Money Laundering has become a critical outbreak which has significantly dampened the confidence of financial institutions (FIs). Collapses of high profile companies have increased the vulnerabilities of the effectiveness of corporate governance, quality of financial reports, and credibility of audit functions. Money laundering (ML) has been weakening the soundness of a country’s economy, as well as the stability of individual financial institutions in multiple ways. According to a recent study Global money laundering transactions are estimated at $1-2 Trillion annually.
3 Vital Stages of Money Laundering
The flow of laundered illicit funds is not a single act. It follows a path through the economy that is accomplished in three basic steps.
1. Placement is the first stage in money laundering where the cash proceeds of criminal activity enter into the financial system.
2. Layering is the second stage in money laundering where attempts are made to distance the money from its illegal source through layers of financial transactions
3. Integration is a stage at which laundered funds are reintroduced into the legitimate economy, appearing to have originated from a legitimate source
Key Challenges in Fighting Money Laundering
Financial Institutions are facing the hurdle of rightsizing their Anti-Money Laundering (AML) programs in an ever-evolving global regulatory landscape. For many institutions, there are several challenges for creating a sustainable AML organization as listed below:
Burdensome overhead costs to track and analyze billions of financial transactions and turn in required reporting forms.
Missing signs of money laundering, which means the organization inadvertently supported criminal enterprises.
False positives that slow down the flow of business and may delay or deny legitimate transactions, annoying customer
“De-risking,” or rejecting customers that don’t have long and well-established histories or whose legitimacy takes too much time and effort to prove
Remediation Tools for Money Laundering Risks
In the current environment of unprecedented economic headwinds, exponential advances in technology and increasingly demanding global regulatory frameworks, financial institutions need to rely on a methodical approach to perform the screening checks.
Additional layer of manual review of many processes in AML controls, such as know-your-customer, suspicious activity reporting, and transaction monitoring, is the key element to keep a check on ML
Customer due diligence
Obtain information from all customers to verify the identity and asses the risks associated with that customer.
Enhanced Due Diligence
A paramount tool designed for identifying potential risks for dealing with high dollar transactions and situations that pose a higher risk of money laundering.
Regulatory Monitoring and Data Collection
Comprehensive on-going daily monitoring or periodic rescreening of Sanctions, Watch-lists, Politically Exposed Persons (PEPS), adverse media reporting with ongoing regulatory Changes
To deliver an effective management of complex risks and regulations, test and tune your rules against rapidly evolving challenges that continue to pressure FIs and their AML programs, associated with the movement of money.