With thousands of global transactions occurring on any single day, it can be overwhelming for banks to trace the origins of laundered money. This is an especially serious issue in the U.S., where billions of dollars are smuggled into the country per year. Though there is an anti-money laundering (AML) legislation in place to combat this illegal practice, there is still much that financial institutions can do to fight against the problem. Here are some of the many ways in which banks and other financial institutions can work in order to prevent money laundering activities.

Get to Know Your Customers

Financial institutions must always carry out due diligence on their customers so that they can identify if they pose any risks. This entails obtaining enough information about the customer, such as their name, citizenship, occupation, employer (if applicable), contact information, and place of residence. All of these details must be collected and recorded before establishing any type of business relationship. Other important details include the type of activity being conducted, how often said activity is conducted, the primary source of their funds, and the main countries that they normally transact with. Should there be any discrepancies between what you know of the customer and what they have disclosed, report them immediately to the respective authorities.


Watch Out for Red Flags

In addition to initially knowing the customer, financial institutions must also watch out for any unusual customer activities. For example, a customer who regularly deposits amounts that are just slightly below reporting thresholds may be purposely dodging any record of the transaction. Personnel must also watch out for customers who constantly move money in and out of multiple accounts. This could be a sign of smurfing. This is a tactic wherein an individual avoids detection by breaking up a large sum of money into several small deposits. It is especially important to keep an eye on any large deposits that are to be wire-transferred to high-risk countries which do not have strict AML enforcement. Lastly, banks should also investigate any customers who receive money from multiple remitters, especially if these occur in a short span of time.


Regularly Update Surveillance Processes

Given the sheer number of existing money laundering tactics, it can be difficult for banks to sift through enormous amounts of data, let alone investigate individual transactions. Additionally, money laundering strategies are constantly evolving, meaning personnel might miss certain suspicious activities entirely. However, investing in AML artificial intelligence solutions can help banks more accurately discover and identify unusual transactions while also saving time and money in the process. These solutions can provide real-time visual analytics and dashboards that make it easier for personnel to spot inconsistencies in customer behavior. AML software can also automatically group certain types of customers together for profiling and cluster analysis. This lets AML experts focus more on fine-tuning certain criteria so that they can hone in on actual launderers, leading to fewer false positives.


Provide AML Training for Personnel

Even with the help of data analytics technology, the success of any AML efforts also depends on the competency of the bank’s personnel. Thus, banks should take the time and effort to develop and execute effective training programs to bring employees up to speed. To help personnel learn the ins and outs of money laundering practices, it’s best to create learning simulations of real-life cases. Those in leadership must also encourage said personnel to regularly educate themselves on AML policies. Leaders must also emphasize the importance of AML as a group effort rather than assigned to a specific committee.

 These are but a few of the ways in which financial institutions can help prevent money laundering. By identifying, investigating, and reporting suspicious activities, banks can assist in catching criminals and decreasing illegal financial activities. Though implementing AML procedures may be challenging, all these efforts will pay off in the long run not only for the bank but for the entire financial sector as a whole.

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].