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Businesses in the financial sector that are directly related to dealing with and managing customers’ funds are the primary target of fraudsters. Criminals’ with the use of advanced technological trends carry out money laundering and terrorist financing. Banks and other financial institutions, therefore, contain a higher threat of experiencing payment scams. Therefore, to put a stop to these crimes, financial watchdogs developed AML solutions to safeguard businesses against financial scams. A report suggested that compliance professionals have imposed millions in fines on different organizations for KYC/AML non-compliance.
Anti-money laundering (AML) reflects the part of the process that is aimed to eliminate money laundering. Businesses verify their customers to get the process done. The identification procedures discourage imposters and prevent them from performing illegal activities. In this time when businesses are spread on a large scale, enterprises are not only expected to verify their customers and potential partners but they are also required to comply with AML/CFT regulations.
Without having complete knowledge of the consumers and corporate partners, it becomes useless to join hands with any of them as they disclose the businesses to reputational damages and heavy fines. However, AML Solutions can help companies in combating all such sorts of scams.
Money Laundering in Financial Institutions – Resulting in Bad Customers Experience
All the regulations established for financial institutions are aimed to control crimes such as money laundering and terrorist financing. Criminals carry out money laundering by transforming the illegally gained funds into legal money by passing it into multiple transactions.
Laundering money is such a big crime that it not only harms the businesses involved but also impacts consumers and the overall economy of the countries. Once involved in any financial crime, businesses lost their reputation in the market. AML solutions are designed to save firms from such adverse consequences.
CDD (Customer Due Diligence) And EDD (Enhanced Due Diligence)
Customer due diligence is part of the know your customer process. It is implemented to verify the identities of customers to mitigate the threat that might offer to businesses. The method is performed through the ID documents that the customers submit. Checks like CDD are performed to assist financial institutions to practice AML verification and therefore, reduce money laundering.
The difference between CDD and KYC is that the latter is done to know the true identity of customers at the time of onboarding while the former is carried out at regular intervals. Both the AML security checks are done to verify consumers before they turn out to be a potential threat for the company. AML monitoring is a part of the verification process to ensure the eradication of money laundering.
As financial institutions possess a great risk of being manipulated by imposters because of the sensitive nature of work they are involved in, they also perform enhanced due diligence. EDD is carried out when the institution deals with high risk profiles. It especially focuses on politically exposed persons (PEPs) that can abuse their power to launder money.
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Perks that AML Solutions Offer To Businesses
- Reduce Money Laundering
Money laundering is not any such crime that can be neglected and businesses keep on doing their work regardless of its impacts. Sacrificing their own reputation, companies involved in money laundering also stains their country’s name. Following the AML guidelines, businesses can reduce the threats of money laundering to a minimum.
- Mitigate Identity Fraud
Any fraud that is directly associated with negatively impacting humanity is the one that needs to be addressed first. Money laundering is one of these crimes. However, following the AML systems guidelines, companies can limit ID fraud to the lowest.
- Saves Reputation
Customers never want to be associated with names that have a bad reputation in the market. Just think of yourself as a customer, would you ever take the services of a company that once made headlines with a crime such as money laundering? Never. Once sacrificed, it takes forever for businesses to regain their respect in the market. That is how AML solutions are imperative to be practiced at any cost.
Summing it up
Money laundering is one of the biggest problems these days that need to be solved on a priority basis. Banks that do not bother complying with AML solutions end up falling prey to face money laundering and financing terrorist activities.