How AML Solutions Combat Different Types of Money Laundering

How AML Solutions Combat Different Types of Money Laundering

Financial crimes are on the rise because criminals are adopting digital methods to put their malicious practices into action. The most common is money laundering where criminals convert their illegitimate resources into clean money. This makes it difficult for the AML compliance authorities to validate the actual source. Moreover, the criminals move their black money overseas leaving minimal chances of money laundering detection. Therefore, financial institutions need advanced AML solutions. 

As per ComputerWeekly, the UK is ranked the second on the list of money laundering with an estimated £88 billion worth of money converted from black to white. Therefore, financial institutions need robust Anti-money laundering services. So much so, financial institutions can onboard legit customers and monitor activities to prevent different types of money laundering.

Different Types of Money Laundering  – Shaping the Criminals’ Intents 

Anti-money laundering (AML) refers to the blanket term used for explaining the laws, regulations, and amendments within them for preventing financial crimes. Despite all these barricades, criminals manage to trick the verification process. They conduct various types of money laundering for exploiting illegitimate benefits. This ultimately compromises the whole of the economy. Some of the common types of money laundering are discussed in the next section. 

Terrorism Financing

Terrorism financing is the most common in money laundering. Criminals use black money to carry out their terrorist plans and through various methods convert it into white. For instance, terrorists open accounts in the banks that possess some weaknesses making it somewhat impossible to verify the legit source. This is why financial institutions require authentic and less-consuming AML screening in the financial system. This way they can not only detect suspiciousness and fraudulent transactions in time but also restrict criminals from onboarding in the first place. 

Money Laundering Through Trade 

The second most common type of money laundering is trade-based money laundering (TBML). Criminals move their funds by investing them in trade and making it look clean. This way they can hide the source of money through under or over-invoicing for shipments, hiding the quality of goods, or delivering a less or more quantity. 

Money Laundering Through Virtual and Cryptocurrency Trading 

Cryptocurrency is massively making its way to the financial sector while attracting investors from around the globe. The major drawback is that the technology is decentralized and most of the tokens and exchanges are not monitored by any central authority. Therefore, financial industries need robust solutions for detecting criminals and preventing chances of financial threats. 

Money Laundering Through Drug Trafficking 

Drug trafficking involves huge mafias, white-collar criminals, and powerful organizations. This makes it easier for them to launder money, however, regulatory authorities are coming up with strict guidelines preventing such practices from starting from scratch. 

AML Verification – the 3 Components of the Program 

Previously mentioned types of money laundering have compelled financial institutions to incorporate various AML security components. As per Shufti Pro FUnding, the industries are relying on digital AML monitoring solutions. These have identity verification, due diligence, and continuous monitoring of customers as the most crucial components.  

Customer Identification and Verification 

Customer verification is the process of validating identities in real-time and accurately to mitigate any chances of financial crimes. When the customers opt for registration on any platform, the AI-backed system asks for identity details including name, date of birth, passport, and proof of address. For instance, birth certificate, ID card, passport, driver’s license, utility bills, and others.

Customer Due Diligence (CDD)

Customer due diligence refers to the identification of potential risks possessed by the customers. For this, the financial institutions are mandated by AML regulatory systems to cross-check the customers in sanction and Politically Exposed Persons (PEPs) lists.  

Constant Monitoring and Evaluation 

As per Shufti Pro News, financial institutions should regularly perform identity and due diligence checks to monitor the customers’ activities. This way they can foresee any risk or threat that customers can bring in the future. Moreover, financial institutions can detect suspiciousness and report it in time. 

Bring All Aspects Together

Financial crimes originate from money laundering, terrorism financing, illegitimate use of money, and several other reasons. These can be individual or group threats however, they affect the whole economy all together. This has increased the need for encrypted AML solutions over the years. Financial institutions need to ensure AML compliance and for this, they should incorporate digital anti-money laundering services. 

Jordan Fried

Jordan Fried

Jordan Fried, who has built some of the most valuable crypto companies in the world today and helped thousands of people get exposure to blockchain assets, pulls back the curtain to help you build wealth quickly and securely.

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