Works Why Anti-Money Laundering Matters Putting AML programs in place; as a money transfer business How to Detect Possible Money Laundering Activities in Your Business Automate AML compliance efforts with MTA

 

What is Anti-Money Laundering?

Simply put, anti-money laundering (AML) refers to the laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income. 

Technology-wise, it refers to the software processes coded into a remittance or banking product to detect money laundering activities, report and prevent them. Usually, AML technologies are built using laid down compliance guidelines and processes continually change to adapt to fresh or updated regulations.

In 1989, a group of countries and organizations around the world formed the Financial Action Task Force (FATF) to devise international standards to prevent money laundering activities and promote its implementation. Hence, the birth of anti-money laundering laws. In October 2001, following the 9/11 terrorist attacks, FATF expanded its mandate to include combating terrorist financing, what would later become Countering the Financing of Terrorism (CFT) regulations.

AML laws and regulations are designed to halt criminal activities including illegal hoarding, market manipulation, trade in illegal goods, corruption of public funds, and tax evasion, as well as the methods used to conceal these crimes and the money derived from them.

 

Key Money Laundering Risks Money Transfer Businesses are exposed to

 

Structuring

Structuring involves making multiple remittance transactions using multiple remittance providers to move large amounts of money without detection. Money launders use this to disguise the origin of illegal funds and make it harder for both remittance AML compliance teams and financial authorities to track illegal funds. However, the money transfer businesses used to channel such funds are implicated when the illegal transaction is detected.

 

Online Money Services

Online remittance transactions are difficult for authorities to supervise and present lots of loopholes for criminals to circumvent identity verification processes or pass through illegal amounts of money without detection.

 

Risk of Regulatory Disparity

Money launders may exploit disparity among regulatory supervision of remittance service providers in different territories. Since regulation varies depending on the jurisdiction, the lack of communication among supervisory authorities in different countries presents money launderers the chance to move illegal funds between territories and avoid suspicious activity reporting requirements.

 

Money Mules Risk

Since money services maintain a degree of anonymity money launderers can engage third parties known as money mules to conduct money transfers on their behalves. These money mules may be coerced or financially incentivized to send or receive money via money transfer businesses in order to protect the identity of the launderers. The unsuspecting remittance service provider may be burnt in the process.

 

Malicious Ownership of Remittance Firms

Money launderers may seek to obtain ownership of a remittance firm in order to circumvent AML/CFT compliance regulations. They may set up a remittance firm themselves or by using an agent or may seek to leverage the owner of an existing firm, posing as a legitimate remittance firm. This puts the existing partnering firm at risk of being labeled an accomplice to financial crime.

Now that we are clear of some of the money laundering risks remittance firms face, what exactly is anti-money laundering and why is it important?

 

How Money Laundering Works

To identify and report potential money laundering and address compliance requirements, money transfer businesses and indeed all financial institutions must understand how it works. Money laundering involves three stages: placement, layering, and integration. The three follow a complex series of transactions that start with depositing funds, then gradually moving them into what appear to be legitimate assets. They are explained below:

 

Placement 

This refers to how and where illegally obtained funds are merged with “clean” money. “Smurfing“, which involves putting small amounts of money (below the AML threshold) into bank accounts or credit cards, is often the most used placement method. Other techniques involve; moving money into trusts and offshore companies that hide beneficial owners’ identities; payments to cash-based businesses; payments for false invoices; using foreign bank accounts; et cetera.

 

Layering 

This refers to the techniques involved in separating criminal funds from their source. Usually, the illegal funds are converted into another form, creating complex layers of financial transactions to disguise the funds’ origin and ownership. This would in effect conceal the trail of illicit funds, making it hard for AML regulators to track the transactions.

 

Integration 

At this stage, the laundered funds re-enter the economy through techniques that make it appears to be normal, legitimate business or personal transactions. The most common money launders do this is by investing in real estate or luxury assets. The launders can either keep these assets or resell them later to recover their funds.

 

Why Anti-Money Laundering Matters

Anti-money laundering helps prevent the gains of illegal activities like smuggling, illegal arms sales, embezzlement, insider trading, bribery, computer fraud schemes, and organized crime from getting into the hands of criminals. 

Such gains representing a huge piece of global GDP are usually squandered on frivolities if not captured and halted by AML laws. The hampering of their financial gains also serves to discourage criminals from engaging in illegal activities.

AML also protects legitimate remittance and banking businesses from being implicated in financial crimes which is punishable by law. This in turn protects the business brand reputation and shareholder value as money businesses implicated in financial crimes run the risk of losing customers as a result.

It helps money service businesses avoid fines associated with civil and criminal penalties because of noncompliance or negligence. There’s also safety from being defrauded by criminals posing as business partners.

Anti-money laundering is closely related to counter-financing of terrorism (CFT), which financial institutions use to combat terrorist financing. AML regulations combine money laundering (source of funds) with terrorism financing (destination of funds), an effort that rubs off on national security.

 

Putting AML Programs in Place, as a Money Transfer Business

Financial institutions of member countries of the FATF are required to implement risk-based AML compliance programs. Financial institutions, including remittance service providers, must conduct risk assessments of their customers to determine the level of money laundering risk that they present. 

In compliance with FATF policy, here is how your money transfer business can put a risk-based AML program in place:

 

Transaction Monitoring

Ensure your business monitors customer transactions for suspicious activity that might indicate money laundering, including transactions above reporting thresholds, unusual transaction patterns, or transactions with high-risk countries. You can automate this process by leveraging AML technologies within remittance software.

 

Know Your Customer or Customer Due Diligence Checks

By conducting KYC or CDD checks on customers, you ensure that they are being truthful about their identities. Customers that present a higher risk of money laundering, such as politically exposed persons (PEPs) should be subject to enhanced due diligence (EDD). Again, advanced KYC technologies within remittance technology can handle this for your business with ease.

 

Screening

Put a mechanism in place to screen customers and transactions against international sanctions lists and watchlists. If a customer is involved in adverse media stories or more, you don’t want your business dealing with them. Screening can be automated using AML watchlist technologies.

 

Employees’ AML Training 

Invest in training your employees to become familiar with AML laws, policies and practices. This would help them to spot potential money laundering activities, assisting in-place technologies and processes.

 

Compliance Officer

Appointing a compliance officer with enough authority and expertise to oversee your business’ AML program is important. However, most remittance service providers start out leveraging the compliance expertise of external business and technology partners such as MTA.

 

How to Detect Possible Money Laundering Activities in your Business

These red flags in transactions or customer behaviour indicate that customers may be using your remittance services to conduct money laundering;

1. Customers that attempt to conceal their identities.
2. Unusually high frequencies of transactions or unusual transaction patterns. 
3. Transactions above reporting thresholds. 
4. Customers that know few details about the transaction they are processing or the payee.
5. Transactions that are connected to other transactions in a manner that might indicate structuring. 
6. Transactions involving PEPs or individuals on sanctions lists or adverse media stories involving customers. 

 

Automate AML Compliance Efforts with MTA 

Combating money laundering as a remittance service provider is a proactive activity that cannot be entirely done relying on manual processes alone. Smart remittance businesses make use of competent remittance software such as MTA. This software not only digitalizes and enhances their core business operations but extensively automates the business AML/KYC and CFT efforts, saving them time and money that manual processes would have consumed. 

To learn more about AML compliance automation and how our compliance expertise can save you the cost of hiring a compliance team, check with the Money Transfer Application.