Treating Know Your Customer (KYC) as a tick box exercise exposes organizations not only to significant non-compliance penalties and reputational damage, but also increases the likelihood of criminal activities going undetected.
“Fact: Around the world, an estimated $800 billion to $2 trillion worth of money is laundered each year — UN.”
As a result, it is critical for organizations combating money laundering to implement anti-money laundering programs and to comply with international regulations.
While the modern world enables us to easily transfer money across international borders from the comfort of our own homes. Certain structures, on the other hand, are used to launder illicit funds.
Compliance with anti-money laundering regulations benefits economies, reduces crime (such as fraud, bribery, corruption, drug, human and arms trafficking, terrorist financing etc.), and, most importantly, saves many human lives.
KYC
On the surface, anti-money laundering (AML) measures such as Know Your Customer (KYC) appear to be straightforward to implement, as any organization should be aware of who their clients are, where their money originates, and where it is being sent. However, illicit money can flow through a complex financial network that involves individuals concealing themselves behind shell companies and high-volume transactions, or dividing large sums of money among multiple headcounts, making it extremely difficult to monitor. This is made even more difficult when dealing with massive volumes of clients and transactions on a daily basis.
“It has never been about the size of the transaction when it comes to money laundering.”
Thus, the KYC process should be concerned with not only the speed with which the review can be completed and the file progression from point A to point B, but also with fully comprehending the client relationship and its associated risks through the use of a risk-based approach and the appropriate risk rating methodologies.
The Importance of Transaction Monitoring
Financial institutions can utilize transaction monitoring to find potential suspicious transactions or anomalous activity. Transaction monitoring, when used in conjunction with manual reviews, has been extremely beneficial. When a transaction is flagged as a potential money laundering, learning technologies are employed to identify probable instances of it.
Summary
We must be cognizant of the potential global impact of money laundering. Allowing suspicious transactions through our financial system may result in the financial crime in other parts of the world.
Money laundering cannot be viewed solely as a financial crime. It has the potential to devastate economies and endanger human life and well-being. Combating money laundering is critical from a legal, ethical, and moral standpoint.
As with everything else in life, regardless of the procedures, laws and regulations, we always have the option to do the right thing. Which route would you choose?
