INVC NEWS
Mumbai : Tiger Brokers have recently come under fire after it was discovered that the Singapore-based share broker has breached anti-money laundering and countering the financing of terrorism laws. The Newzealand branch of the broker has been fined $900k after admitting to poor due diligence and reporting.
The news has sparked conversation amongst financial institutions about the measures that need to be put in place to prevent money laundering and fraud. Tiger Brokers is not the first financial institution to be hit with an AML fine. Capital One was fined $390 million for failing to report suspicious activities in 2021 and Apple Bank For Savings was fined $12.5 million in the same year for failing to comply with an FDIC order relating to AML breaches.
To protect your own financial institution from running into AML fines, it is important to conduct the correct due diligence, reporting, and AML strategies. In this article, we take a look at how financial institutions can spot money laundering.
What do financial institutions need to prevent money laundering?
To effectively prevent money laundering, financial institutions need a robust framework that includes several key elements:
Regulatory Compliance:
Financial institutions must comply with the anti-money laundering (AML) regulations set by the relevant authorities in their jurisdiction. This includes implementing policies, procedures, and controls to detect and prevent money laundering activities.
Internal Controls:
Establishing strong internal controls is essential for identifying and mitigating the risks associated with money laundering. Financial institutions should implement comprehensive risk assessment procedures, conduct ongoing monitoring of customer accounts, and maintain thorough records of all transactions.
Staff Training:
Adequate training programs should be provided to employees to enhance their understanding of money laundering risks, detection techniques, and reporting procedures. This ensures that employees are equipped with the necessary skills to identify suspicious activities and report them promptly.
Financial institutions should also regularly update the systems that they use to prevent money laundering. For example, institutions should keep staff training up to date so that staff members are aware of recent advances in criminal methods. Money laundering practices are constantly evolving to avoid detection.
What is due diligence?
Due diligence is a critical component of the money laundering prevention process. Financial institutions are required to conduct due diligence on their customers to verify their identities, assess their financial activities, and understand the purpose of their transactions. There are various levels of due diligence, including:
Customer Identification: Financial institutions must obtain and verify the identity of their customers through reliable and independent sources. This may include requesting identification documents, such as passports or driver’s licenses, and verifying the authenticity of the provided information.
Know Your Customer (KYC): KYC procedures involve gathering comprehensive information about customers, including their source of wealth, business activities, and risk profiles. This helps financial institutions to assess the legitimacy of their customers’ transactions and identify any red flags.
Enhanced Due Diligence (EDD): Financial institutions may need to apply enhanced due diligence measures in cases where the risk of money laundering is higher, such as with politically exposed persons (PEPs) or high-net-worth individuals. This involves conducting additional scrutiny and monitoring to ensure compliance with AML regulations.
How to spot money laundering customers
As a financial institution, it is vital that you employ the right technique to spot money laundering customers. Identifying potential money laundering early could prevent your institution from receiving AML fines and also protect other customers who use your services.
Financial institutions should use a variety of different methods to spot money laundering activity. Here are a few common methods that you should consider using.
Cross-data analysis
Cross-data analysis is perhaps the most effective way of spotting money laundering. The process involves examining multiple data sources to identify suspicious patterns or anomalies. By leveraging technology and data analytics, financial institutions can analyze large volumes of data, including customer transactions, account history, and external data sources, to detect potential money laundering activities.
Cross-data analysis can be used to effectively spot customers who are at risk of being targeted by money launderers. This could include customers who have had their credit cards stolen, customers who have been hacked, or customers who have had their personal information stolen.
Spotting high-risk customers is an essential part of putting the right methods in place to deter criminals. For example, if you notice that a customer’s credit card is being used to fund suspicious activities, you could alert the customer and freeze their card. This would stop potential money launderers from being able to use the customer’s credit card to make purchases.
Geographical concerns
Geographical concerns play a crucial role in spotting money laundering. Financial institutions must be aware of high-risk jurisdictions and monitor transactions involving these regions more closely. Unusual transaction patterns, such as large transfers to or from high-risk countries, can raise red flags and trigger further investigation.
The best way to spot geographical red flags is to use an IP lookup tool. These tools track the location of website visitors using the location of their WiFi router. It is possible to flag any suspicious geographical locations to spot potential money laundering.
Questionable source of funds
Identifying the source of funds is crucial in preventing money laundering. Financial institutions should scrutinize the legitimacy of the funds deposited or transferred by customers. Large sums of money from unknown or unusual sources, inconsistent income-to-expenditure ratios, or significant discrepancies between stated income and transaction values may indicate potential money laundering.
The best way to spot questionable funds is to employ rigorous checks when customers make deposits. All financial institutions should ask questions regarding how funds were obtained and where they were obtained from. Financial institutions should also use intelligence from other institutions to increase awareness of potential money laundering activities. For example, Financial institutions should work with the police force to gather intel on criminal activity.
Preventing money laundering is of paramount importance for financial institutions. By implementing robust compliance measures, conducting thorough due diligence, and employing various detection techniques, financial institutions can significantly reduce the risks associated with money laundering. Staying vigilant, leveraging advanced technologies, and collaborating with regulatory bodies are key to ensuring the integrity and security of the financial system.
