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Anti-money Laundering Tools That Prevent Financial Frauds

by Mangal Tiwari

To establish an effective anti-money laundering (AML) compliance framework, technology backed by artificial intelligence (AI) models is often used. With the help of advanced anti-money laundering tools, financial institutions can substantially mitigate the risk of financial crimes. After reading this article, you will have ample knowledge about the significance of AI-powered AML monitoring tools that can safeguard your business against illegal activities. Let’s begin. 

Mandatory AML and KYC Compliance

AML and KYC compliance guidelines became prominent worldwide after the 9/11 incident when the Patriot Act in the United States was passed. Subsequently, a global regulatory body known as the Financial Action Task Force (FATF) was also established, which consists of 36 member states. By 2010, financial institutions had become liable to monitor and report suspicious transactions to the respective intelligence unit of each country. 

It should be noted that financial institutions that fail to comply with these regulations or do not properly file a Suspicious Activity Report (SAR) are subject to heavy fines, penalties, and regulatory restrictions. Therefore, firms existing in this industry consider regulatory compliance as a high priority. 

To meet such obligations, businesses integrate anti-money laundering tools and software to streamline their business operations. Let’s take a look at some of these tools along with their importance.

  • Identity Verification Solutions

Identity verification refers to the essential process of verifying a customer’s identity, to ensure that an individual is actually who they claim to be. This procedure is typically carried out prior to customer onboarding, account opening, loan application, or other financial processes. 

Although identity verification solutions play a huge role in weeding out fraudsters and combating financial frauds such as money laundering, data breaches, and identity theft, they also assist a company in meeting Know Your Customer (KYC) and anti-money laundering standards. With the help of automated solutions, financial institutions can reallocate time and resources to better monitor and assess customer risk.

The benefits of using this tool are listed below:

  •  Eliminates financial risk and online frauds
  • Verifies customer identities within seconds
  • Includes verification of identities through multiple options, such as documents, selfie scans, or a video
  • False documents are detected 
  • Backed by artificial intelligence and machine learning algorithms
  • Cost-efficient 
  • AML Screening Tools

Another remarkable anti-money laundering tool is AML screening software. This software enables enhanced transaction security by thoroughly monitoring and assessing each transaction made by a customer. The Following are some crucial tasks that this software can perform

  • PEP Screening

A Politically Exposed Person (PEP) refers to an individual that poses a higher risk for committing potential monetary crimes, such as bribery, money laundering, or other kinds of corruption. For such individuals, separate checks have to be carried out to safeguard the company from exposure to numerous financial frauds. 

  • Risk Assessment

Risk management is an essential task that is implemented by financial institutions. It plays a significant role in the company’s AML framework. With the help of anti-money laundering tools, automated risk assessment is carried out where a risk rating is assigned to each existing and potential customer. This way, high-risk customers can be closely monitored. 

  • Suspicious Activity Reporting

Suspicious activity reports, commonly known as SARs, are central to an effective anti-money laundering compliance strategy and of crucial importance to regulative and law enforcement agencies. 

Efficient anti-money laundering tools not only enhance SAR quality, from examining to documenting suspicious transactions but also deliver better insight-filled narratives that can be used by intelligence units to track and locate criminals.

  • Transaction Monitoring

Anti-money laundering tools have a feature of transaction monitoring that allows financial institutions such as banks, insurance firms, brokerage companies, fintechs, etc. to money customer transactions on a day-to-day basis. 

By combining such information with an investigation of a customer’s financial history, these tools can provide an in-depth analysis of a customer’s profile, the risk associated with them, their predicted future activities, and also generate SARs to alert the company in case of suspicious activity. 

  • Watch List

Another way of verifying customers is by screening them against global watch lists. Anti-money laundering screening tools enable organizations to detect individuals and business entities that exhibit high levels of risk to the overall financial system. A watch list feature benefits organizations by minimizing the risk of exposure to financial frauds and allows them to stay compliant with native and global regulations. 

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