With money launderers constantly changing their methods, firms must ensure their transaction monitoring systems are kept up to date. The consequences of not doing so can be catastrophic.
Money laundering has the potential to threaten national security, national prosperity and international reputation.
At an international level, the agency says that money laundering typically accounts for between 2% and 5% of GDP.
In Europe, terror attacks in Belgium and France, which many believe were funded through insufficiently regulated payment mechanisms, have prompted the EU to bring forward its Fourth Anti-Money Laundering Directive to the end of 2016.
Its powers now cover mechanisms such as virtual currencies, e-wallets and pre-paid cards. Professional ‘enablers’ like accountants and lawyers are increasingly coming under scrutiny, as are realtors and casinos.
It’s a similar story across the world, where national and international regulators are spreading their net wider and making the holes smaller for criminals to wriggle through.
In the battle against money laundering there are two main lines of defense.
The first method is establishing, thoroughly and in detail, the facts: how well do you know your customer and are they who they say they are?
The second method is transaction monitoring. Its focus is on behaviour, comparing a customer’s transactions with not only their previous record but what one might reasonably expect given their type of business or occupation.
Individual compliance officers are increasingly being singled out by regulators. When the UK’s Financial Services Authority fined a Swiss bank £525,000 for failing to establish and maintain adequate AML systems, it also fined the bank’s former Money Laundering Reporting Officer for his shortcomings.
But this settlement was dwarfed when a Florida bank was fined a total of US$6.5 million, with the US Financial Crimes Enforcement Network citing the failure to implement an effective AML compliance program.
While many banks and other regulated entities have stepped up their KYC procedures, some overlook the need to also sharpen their transaction monitoring systems or have a system in place.
This oversight is potentially catastrophic. The methods used by money launderers are constantly changing as they look to circumvent current procedures.
If your transaction monitoring system has not been reviewed and updated in the last year, it may not be picking up the latest warning signs. And that false sense of security could make you a potential target for both money launderers and regulators.