By Martin Cheek
For many institutions, particularly credit unions, maintaining compliance with anti-money laundering (AML) regulations is resource intensive, requiring not only tens of millions of dollars in budget but also additional employees to provide manual oversight.
As new AML laws are passed–and new methods of money laundering emerge–the burden will only become heavier. It’s time for CUs to embrace automation as a tool that can help in the fight against fraud and money laundering and enable nimbler and timelier responses to the threats at hand.
But before delving deeper into how automation can be used effectively for AML, it’s important to first outline the threats that CUs currently face as a result of money laundering and fraud, and why it is necessary to be proactive instead of reactive.
Both money laundering and fraud are complex processes and take advantage of areas with relatively little oversight (such as online trading platforms or all-cash real estate purchases) to shift funds from illegitimate channels to legitimate ones. All kinds of businesses, from real estate brokers to construction companies to grocery stores, can be used to facilitate fraud, whether by accepting all-cash offers without asking questions about where the money came from or by operating as a front to make illegal profits look clean.
Be On Alert
With at least $300 billion being laundered through the United States every year, credit unions need to be on alert for suspicious activity. This is especially true for brokerages, accountancies, law firms and financial institutions, all of which may inadvertently find themselves helping to legitimize money made from illicit activities, particularly if they lack the means to fund and maintain compliance departments whose sole purpose is to look out for signs of money laundering and fraud.
Even businesses that do have manual AML processes in place can find themselves duped by fake passports and falsified documents, which have become increasingly difficult to detect with the naked eye, even for those with the proper training.
Luckily, advances in technology have made conducting AML checks simpler and more convenient than ever. Not only that, technology enables companies to have a consistent and reliable approach to AML, and to perform compliance checks remotely if needed.
Finally, by making technology a core component of their AML compliance strategy, CUs can streamline operations while reducing the overall cost of compliance.
Key Benefits
Automation in particular has several key benefits when it comes to AML compliance. In addition to eliminating the need for having dedicated employees whose sole responsibility is to conduct AML checks, automation solutions also eliminate the potential of human error, thus ensuring that no important information–or red flags–falls through the cracks.
And as lockdowns around the world have demonstrated, automation in some form is vital to ensure that businesses can carry out the necessary checks and keep themselves operational even while employees work out of their homes.
Moreover, with stricter AML regulations now in place in the United States, CUs need to take extra steps to ensure they are compliant. In fact, at the end of March, the SEC issued a risk alert, warning that many broker-dealers and mutual funds were failing to carry out adequate AML monitoring and reporting as required by the law. With the help of automated AML platforms, companies can ensure that their policies are in compliance with all existing regulations while reducing their own risk.
Just the Opposite
There are many who fear that automated solutions provide more risk than reward. I would argue that the opposite is true, especially when it comes to money laundering: without automated AML solutions, CUs are leaving themselves more vulnerable to fraud and illegal activity.
Automation makes AML checks simpler, quicker, and more reliable - all while allowing companies to keep one step ahead of fraudsters.
Martin Cheek is vice president of SmartSearch, a provider of an Anti-Money Laundering verification service based in Lehi, Utah.