Financial crimes take on many forms, including money laundering, terrorist financing, tax evasion, embezzlement, and fraud.
Every day, these illegal activities take place all over the world, usually involving various entities and organizations.
To deter the occurrence of these activities and to prevent establishments from being used as avenues for carrying out financial crimes, law enforcement agencie s and regulatory bodies have put into place evolving compliance rules under which businesses are subjected to.
The financial sector warrants heightened scrutiny from regulators more than any other economic players.
This is not only because it serves as the backbone of the economic strength of every country, but this is also because criminals attempt to use legitimate financial transactions to disguise their illegal activities.
Hence, banks, investment companies, insurance firms, money remitters, and other establishments that make up the financial sector should endeavor to stay ahead of financial criminals and stay on top of the compliance rules that govern them.
Still, many organizations fail to comply with the standards set by regulators around the world. This has earned financial institutions over USD 36 billion in fines in the last 10 years.
At the same time, it has put them at an increased risk for hosting criminal activities. What qualities make a bank more susceptible to financial crime?
Here are a few of the most common ones:
The Lack of a Business-Relevant Anti-Money Laundering Program
Regulatory bodies can be quite strict on financial institutions. Hence, some organizations adopt anti-money laundering programs primarily for compliance.
The thought behind this is that following the standards set by the regulatory body should be enough to prevent money laundering from taking place within the institution.
There’s a downside to this, however. Financial criminals are eager to find ways to bypass the safety measures set in place by regulatory bodies.
As such, without a business-specific AML program that’s consistently updated and supported, the business will continue to be at risk.
It’s not enough for banks to have AML solutions and programs in place for the sake of compliance.
This anti-money laundering compliance systems should be designed and maintained with the intent to prevent financial crime.
Also, they should be tailored to the needs of the bank, and they should be able to keep up with the ever-changing tactics criminals use to carry out their illegal activities.
Failure to Identify Suspicious Entities During the Onboarding Process
One of the best ways to prevent money laundering and other financial crimes from taking place within an establishment is by screening clients and customers right at the door.
For banks, this means ensuring that they have a standard customer acquisition process that incorporates proper due diligence.
Prior to onboarding, the customer should undergo manual ID checks, and the bank should assess the level of risk that the client brings to the business.
ReliableKnow Your Customer and Customer Due Diligence programs can help banks and other financial institutions cut costs in the long run.
Because the customers are screened properly during the onboarding process, they will no longer need unnecessary monitoring, reporting, and offboarding.
The bank can also rest assured that acquiring a particular client won’t expose their establishment to risks that they are not willing to take.
Misunderstanding the Impacts of AML Laws on Their Business
Compliance requires a continuous investment in technology and manpower, and this costs money.
In addition, there’s a belief among establishments that they’re too small to merit the attention of financial regulators.
Such a mindset and the cost of compliance can cause the managers of these financial institutions to undermine the importance of proper AML compliance, and this can be dangerous.
Decision-makers for these establishments should keep in mind that investing in compliance reduces the risk of incurring substantial fines from regulatory bodies.
Financial crimes also cost a lot more than multifold penalties. Getting involved in one can damage the reputation of the company and cause customers to lose faith in the affected company.
Also, at the end of the day, failing to stop financial crimes from occurring can contribute to the proliferation of criminal activity in the general community.
An Inability to Keep Up with New Anti-Money Laundering Technologies and Techniques
The technology used for AML efforts must be updated regularly so that it will remain effective in detecting, monitoring, managing, and reporting possible cases of financial crime.
These days, many AML solution providers are making use of intelligent monitoring to assist financial institutions in preventing illegal activities.
Without the right tools and technology, a bank may overburden their operations team without necessarily improving the effectiveness of their financial crime monitoring program.
By taking every effort to deter the occurrence of illegal activities, banks and other financial institutions are reducing the risk that their company will be used to carry out financial crimes.
At the same time, they are making a wise investment in gaining the trust of their customers and ensuring the integrity of the nation’s economy.
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