Coming clean about money laundering

According to the United Nations Office of Drugs and Crime, $800 billion to $2 trillion dollars every year goes through the criminal process of money laundering. Although regulators and financial institutions are working hard to prevent and reduce the crime, it's still a costly and prevalent issue.

It would seem that in a world that is becoming so reliant on digital payments that the issue of money laundering would be less, but consider why criminals launder money in the first place.

The goal of money laundering is to hide the purpose of an individual's actions, identity or proceeds of what's been stolen. Depending on the situation criminals are dealing with, money laundering can come in many forms.

ATM Marketplace interviewed Rick McDonell, former executive secretary, financial action task force and executive director of the Association of Certified Anti-Money Laundering Specialists to learn more about what financial institutions and companies can do to prevent money laundering.

Rick McDonell, ACAMS

Q.What does the Association of Certified Anti-Money Laundering Specialists do and how can they help fintechs/businesses?

A.ACAMS is the largest international membership organization dedicated to enhancing the knowledge and expertise of financial crime detection and prevention through certifications, training, resources and community engagement. The organization's hallmark certification, CAMS, is considered the global gold standard in AML certification, with more than 40,000 graduates worldwide. Over 2,000 of the world's leading organizations also train and accredit their financial crime prevention teams with ACAMS.

Compliance and financial crime prevention are key business needs, and certification offered by ACAMS acts as a solution by ensuring that compliance and that AML teams have appropriate and high-quality skill sets to do their job. Since the cost of being non-compliant can have enormous financial and reputational repercussions for businesses, being able to evidence the quality and capability of your compliance team through a globally-recognized and respected certification becomes extremely important.

Q.What are the most common ways for fraudsters to launder money?

A. Some common ways include setting up shell corporations, purchasing high-value items such as art and other collectibles, and frequently, real estate. The methods in which criminals can launder money have only grown, which is why it's become even more imperative that the ranks of AML officers and their working capabilities grow as well.

Q.What has been the biggest factors in the increase of fraud in the digital landscape?

A. The biggest factor in the increase of digital fraud has been the proliferation of new digital avenues and the frequency with which we are using those avenues. Consider phone calls, emails, text messages. Consider social media platforms where you can be connected to millions of other strangers. Consider the expansion of payment methods, from credit cards to payment apps to online checkout options. As the digital world and our digital touchpoints grow, so do the ways in which fraudsters can use those same touchpoints to reach us. Today, online and digital transactions are more frequent than physical ones, and number in the billions — all of which expand the playing field in which criminal activity can happen.

Q.Due to digital migration, how has the role of compliance changed and what do you feel are the key reasons for the change?

A.For a long time, the front lines of Know Your Customer and AML compliance began with physical customer identification. With the move toward everything digital, which was accelerated by the COVID-19 pandemic, there's been essentially little to no opportunity for this face-to-face interaction. That means that any systems that relied on face-to-face identification is under pressure to find alternative, digital means.

The same is true regarding availability and verification of key documents. In this sense, the entire mindset of the compliance function is shifting. This has been happening for some time, but now there is a great sense of urgency to determine the alternative solutions that fit the fundamental compliance requirements but can still achieve the same level of certainty, but which will require different technical capabilities.

Q.What ways are banks trying to combat fraud and in what ways are automated systems and compliance officers helping in this fight against fraud?

A. Banks have been focused on developing and putting into place more sophisticated technologies to help automate and aid in the identification of questionable activity in ordinary transactions. We've also seen a more coherent approach by financial institutions to amalgamate their fraud departments with their anti-corruption and anti-AML departments, which previously may have operated in silos. Financial crime activity does not neatly fit into those boxes, and detection must cooperate across the board. It's become much clearer that the financial and reputational risk of financial crime is not something institutions can ignore. We're seeing internal structures re-aligning to prioritize capabilities and resources against financial crime.

Q.How successful are "financial crime first responders" in catching fraudsters?

A.The systems and skills for catching fraudsters are much better than they used to be, from technology detection to the greater use of public-private partnerships, which has improved the capacity to identify and report suspected fraud and assist subsequent investigations. But it is difficult to put a success figure on it because fraud is on the rise in absolute terms.

Q:As the financial landscape changes what do you think is most important for compliance officers and banks to pay attention to as we move into the future?

A. Financial criminal activity has evolved quickly, becoming more complex and novel. It is imperative that banks and their compliance teams also learn to evolve quickly and refresh their own knowledge and capabilities in order to meet the challenge. This is not a static field, and becoming complacent is not an option, as financial crime has far-reaching economic consequences beyond just the proceeds of the bank or business, but to local communities and individual taxpayers.