Businesses have been exploited by money laundering for a very long time now. Fraudsters are finding new ways to carry out their illegal activities and have taken complete advantage of the rapid increase in the advent of technology. Technological advancements have paved the way for criminals to take the virtual steps for money laundering. Now criminals have adopted more sophisticated ways to obscure the origin of their illegally obtained funds. Unfortunately, financial institutions, crypto exchange, and Fintech companies are going to face the impact of the situation as they will be the key targets of these criminals.
According to the report by Europol and UNODC, about 2-5% of the global GDP is wasted in money laundering. This totals to the amount of €715 billion to €1.87 trillion.
Money laundering is the act of concealing the source of the illicit funds so they cannot be traced back to the owner of the funds and the criminal activity through which these funds were acquired. Anti-money laundering (AML) refers to the regulatory obligations that came into existence in order to eliminate money laundering and in turn get rid of criminal activities like smuggling, gambling, human trafficking, money mules, drug trafficking, fraud, corruption, etc.
History of FATF
Financial Action Task Force or FATF is the global regulatory authority that is always busy in finding loopholes the fraudsters can manipulate to their benefits regarding the AML and CFT(Counter Financing Terrorism). The anti-money laundering regulations require the business entities to verify their customers’ identities and ensure that they have not been involved in any illegal activity before. They are to immediately report any unusual transactions. FATF’s major responsibility is to ensure that the nations have a strong system of implementing these laws for their business entities and to ensure that the business entities are compliant with such laws.
FATF was formed in 1989 at a Summit in Paris by a group of G-7. This organization was initiated to counter money laundering due to drug trafficking, however, after the severe terrorism attack of 9/11 in 2001, FATF became occupied with the sole purpose of fighting terrorism and getting rid of any financial crimes that can be a cause of the terrorist activities.
Five Measures to Prevent Money Laundering Recommended by FATF
1. Private Wallets
FATF has highlighted the risks related to the immediate withdrawal of private wallets. They have recommended to financial institutions to keep a strict check on the transactions related to private wallets that make an immediate withdrawal of funds. This means if a client receives a large amount of money now and then and they immediately withdraw the money from their accounts. This is a suspicious activity and can because of money laundering so financial institutions are warned about the risks related to it and they must immediately report to authorities if they see any such activities.
2. Virtual Assets
Money laundering can be easily be done through virtual assets as they are not utilized on a day to day transactions. Criminals immediately convert their illicit funds into virtual assets. In order to overthrow any suspicions, they convert money in small amounts to meet the limitations put by the banks. Another way to prevent money laundering is to keep a lookout for such frequent conversions which are usually done to hide the origin of the money.
3. High Risks Countries
The businesses might come in contact with the customers onboarding from high-risk countries. Even though it is legal and harmless to onboard such customers from high-risk countries, but the organizations can never be too safe from the high probability of the risk attached to such customers. It is always better to keep a stringent check on such customers and carry out a thorough background screening of such customers. FATF recommends strict AML compliance while dealing with high-risk countries and the verifications of customers must include sanctions and PEPs.
4. Wary of the Secretive Customers
When opening up an account in a bank or while dealing with financial service businesses, the customers have to provide detailed personal information for the identity verification process. In order to highlight high-risk customers, the companies have to look out for the secretive customer who is hesitant to share their personal information. The organizations must ensure that their end-user tell all the details regarding their business and their business partners and if they fail to comply, the organizations are recommended to decline the opening of their bank account. Such accounts might be linked to troubled transactions.
