Criminals are always on the move with their illicit motives and unethical pursuits. Due to the lack of proper regulatory frameworks in various countries and territories around the globe, fraudsters find different ways and means to earn black money. Financial law enforcement authorities have published different rules and regulations to identify money launderers and bring them to justice.
Anti Money Laundering (AML) obligations by the European Union requires online businesses, banks, and any other type of entity involving monetary operations to carry out a defined set of standards to limit criminal activities through their platform.
According to the True Cost of Compliance report by the Ponemon Institute, the financial services industry invests almost $30.9 million in compliance costs to meet regulatory requirements. AML solutions help organizations fight cybersecurity attacks and secure their customer identity.
Money Laundering Types and How to Prevent Them
There exist a number of ways through which dirty money acquired from illegitimate means is accumulated and turned into legal money. Financial businesses are a sweet spot for online scammers to extract money. Below are some methods through which money laundering is carried out:
Structuring Large Volumes of Money
To avoid possible detection, money laundering criminals use structuring, also known as smurfing, to partition large sums of dirty money into smaller parts. Assume you have $50,000 and you do not deposit the amount in your account, instead, you intentionally store it on multiple accounts to avoid possible detection. The same way criminals use to deceive security systems and carry out their unethical activities without being suspicious in the eyes of financial regulators.
What’s the solution?
With state-of-the-art AML security solutions, the placement of illegal money into the banking system can be properly tracked and the origin of money be detected. AI-based technologies are used to perform a money trail of suspicious transactions to take them down before significant loss occurs.
Moving illegal money through borders by avoiding proper verification procedures is another way criminals accumulate dirty money and use it for their own benefit. This physical movement of cash through blacklisted individuals is another challenging problem which financial regulatory authorities face. The Financial Crimes Enforcement Network (FinCen) actively monitors any cross border smuggling of bulk cash to mitigate terror financing and drug trafficking using black money.
How AML Integration Helps
By integrating Anti Money Laundering security software at border crossings, money launderers could be stopped. These advanced solutions follow international regulatory standards like the General Data Regulation (GDPR), and AML directives chartered by the European Union. By scanning through thousands of watch lists through AML programs, criminal identities are revealed and smuggling of ill-gotten money stopped.
Trade-based Money Laundering
The most complex way to carry out money laundering is through trade-based platforms where peer-to-peer exchanges are commonplace. In this method, the offender normally exploits the exchanging framework which includes the trade of products and goods. This kind of tax evasion is commonly carried out in the presence of various entities which makes the customer identification process (CIP) and AML checks difficult and tedious. Methods to conduct trade-based money laundering include sending confiscated imported goods or empty shipments which are often termed as ghost shipments.
How AML Provides a Defense?
AML systems are solely based on anti-crime recommendations of the Financial Action Task Force (FATF) which is helpful to combat trade-based money laundering. Anti-money laundering is effective when performed under certain boundaries and with a rigid framework. Different sanctions are listed by global regulatory departments to prevent crime in online businesses and financial enterprises. Global sanctions could be either political, economic, or military depending upon the context and severity of the criminal activity. AML provides an all-in-one solution to comply with international standards and follow global regulations.
To sum it up, Anti Money Laundering provides a defense against a wide range of money laundering activities including bulk cash smuggling, cash structuring, and trade-based money laundering.