4 Techniques To Help You Fight Money Laundering

Very often, those amazing opportunities that businesses take end up being too good to be true. ‘Easy money’ is seldom a good idea, and very often, they discover that the business is mixed with the world of crime.

This is never good, which is why you should learn how to fight money laundering as early as possible. Digitalization is increasing the risk of money laundering, making it more important than ever to tackle the topic of money laundering. 

Why should you fight money laundering?

The consequences of being caught laundering money can range from minor to severe. This can impact what you’ve accomplished so far and destroy your business from the ground up. It can also mean jail time, extreme penalties, and credibility that you can never get back. 

Every year, up to $2 trillion is laundered at a global level, which equals 5% of the global GDP. Laundering activities include everything from smuggling and arms sales to insider trading and computer fraud schemes. 

Businesses need to take action to avoid such illegal activities for several reasons:

  • Protect the reputation of their brand, as well as the shareholder value
  • Comply with regulations that concern their brand
  • Avoid consent orders and criminal penalties that result from non-compliance and negligence 
  • Reduce costs related to penalties and fines

You can avoid all this just if you use some ways to protect yourself. Nowadays, it is important to know how you can prevent crime and avoid any affiliations with criminals. It’s also important to know the current anti-money laundering regulations that are created to keep your business safe.

The best ways to fight money laundering today

Now that you know how important this is, let’s take a look at the top steps you should take to avoid money laundering. 

Use KYC verification and processes 

Knowing your customer processes is mandatory in many countries, but it is also necessary if you want your business to maintain its security and reputation. The best and most important anti-laundering step for businesses today is smart, streamlined KYC verification and processes performed by trusted and accurate tools like SEON.

KYC is part of Customer Due Diligence and is sourced from the financial sector. It was originally used by governments that blocked transactions of criminals. Nowadays, businesses of all sorts, especially online businesses, need KYC compliance.

Many believe that performing such checks for every user is very costly and adds friction to the customer journey. This can be true in some cases, but not if you know how to streamline and optimise the process. While some fraudsters can escape these checks, it is better to be prepared than not take any measures at all. That being said, let’s delve deeper into what KYC includes.

The three main components of KYC

KYC has three main components: first and last name, date of birth, and address. It is the task of businesses to validate these details with an official document to avoid money laundering schemes. In most cases, these are validated with passports, national IDs, or driving licenses. 

In the context of anti-money laundering policies, customers are often asked to prove that they aren’t politically exposed persons or PEP. Depending on your business, you might need further details to do the KYC checks, such as self-exclusion lists and age verifications. This is vital, for example, if you have an online gambling business. 

Methods for KYC 

There isn’t a universally accepted method used to verify documents. Why is this, you might wonder? There’s a big disparity between different documents such as passports and IDs, and the regulations differ greatly from one country to the next one. 

The laws regarding this aren’t standardised. In the USA Patriot Act of 2001, the rules are governed. In the UK, on the other hand, businesses use the guidance from a group called the European Joint Money Laundering Steering Group.

What does this mean for you?

It means that, if you have a company that has an international user base, you’ll have access to dozens of different types of passports and IDs. There are over 150 different types of these worldwide today, so you cannot use the same method to check them all.

What can you do, then?

While asking your customers to provide endless data to verify their identity can push them away, you can use fewer points to collect this. To reduce friction and still get accurate data, you should let your users input the minimum to comply with your KYC procedures. 

You can also take matters into your hands and collect data from device fingerprinting, social media lookups, and more. In time, you’ll learn that even the smallest data points like a phone number or email lookup can point out potential risks. 

The best part about all this is that you can use tools like SEON to streamline the entire process and minimise your efforts. SEON’s email module, for example, is used to check if the addresses are mature enough to be legitimate, look like it’s created by a bot, or have been linked to a social media profile. By using such a tool, you can detect risky sign-ups and communication, focus on them, and avoid money laundering to the best of your abilities. 

Fraud detection solutions
Source: https://seon.io/products/

Set a formal anti-money laundering policy for your business

Regardless of your business’ size, you should have a formal, defined policy about your strategies regarding anti-money laundering. This can include detailed instructions on actions you plan to take or things you plan to avoid. 

In your policy, insert data about the tools you’ll be using in the process. Include information about what you’ll do to prevent this from happening such as accounting procedures or cash handling methods. This policy will serve as a framework that you can share with the investors and partners, and it can be used in the decision-making processes related to new deals and partnerships. 

Focus on the red flags

The tools you’ll use, as well as your pre-defined strategies will give you some results. You’ll find the red flags easily, such as large currency transactions, and other suspicious activities. When you have this data, you need to confirm or determine that the risk is not real. You need more information to confirm that the person is a real customer, or that the investors and money involved in the transaction are legit and real. 

Let’s say that someone contacts you out of the blue and says they want to invest in your business. This sounds great because all companies love investors, but it also means that you need to do some research. How did they find you? Why do they want to invest in your company and not in others? Who are they?

You need to ask many questions to confirm your doubts or reject them. Ask about assets that appear in the financials that investors share with you, and ask them directly how they want to invest their money. If at any moment you think that their answers are vague or strange, dig deeper or reject those offers straightaway.

Stay informed on money laundering schemes

Criminals are very creative with their tactics for scamming businesses and customers. The more you know about this, the more prepared you can be. Your anti-laundering strategies should be based on the schemes used on the market. What worked a year ago might not work at all today. 

If you want to successfully detect attempts of money laundering through your business and prevent these from happening, you need to know how criminals do this in the first place. There are many schemes they use today. They put illegal cash in your account, they layer proceeds through cash conversion and wire transfers to financial instruments, and more. 

For example, a customer can place a big deposit on your order and cancel it afterwards, but they will ask for the refund to come in dollars. This can seem legitimate and legal, but it can be a scheme. Criminals also use online auction sites to make dirty money clean. Finally, they use businesses with little paperwork to launder money, such as art galleries, restaurants, car washes, and currency exchanges.

Flow chat of typical money laundering scheme
Source: http://www.acfelebanon.org/Training-Events/Money-Laundering-Schemes

There are many ways to learn about the current scams and schemes. You can do online searches, read news on the topic, and check the official sites that provide such information. Some examples of this are the US Treasury’s Financial Crimes Enforcement Network website, as well as the Association of Certified Anti-Money Laundering Specialists’ news alert site.

Final thoughts

Preventing and dealing with money laundering attempts takes tons of time and can be costly. Still, it will save you your reputation, as well as big amounts of money that you’d otherwise spend on penalties. In the end, all these things are worth it if you can keep your business high-rated, safe, and successful.

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