As the technology continues to offer endless possibilities, it is likely that the financial criminals will discover new methods to manipulate the financial industry to commit money laundering or terrorist financing crimes. However, at the same time, it is possible to use the technologies in detecting those criminal activities as well. Therefore, to minimize the risk of financial crimes, it is essential for all the stakeholders of the financial environment to embrace the importance of adopting a strong AML compliance framework and following the trends in the industry to remain aware of the potential risks.
Each year new trends emerge in AML. This blog serves to help you stay ahead of money launderers by understanding key AML risk trends for 2022.
Trend #1 – Stringent Crypto Regulations
Cryptocurrencies have made it easier for bad actors to hide the source of proceeds from criminal activities and have quickly become the preferred method of payment for cybercriminals.
Cryptocurrency has gained the attention of both regulators as well as businesses around the world. Due to anonymity and decentralization, criminals have become more sophisticated.
FATF, an international policy-making and standard-setting body for AML/CFT, has stressed on the importance of continued monitoring of virtual assets and the Virtual Asset Service Provider (VASPs) sectors. Reviews on virtual assets and guidelines to Virtual Asset Service Providers have been issued for the past few years, with the support from the G20.
Trend #2 – Emerging technologies (AI and ML) for enhanced data optimization
AML regulations require firms to analyze structured customer and transaction data in order to detect criminal activity. With that in mind, firms may enhance their data management processes by integrating artificial intelligence and machine learning tools, adding not only speed and accuracy to AML compliance but more intelligent outputs.
Beyond speed and accuracy benefits, machine learning tools add depth to structured AML information and are commonly trained to interpret and even make decisions about that data based on the algorithmic analysis of historical information. As regulations expand in scope to capture new fintech threats, such as cryptocurrency money laundering, machine learning systems are set to become important tools in risk-based money laundering solutions, helping companies make predictions about their customers based on historical data – rather than relying on time-consuming analogue data collection and analysis.
Trend #3 – More Transparent UBO Laws
The need for a more transparent society means that Ultimate Beneficial Laws (UBO) legislation is set to become more serious. This increased openness will allow financial firms to sign monetary transactions and identify the risk of money laundering. Furthermore, banks will be able to strengthen their Customer Due Diligence (CDD) operations, allowing them to lower the number of financial crimes.
However, some countries have accepted these regulations. But, certain nations, such as Switzerland, do not plan to accept UBO regulations, hence, criminals in these nations will have easy access to shell firms next year
Trend #4 – Information Sharing
Fintech money laundering threats often involve the movement of illegal money across borders and entail criminal activities in more than one jurisdiction. In order to address cross-border money laundering, the Financial Action Task Force (FATF) includes information sharing guidance in its AML recommendations, and the EU has included a requirement for member-states to facilitate cross-border prosecutions in its Sixth Anti-Money Laundering Directive (6AMLD).
The Financial Action Task Force (FATF) has urged governments and businesses to collaborate in the fight against money laundering and terrorism funding. Both parties are dealing with the same issues, particularly in regard to information: its quality, quantity, transparency, and ability to be handled effectively.
Every business owner has an implicit responsibility to prevent money laundering attempts at or through their business. Many may not realize that they have to meet sanctions compliance requirements – but they do. Having a strong risk management framework helps to protect the business, employees, customers, and even vendors or partners.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)Associate Partner
Ahmad Alagbari Chartered Accountants