For any financial institution or global business, it is necessary to perform KYC of their customers. 64% of countries have recorded high risks of money laundering and online payment scams. Any identity that is entering into the system should be identified and verified based on the needs of the institution. This would help in keeping a track of the individuals who are part of the system. Also, for this, individuals must be checked against the Anti-Money Laundering (AML) records to prevent illegal cash flow inside the organization.
In the Compliance Program, customer verification is mandatory. As fraudsters are always looking for opportunities to exploit weaknesses in the system and for this serious security measures must be taken into consideration. Money launderers are targeting the online retail industry, online banking portals, and such online platforms. Manually it is not that hard to verify the identity but it is challenging when it comes to online verification.
Why businesses need AML Compliance?
Anti Money Laundering compliance is a solution to restrict the smooth floating of an illegal transaction of money, it inherits most of its qualities from blockchain in functionality. If blockchain is a machine learning with AI solutions, that can help to learn strings of data to detect if money laundering is occurring somewhere, not like old blockchains, AI enables to learn even the large amount of data, that makes it able to keep up with the pace and efficiency of transactions made by any businesses in this digital world.
Another reason for implementing such a standardized system is, the financial institutions and their regulations that vary from and within the transaction monitoring, to payment making each and every procedure varies from institution to institution.
Even the states with its different legislative measures vary while dealing with financial matters. But the rising need for standardization makes it necessary to maintain an automated monitoring system. That is able to regulate the AML process.
Implications and Usage of AML Compliance
AML Compliance becomes the thumb rule for banks and other financial institutions, because of its attributes like
- Its cryptographically stores’ data on an open or private network.
- It is mainly drafted to transforms the backend system that most businesses runz on.
- A customized and efficient way to share and transform data in the form of information between an open and private network.
- Data entries can not be changed and modified but only be subjoined after entering into the system. This can deter criminals to mask their transactions.
To ensure the level of transparency between the financial institutions and regulatory authorities, it is mandatory for blockchain technology and its distributed ledger should incorporate into new fraud and risk compliance for financial institutions, to make sure the purity in transactions globally.
By working this way, financial institutions and regulators can detect and report suspicious information and activities all over the globe. This information would work as opportunities for financial institutions and regulators to collaborate and ensures streamlined work together.
By standardizing the process, they can effectively subtract impurities and irregularities from and within the system, and produces the anti-money laundering solution that is simplified and can truly work. By working hand-in-hand they could make a difference in limiting money laundering in the global economy.
AML compliance is part of a compliance program that needs to be catered by all businesses to prevent them from heavy fines, risks, and reputational damage.
Following are the 5 ways through which AML compliance is incorporated in the compliance program:
1- Know the Primary and Secondary Distributors
For anti-corruption and AML compliance, it is necessary for global companies to identify their primary as well as secondary beneficiaries. It is very challenging for the companies to verify that their distributors and resellers do not support the money laundering activities. This needs proper lookup, the partnership with honest and trusted resellers and distributors. This will help businesses avoid heavy fines that could lead to an inevitable loss.
2- Monitoring of Identities
The individuals that are becoming part of the system even if they are purchasing goods online, must be verified. The system should be monitored continuously to avoid money laundering activities. The identification and verification must meet the goals of a clean and healthy system.
Starting from the login to the last step in customer on-boarding process, businesses must implement the AI and HI based technologies into the system. This will help in keeping a record and monitoring of customer behaviors.
3- Electronic AML Record
Businesses should verify the identities against global electronic AML records. These records act as an independent database that helps verify that a particular identity has not been part of any money laundering activity. Anti-money laundering checks are implemented in the system to avoid bad actors in the system.
4- Auditing of Identities
While keeping track of the customers and their activities, a file is maintained which holds all the information of customers, data flow, cash flow and orders (in case of online stores). Manageable audit files help in better interpretation and analysis of data. Also, this can avoid the risks of money laundering and would be responsible for security secondarily.
5- Contract Management
The global policies of companies must be reviewed consistently in order to keep a check on AML compliance. The policies and procedures of AML compliance must be considered before any contract with a third party or different businesses. All the contract details should consider the security perspectives that can affect any business both positively and negatively.
AML compliance is a primary step for any financial institution and the online retail industry, regardless of their size it can be micro-merchants or macro-merchants. In the past, any businesses that have spotted as a part of money laundering activity have subjected to heavy fines and inevitable damage to business reputation. Therefore, it is necessary to ensure that your business security must reach a point where any bad activity will immediately be spotted and fixed at the same time to reduce any such chances that can harm or damage your business repute in the global market.