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Money laundering remains a prevalent issue worldwide. The United Nations (UN) states that the amount of money laundered annually is between 2–5% of the Global GDP (or $800 billion–$2 trillion) and this figure will continue to increase if organizations fail to take preventive measures.

As a serious crime that can destabilize economies and threaten national security, preventing money laundering is a moral obligation. At its worst, money laundering can promote human trafficking, drug cartels, and other terrorist acts. Financial institutions play a significant role in preventing it, being at the forefront of the issue. But how exactly can money laundering be averted?

Anti-Money Laundering Methods for Banks

Banks are walking on thin ice without anti-money laundering (AML) precautions. At the negligent approval of a transaction, they are highly vulnerable to criminal mischief. Fortunately, staying in line with federal regulations and using various identity and access management solutions are just some of the many ways that financial institutions can combat money laundering. 

1. Practice AML Compliance

The Financial Action Task Force was founded in 1989 and has since implemented AML laws and overseen member nations’ compliance. Each country has its AML system that supervises national institutions. The UN, World Bank, and International Monetary Fund also have established anti-money laundering programs.

Companies must expect to play by the book and follow these AML practices for detecting suspicious activities. AML rules require obligated entities or other institutions that money launderers might target to be aware of red flags and carefully monitor their customers’ activity.

2. Establish AML Policies

Frontline personnel are instructed in anti-money laundering tactics and legally compelled to report suspicious behavior. Your company may hire individuals whose primary responsibility is to strengthen AML policies. These security professionals are referred to as AML compliance officers.

When creating AML policies, three critical rules underpin banking: identity checks, due diligence, and AML transaction monitoring.

3. Optimize Know Your Customer (KYC) Verification Processes

Know Your Customer (KYC) is an initial step in any AML program and is mandatory for banks to flag suspicious transactions. KYC is the process of validating the identity of an individual who wants to gain access to your services. A robust KYC process enables easy verification of customer data, and allows you to pinpoint if your clients are the people they claim to be.

This procedure is conducted through various means, such as identification documents, facial recognition, fingerprint scans, and financial statements. All in all, optimizing your customer verification processes will enable you to stay in line with the law while protecting all of your company’s stakeholders.

4. Customer Due Diligence

Customer due diligence (CDD) is a banking control process to rate clients according to their risk of laundering money. While CDD processes differ by nation, they all have a common objective: risk detection.

In this system, relevant information of a customer is evaluated for potential terrorist funding or money laundering risk. They are verified and screened against databases, including government records, sanctions screening, and watchlists.

Similarly, businesses are rated according to their registration. Your company may accomplish this online by contacting the trade standards authority or a local government agency that maintains this information.

5. Monitor for Suspicious Activities

Law enforcement agencies collect and review financial data to combat money laundering and spot unusual behaviors. In today’s regulated environment, detailed records of all significant financial transactions assist law enforcement in crime tracing.

Consequently, your company must maintain an unalterable audit trail that regulators can rely on. Thus, it is critical for compliance analysts at financial institutions to promptly examine and resolve issues. Your analysts must monitor transactions daily and integrate data from several sources to flag a high-risk transaction for suspicious behavior.

6. Update Security Systems

Make sure that the security systems of all your devices are up to date. Fraudsters are constantly developing new ways to bypass databases, and keeping your software updated will ensure that you’re protected from potential vulnerabilities.

In addition to software standardization, making use of proven security technologies such as cloud based biometrics and multi-factor authentication will further improve your security infrastructure. Moreover, enforcing ideal cybersecurity practices such as strong password implementation will let you secure everyone’s safety.

7. Double Down on Staff Training

AML officers must be aware of how to spot potential risks. Banks should have at least three full-time employees—a trainer, a developer, and a facilitator—solely responsible for new employee orientation and training. 

It is especially vital to train front-end workers to check for questionable behavior since they are your first line of defense. While back-end employees may be oblivious of any suspicious activity at first, a client service representative may notice that an account holder seems to be uninformed of fraudulent activities made in their name.

Fortify Your Company Against Money Laundering!

Money laundering is a serious crime that must be prevented. Banks and other financial institutions must ensure that it is stopped if they are to stand as the main line of defense. Fortunately, managers can fortify their security infrastructure with AML compliance.

Partnering with identity and access management experts will be in your best interest to strengthen your anti-money laundering efforts further. Acquiring Q5id’s authentication solutions will help you spot and address possible criminal activities before progress. Contact us now to learn more!

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