In the 1930s, fraud and money laundering were rife. Though the takedown of huge mobsters was seen as a win, these individuals inspired a generation of new criminals. With the advancement of technology, these criminals have manipulated tech to best serve themselves. This has left many wondering what they can do against such an evolving threat.
The need for effective AML solutions is now more important than ever. In the UK, the Financial Conduct Authority (FCA) is beginning to really crack down on this offence. Breaking down how the UK is dealing with this, Tamas Kadar, CEO and co-founder of SEON examines in closer detail the challenges that UK businesses currently face in the battle to stop money laundering.
Leveraging his own experience in the field, Kadar can give strong insights into the failings of previous AML solutions, before explaining why modern solutions, which utilise more powerful technologies are far more suited to the task.
Money Laundering Remains Finance’s Dirty Problem
I read recently that it is the infamous American gangster, Al Capone, who’s credited for inspiring the term ‘money laundering’. The story goes that the Chicago mob boss would funnel his illicit funds through a series of laundromats he owned. As a result, he presented the outward appearance of an upstanding, cash-rich businessman. By ‘washing’ his money with the genuine earnings of these establishments, Capone was able to avoid prosecution. That is until eventually he was caught.
That’s because in 1931, Al Capone’s scheme was finally uncovered. He was convicted on five counts of tax evasion in a highly publicised trial. Ultimately, he was sentenced to 11 years in federal prison. In doing so, the US government had taken down one of the era’s most notable bandits and caused a huge dent to the ever-growing mob world. However, their fight against money laundering had only just begun.
In the decades since that trial, money laundering has become a truly global problem. It can no longer be tackled with domestic policy alone. Europol states that between two to five per cent of Global GDP is laundered each year. Ever since the 1980’s, and the ‘war on drugs’, criminals have continually devised new and complex ways to disguise their earnings. They can increasingly rely on these methods to launder illicit money through different countries and regions without detection.
New era, same problems
This rise has been further helped by the growing interconnectedness of the world’s economy and the advent of the internet. Unfortunately, it’s now argued that the scale of money laundering in today’s world is too big to measure. For some perspective, it’s reported that states such as North Korea and Iran, as well as the Sinaloa cartel in Mexico laundered $16billion through a single bank in a ten-year period alone.
Clearly, money laundering remains a persistent and pernicious problem, which the world must quickly get better at addressing. If not, this process of ‘legitimising’ dirty money will continue to affect us, and we could find ourselves perpetuating a never-ending cycle of criminality, which leaves only damage and destruction in its wake. Thankfully, there is now growing recognition of the challenge facing us all.
In the past decade, anti-money laundering (AML) legislation has taken on new importance across the worlds of business, and governance. Prior to this, AML laws on both a national and supranational level had been considered serious. However, the willingness of regulators to impose large fines, not only on those personally committing money laundering, but on the organisations who unwittingly facilitate it was not nearly as established.
In recent times, this has changed drastically, especially in places like the US and the UK. Throughout 2022, AML related fines surged by around 50 per cent, with financial institutions fined nearly $5billion for failings in this area. In the UK, the FCA has handed out over £600million worth of fines in 2021 alone. Simply put, businesses can no longer afford to fall foul of AML regulations.
Walking a tightrope
Don’t just take my word for it. In 2019, McKinsey made the case that effective AML protocols should be considered a ‘top priority’ for financial institutions. With the onus now on them to stop money laundering occurring on their platforms, financial businesses find themselves pressed to implement the most effective AML and know-your-customer (KYC) checks within their platforms, and to use these systems to stop this crime in its tracks.
However, up until now, effective and robust AML and KYC measures have often interfered with the customer onboarding journey. This adds more friction to this critical process. As such, many companies have found themselves walking delicately across a tightrope of ensuring they’re upholding AML regulations. They want to remain compliant, while also not scaring off customers to industry competitors.
Finding the right approach
This uncomfortable balancing act isn’t unique in financial crime prevention. In the past, it has been widely observable in the world of online fraud prevention too. In both examples, businesses face the tough task of implementing measures, which can accurately determine the veracity of a person, or a person’s funds. All the while, not overburdening the onboarding process with additional information inputs that detract from the broader user experience.
Especially now, with the number of AML-related fines on the rise, and with the direct consequences of this crime coming into more acute focus across our daily lives, the need for businesses to find solutions they can rely on is greater than ever. Encouragingly, those creating systems capable of dealing with this challenge only need to look at what’s happened in the world of online fraud prevention for inspiration on how to improve.
Learning from each other
Modern online financial crime prevention systems, such as the one supplied by SEON, are capable of providing effective and robust fraud and AML checks in real-time, and as such, have no impact in the broader customer journey. By leveraging the power of AI and machine learning, solutions in this field have essentially been able to conduct checks ‘behind the scenes’. In doing so, they are helping companies to uphold retention rates, while maintaining compliance.
Given the close relationship between fraud and money laundering, it stands to reason that these same principles can now be applied in this field too. I, for one, see no reason not to bring these two societal ills together under the one umbrella of financial crime, and to find solutions that can address them simultaneously, and in real-time. In doing so, businesses will be able to tackle the challenge without worrying about losing customers.
Moving forward, it’s important for businesses that are required to uphold these regulations to recognise that new, and more effective AML solutions are on offer to them. A way of ensuring this is with the hiring of an AML Compliance Officer. They will be dedicated to ensuring the organisation is working in line with AML regulations.
Now is the time for sectors who fit these criteria to redouble efforts against this serious issue. It’s time to prioritise the implementation of systems that can tackle the problem as efficiently and effectively as possible. In turn, finally vanquishing this problem once and for all.