Anti-Money Laundering

4 Reasons Why Anti-Money Laundering Has Become More Important Than Ever

Technology

One of the prevalent views about anti-money laundering (AML) compliance is that it is merely a “check-the-box” exercise that is carried out by businesses today to keep regulators and auditors satisfied. However, this mindset has evolved in recent times. With the volume of businesses, the complexity of data and cybercrime increasing exponentially,  AML monitoring and compliance has become more vital than ever. Companies are increasingly realizing the importance of compliance and why it needs to be instilled into the culture of an organization.

In order to comply with regulatory obligations, businesses are increasingly employing AML software to tackle financial crimes. Additionally, as money laundering methods are evolving rapidly, AML compliance has become an integral part of the customer onboarding process. Looking at it statistically, the global AML software market is forecasted to reach a value of USD 1.77 billion by 2023. 

In today’s technologically advanced world, global industry leaders are acknowledging that AML software not only safeguards the company’s reputation but also helps in reducing financial risks and thereby positively contributes to long-term business prospects. The widely accepted view today is that anti-money laundering compliance brings great value to institutions, rather than being just another financial burden.  Therefore, while the nature and purpose of compliance might not have changed, its position and priority within businesses have been drastically increased.

How Much Money Is Laundered Each Year?

Approximately USD 800 billion to USD 2 trillion are laundered every year, making money laundering a pressing dilemma for the global economy. While authorities and financial institutions are actively working to detect and prevent the crime, criminals are progressively introducing methods that are harder to decode. Ever-changing customer behaviors and the advent of numerous automated money laundering techniques add to the AML compliance concern of banks. On top of that, the Covid-19 pandemic has also been adding in to the problem, as launderers are adapting their strategies according to the unanticipated situation.

5 Reasons Why AML is Crucial

1. Evolution of Threats

Techniques used by money launderers have advanced considerably due to technological advancements, and suspicious transactions are becoming increasingly difficult to prevent. These criminals can be divided into three groups:

  • Lone-wolf terrorists: These criminals sell weapons and vehicles in low-cost transactions to make detection difficult for authorities.
  • Cyber-enabled criminals: Such criminals prey on weak and vulnerable technologies being used by businesses and use sophisticated techniques to gain access into their systems.
  • E-commerce criminals: Identity theft, CNP (Card-Not-Present) fraud, phishing and chargebacks are just a few examples of the type of crimes that are committed by e-commerce criminals.

2. Reputational Risk

As financial institutions are long-standing brands, they attach great importance to maintaining their reputation. Any crisis related to internal anti-money laundering checks can have serious consequences on their reputation. By complying to anti-money laundering regulations, such institutions can enhance their brand awareness and highlight their priority on ensuring customer security.

3. Loss Due to Non-Compliance

Failure in the implementation of mandatory AML checks can cause businesses to face hefty fines and penalties. Generally, AML fines are incurred based on deficiencies in KYC (Know Your Customer), CDD (Customer Due Diligence) and AML transaction monitoring procedures.

Let’s take a look at recent statistics of global losses incurred due to AML non-compliance:

  • In 2018, global AML penalties were valued at approximately USD 4.27 billion
  • In 2019, AML penalties doubled and were worth approximately USD 8 billion, with an average of USD 145.33 million being issued per fine
  • By the third quarter of 2020, AML penalties had reached an amount close to USD 8 billion

4. Customer Value

Businesses that undertake necessary measures to ensure the safety of their customers against fraudsters are viewed positively by the public. In case financial institutions or other businesses gain a bad reputation due to non-compliance to anti-money laundering regulations, its market value and customer base both will be negatively disrupted.

Key Takeaways

  • The process of money laundering has become a pressing dilemma for the global economy.
  • Due to increasing crime rates, the position and priority of anti-money laundering compliance within businesses is evolving
  • The techniques used by money launderers have advanced considerably with technological development and have become difficult to prevent
  • Any crisis related to internal anti-money laundering checks can have serious consequences on a business’s reputation in case of non-compliance

Failure in the implementation of mandatory AML checks can cause businesses to face hefty fines and penalties