Money Laundering is a criminal offence and has long-lasting consequences on the country’s economy which in turn affects businesses. It is frequently seen that small scale businesses are offered an extremely good business opportunity that they cannot let go of. The opportunity seems like an easy way to earn a lot of money and they end up accepting the offer. However, the businesses don’t realize that they are becoming a facilitator for money laundering. AML compliance is there to make sure that businesses do not fall victim to financial crimes like money laundering and terrorism financing.

A PwC survey states that the global total of money laundering transactions totals $1 trillion to $2 trillion per year. This accounts for the total GDP of 5%. In this blog, we will look into the AML solutions and how it eliminates money laundering but before that, let’s take a look at how money laundering is done.

How is Money Laundering done?

The fundamentals of money laundering are the process of converting the illegally gained money to legit money so that it cannot be traced back to the source of the criminal endeavor from which the money was obtained in the first place. There are three steps to money laundering and here are some discussed in detail.

1. Placement is putting the money into a legit financial system.
2. Layering is done to hide the money through transactions and bookkeeping
3. Integration is withdrawing the dirty from the legal account to be used as legal money

Risk of Money Laundering

Startups frequently become the victim of money laundering. Since the owners of small scale businesses are not much aware of the different types of scams and they have not enough experience in the market, they end up becoming easy prey to money launderers. They are not even aware of the regulatory measures and are usually non-compliant with the Anti-Money Laundering compliance. Anti-Money Laundering (AML) helps to protect such businesses against financial crimes. By applying a robust solution of AML helps to ensure that businesses are not being targeted by criminals for cleaning their funds.

The Emergence of Anti-Money Laundering

AML is the regulatory policy that requires businesses to monitor the transactions, analyze, and investigate financial crimes and report to the authorities about any suspicious activities. This is the requirement by the law to identify and fight financial criminal activities.

More and more companies are now adopting technological solutions for anti-money laundering compliance to secure their business operations. AML compliance first came into existence when FATF (Financial Action Task Force) was developed in 1989. The main purpose of this concept was to set up international standards for the prevention of money laundering.

Previously, AML customer due diligence has been slow to capture the cybercriminals. The main focus for Know Your Customer or KYC due diligence and AML was to be conducted through manual means. Now amidst the digital shift, the regulatory authorities are now promoting a more digitized solution.

Digital AML Solution

Artificial intelligence and machine learning technology are being integrated into almost everything these days. The digital transformation has created more ease for humans by automating everyday tasks. In order to eradicate illicit financial activities, the banks and financial institutions are applying Regtech solutions for enhanced AML and KYC. The SaaS solutions are used to identify suspicious transactional activities.

It is important to use the AI-powered AML solution for reducing the time and energy spent on the manual process. The automated process is more accurate as it uses natural language processing and machine learning hence becoming far more reliable.

How Small Businesses Can Prevent Money Laundering

Enhanced Due Diligence

Enhanced due diligence is the process that helps to ensure the business that they are dealing with. The first step is to gather their personally identifiable information and check their backgrounds to ensure they have not been involved in illicit activities.  This is done by screening it against the watchlists provided by the regulatory authorities.

Monitoring Transactions

AI-powered solutions help to monitor the customer activity to capture any type of fraud attempt including money laundering activities. Any kind of suspicious activity is immediately detected and authorities are informed for more investigations. Since there are many accounts that perform transactions, it is easy to surpass the scrutiny. However, automated solutions and AI technology do not allow that. It immediately detects any type of fraud attempt.

Conclusion

AML or anti-money laundering is the regulatory policy to fight financial crimes. Regulatory authorities like FATF have set up this rule to standardize the measures and capture any type of illicit crime. Businesses must comply with this policy to prevent becoming a victim of money laundering crime but the process can be lengthy. Hence, a more technological solution is applied to remain intact with the law.