The methods of money laundering have been modified and criminals use digital channels for this. Businesses should implement cybersecurity measures to save their channels from being involved in money laundering. This is known as AML cybersecurity or simply AML security.
AML Security – For the safety of Business Channels
What is Money Laundering?
Money laundering is a financial crime disrupting the whole world. Normally people think that it is only the illegal interstate transfer of funds, but it is much more than this. Funds collected from illegal businesses are covered with legal sources through money laundering. It is done to deceive the policing authorities because illicit funds have the highest risk of vulnerability.
If exposed to law enforcement agencies, the criminals can get arrested and the funds can be seized. To save from this, money is laundered in such a way that it leaves no mark of association with illegal sources. There are three stages in which money is laundered.
- Placement: The criminals enter illegal funds into the system cleverly in multiple ways. Normally they develop a front business for this. This business has a complicated financial structure, and it is very easy to manipulate the records. Then the ill-gotten and legitimate funds are blended. Under-invoicing or over-invoicing is done to keep the balance of the records.
- Structuring: After placing the funds in the system, they are circulated. For example, dividing and transferring money from accounts to accounts. Banks, currency exchanges, and investment firms are used for this. As they deal with the cash directly, it is easy to layer the funds. The motive is to break the link with original sources through multiple transactions.
- Extraction: Lastly the funds are derived back from the system. Now the black money is cleaned and can be used freely. In most cases, the funds are moved from one state, layered in another, and then returned to their original state.
Now, cash-based money laundering is negligible and is only seen in high-risk countries. With the restrictions by law enforcement agencies, carrying cash has become tough. In the era of digitization, mobile banking or online payment transfer channels are used for laundering money.
Anti-money laundering Compliance through Cybersecurity
The employees of a financial institution should be trained on modern tactics of financial crimes. A company can hire a compliance officer, and he can train other co-workers. They should report any unusual cyber activities, under the guidelines of FinCEN they are categorized into three
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- Cyber Event: When a hacker tries to gain access to the computer systems, data servers, or any other resources.
- Cyber-Enabled Illegal Activities: When a computer system or a network supports illegal activities like money laundering or financial crimes.
- Cyber-Related Data: When the technical information of the user is compromised by a hacker. Details like IP address, mac address, and digital footprints of customers need to be secured in AML security.
Businesses can Adopt AML Solutions to perform all the necessary checks against financial crimes. Here is the walkthrough of AML systems.
Know Your Customer (KYC)
The identities of onboarding customers are validated by examining their documents and facial biometrics by a process known as KYC (Know Your Customer). It eliminates the hazards of stolen or synthetic information and allows only legitimate individuals to join the business channel. It is performed by AI-powered software on an online communication channel.
Anti Money Laundering Screening
The verified customers are screened against global criminal lists. It is ratified that the customers are not criminals or have any association with a money launderer racket. The screening is conducted digitally, thus it gives the results in seconds.
Transaction Monitoring
The payment transfers or the deposits are monitored and any suspicious activity is reported to the concerned authorities.
Background Screening
A verified customer still posses the risk of committing financial crimes. That’s why high-risk customers are re-screened after every year and low risk after five years.
Wrapping it Up
AML security has become essential for businesses to avoid fines by regulators. It will help them in making the financial environment more secure and gaining the higher trust of customers.
