Combating Financial Frauds through AML Systems

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AML Systems: Modern-day technological advancements have drastically changed the business world. The conventional ways of businesses have been subjected to major transformations by the digitization processes.

This particular change has not only been extremely beneficial for the corporate sector but the customers as well. Modern-day advancements have significantly influenced the ways businesses operate and the officials interact with the prospects. However, with the ease it has brought to the business world, it has also proved to be detrimental in various aspects. 

Digitization – A Blessing for  Fraudsters: 

Where digitization has been extremely beneficial to the business sector and has helped optimize their processes considerably, it has also incurred adverse effects on them.

The criminals, who have forever been in pursuit of their evil intentions to disrupt the systems, found it a lot easier to do so, through the technologically advanced processes.

This particularly happened because the companies showed negligence in complying with the security regulations. Considering that, the regulatory authorities, both local and global have made it mandatory for every single business sector to implement the KYC and AML solutions.  

Money Laundering Became Easier: 

Money laundering has always been an issue for the business sector, especially the financial institutions. Since these institutions deal with millions of funds transfers per day, it becomes extremely difficult for them to detect any suspicious activity taking place.

Moreover, the criminals always come up with sleek, witty tactics to conceal the original illicit source of their funds and fool the authorities into believing the legitimacy of their income. With the emergence of digitized business processes and the absence of adequate Anti Money Laundering (AML) solutions, the money laundering reports increased considerably.

What is AML Systems? 

AML; initials for Anti Money Laundering are a set of laws and regulations developed to prevent criminals from portraying their illicitly obtained funds as legitimate income.

The processes included in the AML compliance programs give the criminals a tough time in concealing their crimes. These regulations were introduced, way back in 1989 when the global regulatory authority i.e. the Financial Action Task Force (FATF) was formed with the sole mission of developing international standards to prevent money laundering and promote its implementation. Another eminent organization combating fraud and preventing financial crimes is the International Monetary Fund (IMF)

The AML verification systems are programmed to target major financial crimes including trading illegal goods, market manipulations, corruption, and money laundering.

The fraudsters disrupt the systems every time, with their unique tactics of laundering the money obtained through drug trafficking so that the fund’s original source can be concealed. 

How can AML Screening hinder Financial Crimes? 

One of the most important practices of AML regulations that assist an organization in preventing fraud is a thorough risk assessment of the existing as well as potential customers.

Under the AML obligation, the company’s AML screening process authenticates the identity of the customer before getting him onboard. This is particularly done by making him go through an extensive risk-based assessment where his sensitive information is compared to that of the sanctions and PEPs etc.

PEPs, initials for Politically Exposed Person, is someone who holds a prominent social position and has very high chances of being involved in corruption. Therefore, any business relationships formed with a PEP lead to critical accountability.

Hence, the AML screening diligently verifies and detects any suspicious activity that could potentially account for fraud. 

What situations mandate the application of AML Verification? 

The considerable increase in the fraud and money laundering rates has generated the need for every single business to tighten the security networks by integrating adequate AML security procedures.

For this purpose, every single customer goes through an AML monitoring process that authenticates his identity. Certain situations where it gets necessary to perform AML screening are : 

  • Financial Institutions i.e. banks especially, make their customers go through the screening while account opening processes.
  • Moreover, the initially safe customers could develop risk potentially therefore the screening should be performed periodically. 
  • Screening during the employment process is extremely important as it directly affects the company’s reputation. To save that, the companies make their customers go through AML monitoring during the onboarding process. 

The rapidly growing AML market: 

A drastic increase in the volume of global transactions led to a surge in the deployment of AML systems worldwide.

Since the financial institutions were facing huge financial crimes and their security networks failed to detect any illicit activity, they were mandated by the regulatory authorities to strictly comply with the AML regulation.

Considering the surge, the AML market is expected to experience a boom with an increase in size from approximately $879.0 million in 2017 to nearly  $2717 million by 2025.

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