Fraud involves the use of deception or dishonesty to generate illegal proceeds. These proceeds must then be ‘laundered’ using money laundering techniques so that their criminal origin is concealed. Discover the solutions organizations use to tackle fraud and achieve compliance.
August 30th, 2022
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AML and anti-fraud processes are vital for preventing criminal activity and ensuring regulatory compliance. These processes are particularly important because new trends in online fraud are emerging all the time.
In this guide, we’ll cover everything you need to know about AML and anti-fraud, including what the processes involve, how they’re connected, and the methods businesses can deploy to protect themselves from money laundering and fraud.
Fraud and money laundering are connected terms. This is because fraud is widely considered as a predicate crime for money laundering.
Fraud involves the use of deception or dishonesty to generate illegal proceeds. These proceeds must then be ‘laundered’ using money laundering techniques so that their criminal origin is concealed.
The fight to prevent fraud is known as anti-fraud, while the fight against money laundering is known as anti-money laundering (AML).
Fraud and money laundering are often connected in criminal and regulatory contexts. This is because there’s usually a great deal of crossover between the crimes and the responsibilities of AML and anti-fraud employees.
That said, although AML and anti-fraud employees face similar threats, these departments often work in relative isolation because they have different objectives.
While fraud departments protect their company from financial losses, AML departments focus on anti-money laundering compliance and the need to protect the financial system itself. This means that while anti-fraud has a direct commercial benefit for a business, AML does not.
But, given the damaging financial and reputational effects of fraud and money laundering, it is important for financial institutions to be able to coordinate their AML and anti-fraud responses effectively. This way, they can prevent criminal activity and protect themselves against regulatory consequences.
In order to prevent silos between your AML and anti-fraud departments, you must ensure that they communicate, work collaboratively, and share case management and monitoring systems.
If these departments work separately and compete for budget, resources, and the attention of senior management, then silos will be created and information will not be shared effectively. Ultimately, this will create an environment where your anti-fraud investigators will be unlikely to know that a person is also being investigated for money laundering, and vice versa.
Due to this, many financial institutions have now combined their fraud and AML departments and have created an enterprise-wide anti-financial crime umbrella. This is a move that has been welcomed by regulators such as FinCEN, who state that they expect financial institutions to promote “communication and collaboration among internal AML, business, fraud prevention, and cybersecurity units.”
Know your customer (KYC) processes are an integral part of assessing a customer’s risk level. They’re also a legal requirement for businesses that need to comply with AML laws.
Effective KYC processes ensure that a business knows their customer’s identity, their financial activities, and the level of AML risk they pose.
As part of their KYC processes, a business must:
Due to this, a KYC process must involve:
Customer due diligence (CDD) processes are an essential part of any KYC process. As a result, they’re vital for preventing both fraud and money laundering.
The CDD process is essential for helping manage risks and protecting your organization from criminals, terrorists, and politically exposed persons (PEPs). CDD is conducted on a risk-based scale and there are three levels:
As a result, customers who pose the highest level of risk are subjected to the greatest number of checks.
In order to prevent money laundering and fraud, AML and anti-fraud departments tend to utilize detection tools such as transaction monitoring software and identity verification software.
On top of this, to ensure their investigations are effective, a number of institutions now cross-train their AML and anti-fraud teams in order to enhance interdepartmental expertise and encourage familiarity with corresponding policies.
To further prevent fraud and money laundering, companies should look at ways their departments can become as integrated as possible. This includes the use of shared systems, processes, and reporting functions.
Here at Veriff, we’re proud to offer a range of solutions that can help your business meet its AML and anti-fraud obligations.
Our identity verification platform is integral to the fight against fraud. It helps you verify the identity for any user who signs up for your service. It employs browser and device analytics, optional background video checks, and other data cross-checking methods to ensure maximum accuracy. Plus, most of the work happens behind the scenes, so you can keep customers happy and maximize conversion rates. You can also make sure you’re only ever enabling the checks you need, so you can scale fraud protection up or down according to your requirements for compliance, speed, and conversions.
Similarly, our AML and KYC compliance solution helps you fight financial crime. Not only does it help you verify the identity of your customers, but it also checks PEP and sanctions watchlists, screens clients for adverse information and media, and provides ongoing monitoring. It guarantees compliance with AML obligations and helps you show regulators that you take financial crime and compliance seriously.
Our AML experts can provide you with a personalized demo that shows you exactly how our solutions can help your business. Simply provide us with a few basic details and we’ll organize a demo for a time that suits you.
EDD in banking involves gathering information in order to verify the identity of customers and calculate the exact level of money laundering risk each customer poses. During the EDD process, the customer is asked for a much greater amount of information than they are during the CDD process, as this information can be used to mitigate the risks involved.
When carrying out due diligence, a financial institution must determine whether they should perform customer due diligence (CDD) or enhanced due diligence (EDD). This is because FATF guidance suggests that companies should adopt a risk-based approach to due diligence that reflects the specific level of risk that each individual customer presents.
Synthetic fraud is incredibly dangerous and is a major problem facing the financial sector. Unlike third-party fraud, where an entire identity is stolen and used to defraud enterprises and victims, synthetic fraud frequently has no specific consumer victim.