Anti money laundering or AML security is a field that is continually expanding and becoming more complex. The epidemic has demonstrated how con artists take advantage of disasters. Climate change will amplify disaster-related fraud and abuse, as well as encourage widespread migration. Economic inequity, political unrest, and the emergence of domestic violent extremism can all contribute to suspicious behavior that financial institutions (FIs) should keep an eye on and report. Tax evasion is a recurring topic among these many risk kinds. Technology advancements, payment methods, and digital assets all have the ability to both minimize and worsen these dangers. When analyzing money laundering risk, financial institutions should try to understand the underlying causes of such risks so that they may build programmes that are appropriate for their size and complexity.
Pandemic and Disasters
The AML systems field was severely hit by the Covid epidemic. Financial institutions had to discern between possibly suspicious behavior and aberrant but harmless behavior during odd and unexpected occasions. The epidemic confirmed what experts had long predicted: tragedies are exploited by fraudsters, thieves, and charlatans, in addition to creating large fluctuations in economic activity for consumers and producers.
Hurricanes, sea-level rise, droughts, and wildfires will all become more common and catastrophic as a result of climate change. As a result of the disaster relief effort, fraud and abuse will continue. Longer-term implications may be less severe, but they are no less important, and they will have an impact on FIs’ capacity to identify illicit conduct. The geography of cross-border remittances from the displaced diaspora has shifted as a result of mass movement from climatic hotspots to locations of greater safety, leaving an increasing proportion of the population unbanked. These variables alone will make detecting dangerous consumers and transactions more difficult.
Instability and Violent Extremism
In the international political environment, long-standing instabilities have been perpetuated, including tense relations between the US/EU and Russia, China—including its own domestic economic situation, Iran, and North Korea—as well as localized instability in Afghanistan, Yemen, Haiti, and the Armenia-Azerbaijan border crisis, to name a few. Despite the Treasury’s 2021 Sanctions Review, sanctions administrators like OFAC have increased the number of specially designated persons on their lists significantly, and this trend does not appear to be slowing down. FIs having a presence in hotspots, or clients that engage with counterparties in hotspots, should be very cautious.
Cybersecurity and Ransomware
Ransomware assaults on hospitals and gasoline pipelines, for example, represent a national security risk. Financial Institutions can be specifically directed or used to help with ransomware payments once a community has been impacted. Because ransomware payments go to criminal enterprises, enabling such payments exposes businesses to considerable AML compliance and sanctions risks, as both FinCEN and OFAC guidelines point out. According to FinCEN, the number of Suspicious Activity Complaints tied to ransomware activity is fast growing, with 30 percent more reports in the first six months of 2021 than in the entire year of 2020. Firms should be on the lookout for cyber-threats and have procedures in place to minimize and disclose such breaches.
Emerging Tech and Payment Systems
The epidemic intensified a trend toward digitization that was already accelerating. New technologies and payment systems, such as those using digital assets and cryptocurrencies, have the potential to both decrease and increase risks. Advanced machine-learning algorithms have been developed to prevent and identify money laundering, while blockchain provides unprecedented visibility into previous transactions and payment traces. Firms have invested extensively in compliance skills and technology to manage risks associated with the mainstreaming of digital assets, which are often subject to immature or inconsistent regulation and monitoring. The simplicity with which many of these technologies enable speedy cross-border transactions adds to the risks. Firms will need to assess their potential risk and how future technological advancement may affect their business.
Doing More With Less
Other obstacles exist despite these rising and enduring threats. AML verification programs have long been viewed as ineffective and inefficient, despite the efforts of devoted specialists. Cost pressures and competing demands affect resource allocations across people, procedures, and technology, as well as across AML compliance and other risk and compliance disciplines. Compliance officials are all too acquainted with this situation. Gaining a better knowledge of the underlying drivers of the risks an institution confronts, as well as the amount to which it is exposed to those factors, is one method to address this. It will be easier to design a long-term programme that represents the firm’s growth, complexity, and ever-changing risk profile if that evaluation is accurate.