Money laundering and terror financing are the biggest problems faced by businesses. Money laundering is the involvement of illicit money in the financial system to make it white. Black money is given a legitimate source so that it can easily be used in the financial ecosystem. The impacts of money laundering include social disasters, uncertainty in the financial system, and an increase in street crimes.
Anti Money Laundering
To combat money laundering and terror financing, Anti Money Laundering guidelines and directives are issued by global watchdogs like FATF and EU. These directives include laws, regulations, and prevention measures for businesses to mitigate any risk of money laundering. All businesses are under the obligation of international monetary authorities to implement AML regulations on their business process.
What is Anti Money Laundering Compliance?
Anti Money Laundering compliance is the monitoring, screening, and analysis of businesses, businesses’ employees, customers, and transactions All countries also have their own Anti Money Laundering laws Know Your Customer, the businesses which are operating within the borders of that country must act upon those laws.
Countries make their AML compliance program under the guidelines of international monetary authorities. Huge organizations have their AML compliance departments that supervise all the customers’ activity and financial transactions.
Why Anti Money Laundering Compliance is essential?
AML compliance plays a significant role in fighting financial crimes. The amount of annual money laundering equals two percent of the global GDP, UNODC reports. The ill-gotten money disrupts the financial system heavily by encouraging crimes and illegal businesses.
Businesses can be penalized or sanctioned by local or international authorities for not having a strict AML compliance program. The amount of AML fines on businesses was 706 million US dollars in the first half of 2020. By having an AML compliance program a business not only decreases the risk of money laundering through its channels but also saves itself from fines by regulators.
AML Compliance Program
Digital currency or cryptocurrency is a flourishing industry in modern times. It is used for purchasing online products or services. It is also linked with credit cards now which means now customers can have an easy withdrawal of money through debit/credit cards But due to the anonymity of the owner and huge money involvement, it also becomes a channel of money laundering.
Money launderers get the comfort of cross-border transfer on money without informing any regulatory authority. The amount of criminal activities through cryptocurrency is 76 billion US dollars, research by the University of Technology, Sydney. The support of illegal activities by cryptocurrency can be opposed by implementing AML compliance in this industry.
FATF recommendations for Cryptocurrency:
- All cryptocurrency providers are required to perform Know Your Customer (KYC) and AML verification on customers
- Identity verification must be conducted on transactions exceeding 1000 Dollars
- Customer Due Diligence and Enhanced Due Diligence on customers from Third World countries
- Background screening and ongoing monitoring of all customers
- Keeps a record of all verifications
Like cryptocurrency, e-gaming is also at risk of money laundering because of the high number of players and the large value of prize money. With globalization in the gaming industry, money launderers use it for illicit cash transfers. Local and global regulatory authorities must ensure that e-gaming platforms are performing AML verification.
The players or gamblers should be screened through Politically Exposed Persons (PEPs) and sanction lists. A risk-based approach is best in fighting money laundering in e-gaming. The identification of risks and the necessary precautions are taken in a risk-based approach.
All industries must have a KYC AML compliance program. Most online transactions are expected to be processed by digital currency due to its global coverage. The number of online players is rising as the young generation is more interested in e-sports. The profitability of both these sectors is at stake because of money laundering. By having automated Anti Money Laundering solutions these sectors can counter financial crime through their channels.