Anti-money laundering is an ever-present problem; nearly $300 billion is laundered annually in the United States, and financial institutions pay hefty fines when they fail to meet compliance standards. In 2020, banks were fined a total of $10.4 billion dollars globally for money laundering violations.
As fraudsters become more adept, and fraud itself becomes more accessible, it will only present more problems for AML operations. Here, we explore the top AML trends for 2023, so organizations can practice effective AML compliance throughout the year.
We’ll cover the following trends in more detail below:
We explore each trend in detail, explaining exactly what it is, why it’s important for financial institutions to pay attention, and how to best address each trend over the course of the year.
Anti Money Laundering (AML) Trends to Watch For
The most probable trends that enterprises will see in the upcoming year are listed below. Let’s take a look.
Much of an organization's ability to prevent money laundering comes down to its ability to detect and identify it. The fact is, you can’t stop what you can’t find. Using that same logic, if you want to find fraud, it’s best to follow the money.
Transaction screening and monitoring solutions offer automated transaction monitoring, allowing teams to build custom rules that will flag suspicious activity with an alert. Compliance analysts can then investigate whether the behavior is actually suspicious, and then escalate to the authorities by filing a report.
Using this system effectively not only empowers teams to catch more fraud, but it enables them to do it faster and more effectively by allowing them to spend more time investigating alerts that matter.
Institutions are looking for the most up-to-date, relevant information on customers and transactions to increase their ability to prevent crime and improve operational processes.
To achieve this, companies are increasingly turning to information-sharing systems or networks like Unit21’s Fintech Fraud DAO - a decentralized network of Fintechs that pool data to identify fraud before it proliferates.
In these systems, all participating institutions share information on suspicious activity identified for specific users and entities. In return, institutions gain access to all other shared information.
With this information at their fingertips, they can rely less on third-party information, gaining the ability to perform a real-time check on whether a potential user has attempted to launder money in the past.
Companies can use this information to avoid onboarding high-risk individuals with a history of suspicious activity in the first place. They can also use this information when investigating suspicious activity, and uncovering patterns across institutions.
For example, if an FI identifies suspicious activity from a user that prompts investigation, that incident itself may not be enough to determine if money laundering is occurring. However, if that user's behavior at other institutions can be analyzed, it may be clear that they are laundering money.
Despite some key challenges that organizations may encounter when deciding whether to share their data, information sharing empowers organizations to take more concerted efforts against fraudsters, make more definitive decisions, and reduce investigation time. It even allows businesses to block access to high-risk individuals, ensuring they don’t become a threat in the first place.
For more information about the benefits of consortium and data sharing between organizations, check out the Fintech Fraud DAO blog here.
To facilitate customers desire for faster, more convenient service, organizations have been adopting real-time payment services that allow them to transact instantly.
Real-time payment rails are services that enable payments to be processed in real (or near-real) time. Payments initiate, clear, and complete almost immediately, typically within seconds. FedNow’s real-time payment rail is expected to launch in mid-2023, bringing with it major changes to how money services businesses (MSBs) operate.
Participating institutions can use these technologies to clear transactions instantly, drastically improving their service speeds and reducing friction for customers. While this offers the opportunity for improved service, it also draws fraudsters looking to take advantage of immediate access to funds.
Organizations that adopt this system will need to establish AML controls designed for real-time payment processing, implementing payment screening, onboarding orchestration, and new account monitoring.
Throughout 2022, victims of cryptocurrency scams lost assets and money worth $4.3 billion, 37% more than the previous year. One of the most significant incidents centered around cryptocurrency exchange FTX; after they declared bankruptcy, an inquiry confirmed that approximately $1 to $2 billion in customer money had disappeared without a trace.
The anonymity of cryptocurrency enables criminals to move massive amounts of funds efficiently without being detected. Governments have already started to clamp down, with many struggling to work out how to classify different types of Fintech businesses - as well as cryptocurrencies themselves. Countries are beginning to catch up though, and are starting to implement regulations for crypto platforms.
Staying abreast of rapidly changing laws and directives will be a main component of staying compliant with crypto in the near future. Enhanced regulation will improve industry security standards, reduce the impact of fraud losses, and - in theory - establish stability and confidence in the market.
Most importantly, regulation will make it more challenging for criminals to exploit digital assets and exchanges to launder money.
Machine learning solutions - with an ability to self-improve - are ideal tools for building AML compliance and fraud monitoring rules. They can improve rules over time, offering better security and reducing fraud losses and false positives along the way.
For example, Unit21 uses machine learning to create alert scores which help with alert prioritization. As alert scores become more precise, investigators can better prioritize alerts, improving overall workflow management.
Over time, this will not only make compliance operations more effective, but it will also bring down costs. By automating repetitive tasks, professionals have more time to do other, more pressing tasks. As the system improves, it gets more effective over time, improving efficiency, productivity, and output - at no additional cost.
Customer due diligence has always been a core component of KYC procedures and identity verification. However, upcoming FinCEN regulations are set to increase requirements for verifying ultimate beneficial ownership as well as storing and protecting related user information.
The additional scrutiny under these statutory requirements (slated to take effect in 2023), aims to increase transparency and allow FIs to manage risk better.
With these changes in effect, companies can bolster their AML framework by increasing their ability to identify legal and beneficial ownership. Fraudsters will take advantage of organizations that don’t implement proper UBO validation, making it necessary for organizations looking to eliminate money laundering and other financial crime.
The introduction of metaverse solutions and services (such as Facebook’s Metaverse) means a new avenue for fraudsters to launder money.
Savvy criminals can use these solutions to launder money as they would in the real world, converting real currency into digital currency and assets, and then eventually converting those items back to fiat currency. In many cases, the standard three stages of money laundering (placement, layering, and integration) can be replicated in these virtual spaces.
Users are also subject to certain identity theft and financial scams that they would be in the real world, with criminals able to clear their digital wallets and steal personal information.
Sophisticated AML solutions can be leveraged to monitor user behavior and transactions to identify when money is being sent to gaming platforms. With the right rules in place, abnormal investment in these platforms could be investigated, uncovering incidents of money laundering.
As these solutions are adopted, more regulation will likely follow, aiding businesses in protecting their customers - and themselves - from fraud and money laundering.
Leverage an AML Compliance Solution for Best Results
Since money launderers constantly change their tactics and methods, there is no universal solution. AML and CFT compliance regulations are designed to keep customers - and organizations - safe from money laundering and financial crime; it’s imperative companies stay abreast of current AML trends to properly prevent money laundering and terrorist financing.
Stay on top of the biggest problems by leveraging a top-notch fraud and AML compliance solution, designed to optimize workflows, empower faster and better investigations, and keep your organization - and users - safe and secure.
Check out this short video about why Unit21 is a great fit for AML compliance operations, and schedule a demo today to learn how Unit21 can help your organization.
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