Money laundering: rapid development is creating new risks

Laurie Gentz is head of compliance at BAE Systems Applied Intelligence

The internet has opened the door to purchase almost anything from any part of the world through electronic payments. As globalisation continues to flourish – especially in the banking industry – it’s now possible to transfer money across different countries with ease and speed. While this has increased the opportunity for businesses to extend their reach globally, it also creates an appealing opportunity for criminals, writes Laurie Gentz.

This is a growing and difficult problem for financial organisations. The emergence of multi-billion-dollar fines for failing to meet regulatory obligations also creates a significant risk to banks. It’s now more important than ever for organisations to comply with government regulations on money laundering. The most vigilant financial institutions achieve this by implementing rigorous anti-money laundering programmes, and ensuring these are kept up to date. The alternative is to risk potentially crippling fines.

The changing threat landscape

In order to stay one step ahead of money launderers, financial institutions must understand the changing threat landscape. Money launderers are constantly changing their tactics and processes in order to avoid detection. Their end goal is to transfer their assets into legitimate global banking organisations without raising alarm. Once this has been accomplished they are ultimately able to turn illegal assets into legal ones.

Money laundering techniques evolve rapidly. At present, new payment methods and even charities are prime targets for launderers. New payment methods offer those involved in money laundering greater anonymity, and easier access to funds. This method is particularly attractive for launderers because new payment types are not all regulated by the same agencies as the financial organisations.

The rise of virtual currencies, mobile payments and online payments also means that money is changing hands at an ever faster pace. This can create significant loopholes. Checking the credit-worthiness or viability of customers moving money using new methods is difficult when those new means of payment can be used instantaneously. Money can enter the regular banking system without the payer’s credit-worthiness, legitimacy or identity being confirmed.

Cyber attacks also provide money launderers with a frightening new tool to use to create vulnerabilities. Banks are continuing to be targets of synchronised and complex attacks. This could present a significant challenge if money launderers were able to use cyber attacks to corrupt banking systems and bypass AML measures.

Why technology is key to fighting money laundering

A key step in fighting money laundering is making sure banks know their customers and the risk they represent. Complex and specialist technology is needed in order to identify when something is not quite right – especially for large, multinational financial institutions. Understanding the relationship that customers have with your business, and the products they purchase, are vital parts of the compliance process. This sort of risk profiling must be continuous and updated on a regular basis, to keep up with the changing habits of customers.

Technology that takes into account financial data, as well as the personal background of new customers, can help analysts to understand why customers are flagged as risks by this software.  It’s important that the technology avoids false alarms, by giving the analyst involved in the AML process the chance to understand the information and decide the best action.

Staying up to date on sanctions as well as monitoring the politically exposed persons list can help avoid risks and determine if specific transactions are legitimate. Due to large amounts of data involved, list matching technologies can help large organisations to check sanctioned names more effectively.

Keeping AML programmes up to date will allow financial institutions to respond to the evolving plans and tactics of criminals. These programmes must reflect the plethora of new customers, products, and services that organisations engage with each day. Current AML programmes can also help businesses be aware of the changing regulatory demands and requirements they need to comply with. It’s therefore vital that AML systems are able to evolve and grow with your changing business needs.

It is vital that financial institutions respond to these numerous challenges in order to prevent money laundering and pass compliance requirements. However, having the right systems and technologies in place will help organisations to fully understand the risk involved in doing business, and avoid major troubles along the way.