Finance
Creating a best-in-class AML programme with a watchlist at its core
Global Banking & Finance Review®
Company
By Garient Evans, vice-president of identity solutions, Trulioo
Since Russia’s war with Ukraine, scrutiny has intensified on illicit financial activity and hidden assets. Companies around the world are facing increased pressure to ensure they are monitoring and screening new and existing customers against applicable sanctions lists.
While having a comprehensive screening program is nothing new for regulated companies, the current climate has increased the complexity of remaining compliant as the pace of regulatory change accelerates and the tolerance for non-compliance diminishes.
Staggering scale of money-laundering
Due to the clandestine nature of money-laundering, it is difficult to estimate the total amount of money that goes through the laundering cycle. That said, some of the figures being suggested are staggering. According to the UN, the estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in current US dollars. In EUROPOL’s 2020 highlights, it reported the recovery of $22,553,523 in cash; 118 bitcoins, 4 properties, gold and silver coins worth a total of $6.26 million, and $2.39 million worth of asset seizures from criminal finances, money laundering and asset recovery operations.
The NCA estimates that fraud alone causes losses to UK consumers, businesses and the public sector worth around $258 billion every year, and that money laundering costs the UK more than $136 billion a year. Combined, these figures are equivalent to 14.5 % of the UK’s annual GDP. No surprise then that, it was announced at London Tech Week (last month) that the U.K. and U.S. governments are developing prize challenges focused on advancing the maturity of privacy-enhancing technologies (PETs) to combat financial crime.
Fight against financial crime is raging
While the fight against financial crime is raging globally, one of the major weapons being used against it is identity verification. This is essential for keeping more dirty money out of our economy because, without a way to accurately verify identities, the digital world is vulnerable to becoming a place where criminals will have the upper hand. To protect people and information, a robust digital identity solution provides a wide range of benefits including reduced onboarding costs, mitigating breaches and the fines they incur. This is the foundation for building meaningful and sustainable relationships with customers using any combination of verification methods – something we know from our own research that customers expect to be part of the onboarding process.
But in an era of sanctions and acute awareness as to the source of funds, businesses must do everything in their power to ensure people are who they say they are. This is especially true in light of the 6th Anti-Money Laundering Directive (6AMLD), which now cites cyber crime as a predicate offense.
Sanctions mean high stakes for businesses
For regulated companies, monitoring and screening new and existing clients against applicable sanction lists is a vital compliance function. While having a comprehensive screening program has long been a requirement, the velocity and coordinated global approach to these sanctions on Russia indicate that regulators will be demanding quick and thorough compliance on this matter and the stakes are high for businesses.
Depending on what businesses monitor, there are 240 watchlists in 195+ countries worldwide to consider. People, entities and organisations are added or removed on an ongoing basis. The data is in different languages, formats and structures and requires effective measures for collecting, analysing and integrating into compliance workflows. Managing and using all this information is a massive task and needs careful operational control. Potential issues include everything from; the risk of penalties, fines and reputational damage if a sanction is missed, the high cost of manual reviews of false positives or losing customers to mistakes in the identity process and increased friction in account openings and financial transactions.
Creating a made-to-measure AML programme
Building on their AML program, businesses need to develop standards and strategies reflecting where they operate. This means formulating approaches that may heighten alerts for some countries while relaxing reviews for countries with more stringent regulations. There is no one-size-fits-all approach and visibility, flexibility and accountability are the name of the game. This is precisely why Trulioo has updated our global AML Watchlist offering. To go beyond simply screening, but to help businesses create an AML programme that leverages the latest identity verification technologies and data sources allowing for continuous monitoring so companies can easily adapt to changing situations, such as the addition of Russian oligarchs, to sanctions lists.
Trulioo’s AML Watchlist provides increased coverage and the ability to conduct all forms of watchlist tracking. It is an ongoing monitoring service performing Know Your Customer (KYC), sanctions and AML checks based on two critical elements – identity verification and watchlist checking. Identity verification is key because businesses need to know accurately, and with certainty, the identities of the parties to a transaction. This first step can be a significant challenge since many of the countries most at risk for fraud have poor public records, and criminals are adept at hiding their true identities. Performing identity verification against multiple independent and reliable data sources helps address this problem.
The second step, which runs simultaneously, is to run the identity against a comprehensive set of watchlists in real-time. Incorporating watchlists that offer global coverage and lists from all the relevant sanctioning and law enforcement agencies including; OFAC, U.N. Terrorism list, Her Majesty’s Treasury, EU Sanction Lists, The Dept. of Foreign Affairs & Trade and thousands more combined with other helpful data sources like news scans means businesses can stay current, irrespective of the changing macro environment. This is no easy task and many institutions are using a legacy watchlist capability. It begs the question: Why use an old-world solution for new-world problems? Instead, companies should leverage machine-learning-driven solutions to address challenges that require accuracy in a dynamic environment.
Constantly evolving sanctions scenario
Geopolitical uncertainties, tightening policies and regulatory enforcements have combined to make watchlist screening among the greatest challenges for businesses.
Now more than ever, businesses need a best-in-class AML programme. One with a watchlist that provides the due diligence and compliance checks with the highest requirements for screening potential risks to meet global regulations.
Anti-money laundering (AML) refers to laws and regulations designed to prevent the practice of generating income through illegal actions. It includes measures to identify and report suspicious activities.
Identity verification is the process of confirming an individual's identity, typically through documents or biometric data, to prevent fraud and ensure compliance with regulations.
KYC, or Know Your Customer, is a process used by financial institutions to verify the identity of their clients to prevent fraud, money laundering, and terrorist financing.
Sanctions lists are official documents that identify individuals, organizations, or countries that are subject to restrictions or penalties due to illegal activities or national security concerns.
Financial crime encompasses a range of illegal activities that involve the manipulation of financial systems for personal gain, including fraud, money laundering, and embezzlement.
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