Mitigating Money Laundering Risks: An Essential Guide

PESTLEanalysis Team
PESTLEanalysis Team
Photo by Alexander Mils
Table of Contents
Table of Contents

Three ways you can mitigate the risks of money laundering and keep your firm from getting into a situation where the Financial Action Task Force  (FATF) focuses on your firm.

Money laundering is the path criminals and terrorists utilize to hide the source of illicitly obtained money. Most of the time, this illegal process misuses legitimate businesses and the financial system for their gains. Over the past few years, the Financial Action Task Force  (FATF) has imposed revised compliance requirements on banks, making them an unattractive option for money launderers.

Now, they focus on firms providing regulated services and target them to conduct their illegal operations. Stick with us as we share with you ways you can mitigate the risks of money laundering and keep your firm from getting into a situation like this.

Identifying the Risks

The first thing you need to do is to look for risk indicators associated with money laundering. Here are some red flags you need to keep an eye on:

  • The structure of the business is complex and painstaking to understand. Many trusts, companies, and foundations used for money laundering hide the identity of their top beneficiary.
  • The assets shown by the fraudulent company are from a country with an emerging market.
  • Previous transactions are done by the company that shows involvement in illicit or fraudulent activities.

To completely protect your organization against money laundering, always follow the anti-money laundering regulations set by your country and work on making policies that can identify the potential risks beforehand.

Follow a Safety Checklist

●     Monitoring

Maintaining contact with the contracting party or the beneficial owner and screening them often ensures the parties you conduct business with can be trusted.

●     KYC

Before conducting any form of business with the other party, ensure you have their verified information. If you suspect a client is high-risk, reassess the information, conduct annual meetings, and maintain contact with them.

●     Virtual Assets

If your client has a virtual wallet, ensure their ownership using technical means. You should also look at the client’s risk profile and monitor transactions if they surpass the set threshold.

Anti-Money Laundering Programme

You can avail the services of financial experts for your organization to tailor an anti-money laundering program to monitor your daily operations. Furthermore, ensure your AML program must be aligned with your business activities.

Risk-Based Due Diligence

Conducting risk-based due diligence is crucial if you are suspecting a high risk. The due diligence will include clients, third parties, and associates connected with your business. You can also keep an eye on new regulations and check whether your current business activities comply with the set regulations.

Embracing Technology

In this digital age, we are seeing a paradigm shift in the way business is conducted. With cybercrime and online fraud on the rise, having the necessary technological tools are crucial in minimizing the risk of financial crime. According to the information about Anti-Money Laundering Software from NICE Actimize, investing in proper solutions can help you monitor anti-money laundering activity on different levels and protect your institution from issues. Several analytical tools can also be placed to monitor the transactions, behaviors, and trends.

Organizing Workshops

Cybercrime and more general fraud schemes are getting more and more complex every day. Employees working at your organization or company should be completely informed of how their organization can be misused for money laundering and other financial crimes. Furthermore, they should be sufficiently trained to identify any suspicious activity and take immediate action to clarify the situation.

Conducting Internal Assessments

According to the anti-money laundering regulations, internal reviews and reassessments should be conducted more often. Your anti-money laundering program should indicate the potential risks certain high-risk clients can pose to your business. As the collected data is massive, you would need resources for a complete reassessment and risk mitigation.

Therefore, consider building a competent financial crime team that will evaluate the collected data, identify the potential risk, and adequate tools to manage the risk. Without a strong financial crime team, you could become a target of cybercriminals and face the consequences.

Identifying Transactions

Most regulated services like law firms allow payments from family members connected to the client. In cases like these, always document the whole process to avoid any misconception later on. Risk assessment should be conducted as soon as possible if you accept anonymity in payments.

Fraudulent Trusts

If you have identified a trust with a high AML risk, your business should have adequate tools that can lower this risk. You can conduct a client and matter risk assessment to identify whether the trust is legitimate or is used for fraudulent financial activities. The source of their funding should also be confirmed alongside adequate documentation and analysis.

Staying in Contact

Make it a priority to meet the client physically or through video conferencing. Not meeting the client in person and providing services can increase the risk of fraud by many folds.

Promoting AML Culture

Employers and team managers can promote AML awareness among their employees. Furthermore, the concerned employees should be able to identify the risks, monitor them over time, and implement effective risk management techniques that can mitigate the risk effectively.

Revising Your Policy

National and International regulations are revised each year as money launderers and financial terrorists find loopholes in the system and launder money using new techniques. As these regulations change, review your AML policy and make sure you are complying with the revised regulations.

Money laundering has devastating consequences that affect economies, boost corruption, and weaken the financial system of a country. Billions are laundered each year from many countries and the amount increases annually. Statistics suggest that the amount of money laundered globally is equivalent to 5% of the world’s GDP. Governments and policymakers are keen on creating an AML ecosystem through legislation but merely following the rules might not suffice. A true AML ecosystem should be able to bring business owners, key players, and policymakers on the same page so they could collectively mitigate the risks.

Photo by Jason Leung

Here, we have summarized money laundering but the topic has so much more to explore and learn. Therefore, dedicate some time to research the topic and be informed so you can have a clear understanding of this fraudulent practice and the potential risks that come with it.

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