By Martin Cheek, VP, SmartSearch
Most of what people know about money laundering comes straight out of pop culture. But it doesn’t always involve a backroom deal with duffel bags stuffed with cash; in fact, more often than not, money laundering relies on teams of lawyers, accountants, and anonymous shell corporations – a far cry from the heart-pounding escapades of Ozark or Narcos.
Here are some common misconceptions that many have with regards to money laundering.
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Money laundering is easy to spot
If money laundering were easy to spot, no one would ever be able to get away with it. The whole point of money laundering is to hide behind layers and layers of seemingly banal transactions and entities to avoid raising any suspicions.
The United Nations estimates that anywhere between 2% and 5% of global GDP – between $800 million and $2 trillion – is laundered every year. While a large portion of this is no doubt due to bad actors who facilitate the illicit movement of money through the financial system, it is equally certain that ignorance (or the lack of training to identify suspicious activities) is just as big a culprit. Consequently, businesses should not rely solely on their instincts or experience to guide their AML strategy; instead, comprehensive, sophisticated tools are needed in order to ensure that all transactions are above-board.
It’s up to banks and financial institutions to do the due diligence
Financial institutions spend tens of billions of dollars every year on anti-money laundering (AML) compliance. Yet, as recent document leaks have shown, these same financial institutions have moved trillions of dollars of potentially illicit money on behalf of criminals, although not always intentionally.
The point is, when it comes to money laundering, we all must be vigilant. Money launderers like to focus on areas where they know there will be less oversight, such as real estate, and where they can operate with relative anonymity, such as with bitcoin. Moreover, different institutions may have different requirements for KYC (know your customer) and AML checks that are not completely in alignment with your own.
To put it simply, AML compliance needs to happen at every stage and in every area where there is a potential risk.
Physical document checks are more reliable than automatic checks
For whatever reason, plenty of companies still rely on physical documents such as passports, bank statements, and utility bills, to prove their clients’ identities. In fact, these are still seen by many to be the gold standard for identity verification. However, in the technologically advanced age that we live in, it is perfectly possible to forge all of these documents in ways that are virtually undetectable, even to the trained eye.
Luckily, while technology has made these skillful forgeries possible, it has also given us the means to detect them. Combining the right sources of information, including digital fraud checks, credit reference data, and biometric facial recognition, produces what is known as a “composite digital identity” that is all but impossible to fake.
With more people preferring to do business remotely as a result of the coronavirus, being able to verify someone’s identity digitally provides not only convenience, but also security.
Most business don’t need to invest in AML compliance
It is understandable that many companies, particularly small ones with few resources to spare, would balk at the need to implement additional processes. At the same time, businesses that knowingly or unknowingly involve themselves in money laundering can face serious consequences, both legally and monetarily. And as I mentioned earlier, businesses can’t – and shouldn’t – rely on other businesses to do their AML compliance for them.
It is important to remember that AML compliance doesn’t have to be complicated. There are many services on the market that enable organizations to carry out fast, secure and accurate checks in a matter of seconds, thus allowing businesses to carry on with their day-to-day work without fear of stumbling into an international (or domestic) money laundering ring.
Most people think of money laundering in an abstract sense – as a practice that is wrong, but has no impact on their businesses or daily lives. In fact, money laundering affects us all. To give just one example, money that is being laundered is also money that is not being taxed – which means that the burden falls much more heavily on law-abiding citizens. It’s up to all of us to call out suspicious behavior when we see it.
Martin Cheek is Vice President of SmartSearch, a provider of an Anti-Money Laundering verification service based in Lehi, Utah.