The Emerging Tech That Is Stopping Money Laundering Its Tracks

4 Mins read

For people, governments, and businesses, money laundering is an incredibly costly crime. By some estimates, the amount of money laundered every year is equivalent to around 2-5% of global GDP, costing us up to $2 trillion a year. Money laundering enables crime, by ensuring that the proceeds of illegal activity can be saved, secured, and spent.

It also makes everyone poorer, since the laundered money escapes tax authorities, meaning less for essential public services such as schools and hospitals. Although money laundering has been around since time immemorial, the problem is evolving at an unprecedented rate.

With new technologies and the rise of novel methods of evading financial systems, as well as the need to improve security in crypto tradings, new methods are needed to counter illegal activity. In recent years, so-called AML (anti-money laundering) technology has emerged to counter these illegal methods and stop money laundering in its tracks. Let’s take a closer look at how this is unfolded. 

Money laundering: a costly affair

First off, it’s important to note that money launderers themselves are not the only ones that are held accountable by the law. Businesses and banks must also follow very strict procedures to ensure that criminals do not use them to clean illicit money and fund crime.

Virtually every country and territory on Earth has a strict AML framework that everyone in that territory must follow. Meanwhile, certain countries such as the US will even prosecute foreign companies and banks if they believe that they are aiding or overlooking money laundering activity.

In a nutshell, no one is immune to anti-money laundering laws. If you are wondering what the consequences of being complacent are, let’s look at just a handful of recent, high-profile examples. 

In 2020, the financial behemoth Goldman Sachs agreed to pay a mammoth $2.9 billion to regulators around the world for its failure to prevent corrupt officials from laundering funds through them. This figure included the largest fine ever imposed by US anti-corruption regulators, as well as around $600 million to the Malaysian Government and hundreds of millions more to the governments of the UK, Singapore, and Hong Kong. 

Last year, meanwhile, the Dutch bank ABN Amro paid $574 million to Dutch authorities, after it was found to have neglected KYC (Know Your Customer) background checks on a number of high-profile criminals who had been using the bank’s services. The fine also led to the immediate resignation of several board members and executives at the bank.

At around the exact same time, the US bank Capital One was slapped with a $390 million fine after the SEC found it to be in breach of the Banking Secrecy Act. Capital One had permitted a large number of customers to open multiple accounts and move huge amounts of illicit funds through them, with many of those people later revealed to be part of an international organized crime syndicate. 

As we can see, ignoring money laundering will always be more costly than taking a lax approach. That is why it is essential to take a proactive stance and use the correct AML technology to help you stay above board. 

Why AML matters

For businesses and customers, AML should be a top priority. We have already demonstrated the staggering financial penalties that you can face if you fail to do your due diligence, but this is only one part of the consequences. 

If you are found to be in breach of AML regulations, the reputational costs can far outstrip any immediate financial penalties. An institution that is found to be complicit in this immensely harmful activity will lose the trust of customers, clients, and shareholders. People will decide to take their business elsewhere, meaning that implicated companies could lose revenues now and far into the future.

Meanwhile, the legal penalties attached to AML laws go far beyond monetary fines. Companies may find that their banking licenses can be suspended, preventing that company from ever providing financial services again. In addition, individuals within those organizations that are implicated in money laundering are liable to face criminal charges. They may lose their jobs, gain a criminal record, and even face lengthy prison sentences. For these reasons, effective AML matters. 

AML in Banking
AML in Banking

Essential AML tech for businesses 

It’s not just legacy banks that are expected to be on the ball with AML. All financial services providers are equally beholden to AML regulations. In fact, smaller fintech companies need to be especially alert, since such companies are sometimes seen as easy targets for people looking to launder funds, as it is assumed that AML safeguards will be less stringent than they are at big banks. 

Fortunately, there are plenty of low-resource tech solutions that can help those companies stay on the right side of the law and ensure full compliance at all times. This expert guide to AML in banking explains exactly which tools and software such companies can implement today to catch suspicious people and funds before they enter their systems. 

Some of the most popular tools in the industry right now include: 

Real-time ID verification

Automatic ID verification is used widely across companies looking to prevent money laundering. These are digital tools that compel customers to verify who they are before they create an account. Such a service might request a new user to take a live video selfie after they upload their ID documentation so that the software can determine whether a person is who they say they are. 

Real-time transaction monitoring

Sometimes, it’s the transactions themselves that are suspicious, even if the customer might not seem so. With real-time transaction monitoring software, Fintech companies can automatically scan all transaction data and flag up unusual cash transfers, as well as funds coming from suspicious sources. This way, you can put a reliable early warning system in place.

AI and ML 

As we can see, real-time AML protection requires the ability to process massive amounts of data in a live setting. For this reason, many companies are turning to artificial intelligence and machine learning to detect suspicious activity. Such tools can also assess previous examples of money laundering activity, providing deep insights so that it has a benchmark for detecting any future activity of this kind. 

AML is everybody’s business. While it is important to do your due diligence, it is also important to stay abreast of ever-changing rules and regulations, so that your company is never found to be non-compliant. This is why it is essential to use trustworthy tech tools that automate your AML compliance and make sure that nothing slips under the radar. 

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