Complying with money laundering detection rules can be difficult. Every regulated entity will need to deal with various risk factors. It will be in line with the business model, the product range, and the type of customer that they are dealing with.
Although it will differ from business to business, there are some fundamental anti-money laundering (AML) policies. They protect your organization from the most common money laundering schemes. Let’s take a look.
Structuring transactions is a money laundering process to bypass reporting regulations. It breaks down large transactions into smaller, mini transactions.
Your system should detect several transactions below the reporting threshold, and whether these transactions have taken place within a certain fixed period.
Let’s say the reporting threshold is $15,000. Your system can search for transactions between $10,000 and $15,000 in 60 days to identify any red flags.
If personally identifiable information is changed before making a major debit, your system should detect it. Personally identifiable information is any data that can identify a particular person.
An activity like this can indicate an account takeover. It could indicate that money launderers have gained access to a dormant account and are preparing it.
Also, layering activities could be taking place, and they are trying to hide the route of cash inflow.
Compliance readiness solutions like au10tix.com come in handy during customer onboarding and help you detect fraudulent activities. Know your customer and anti-money laundering screening happens instantly and is automated.
With this analysis, you could determine whether the account takeover has happened. It will let you detect transactions that seem suspicious based on the customer’s previous activities.
If the spending pattern does not match the customer’s income level, it should be cause for suspicion. Let’s say a customer is currently unemployed, and spending money on 5-star hotel bookings and luxury apparel. It should be a red flag.
If a merchant is selling only to a small number of customers, this could signify collusion. It is especially true on platforms where you would typically see a large number of buyers engaging with a seller. In this type of money laundering, illegal money is disguised as legitimate payment for goods and services.
You need to be careful when you implement this rule. Before implementation, allow new merchants to increase their business activities. Alternatively, make the rule applicable to merchants who have been on the platform for a certain period.
If the total value of credits in a short period is equal to the debits in that same period, it should raise some red flags. It is highly applicable to business accounts that are a marketplace platform. These types of marketplaces collect payments from their merchants, and thus, it does not make sense if their credits and debits are the same.
Transactions in and out of countries that are classified as high risk should be flagged. These are countries with a high level of banking secrecy or ones that have significant financial crime.
These countries could also be recognized as tax-havens. Geopolitical situations are always changing, and for this list to be effective, it needs to be updated as well. New countries are added to the surveillance list while others are removed.
If you see accounts where money is deposited and immediately withdrawn, you need to take notice. For example, if there is an account where large deposits take place every two days, and the money is withdrawn the next day, it could be a cause for concern. These accounts maintain a near-zero balance but have a very high turnover.
Cash is the most favored medium for criminal and terrorist activities. High-value transactions should be critically monitored in your organization. The expected behavior of the account holder needs to be considered.
A student will not deposit or withdraw $40,000 every month. A businessman who has an e-commerce business will not need to make a lot of cash deposits. Most of the payments he will be receiving will be in the form of electronic payments.
These are some of the basic high-level AML red flags that should be implemented in your organization. Apart from deploying these measures, employee education is needed. It is also important for you to stay up to date with new money laundering techniques such as crypto-fiat conversions.