This article focuses on the CSSF, outlining its role, the entities it regulates, and guidance on how to best meet regulatory obligations and avoid noncompliance penalties.

What is the CSSF?

Luxembourg’s CSSF is the financial regulatory body responsible for supervising the financial sector, which includes banks, investment firms, insurance companies, and other financial service providers. Established in 1998, the CSSF aims to maintain the safety, soundness, and stability of the financial system in Luxembourg. Its duties encompass licensing financial institutions (FIs), ensuring regulatory compliance, protecting investors, and enforcing market integrity.

The role and obligations of the CSSF

Before the CSSF was established, financial oversight in Luxembourg was fragmented among various authorities: the Institut Monétaire Luxembourgeois (IML), which handled monetary policy and banking regulation, and the Commissariat aux Bourses, which oversaw securities markets. 

The growing complexity of financial markets and the need for a unified regulatory framework led to the CSSF’s formation under the law of December 23, 1998, which aimed to centralize supervision and adapt to European Union directives. This restructuring ensured more effective oversight and compliance with international standards. 

Today, the CSSF performs several duties, including: 

• Supervisory functions: The CSSF conducts regular and ad hoc inspections, both on-site and off-site, to assess FIs’ financial health, risk management practices, and regulatory compliance. It also monitors financial markets and participants to detect irregularities or fraudulent activities. To this end, the authority introduced new ICT incident reporting requirements in April 2024. This new framework requires firms to report major ICT-related incidents within specified timeframes, reinforcing the CSSF’s role in ensuring proactive measures are taken to safeguard against ICT and cyber threats.
• Consumer protection: To ensure financial products and services are transparent and consumers are treated fairly, the CSSF handles consumer complaints and mediates disputes between FIs and clients. Additionally, it promotes financial education and awareness among the public.
• Anti-money laundering and counter-terrorist financing (AML/CTF): In addition to implementing and enforcing AML/CTF regulations, the CSSF ensures firms have robust AML systems to detect and report suspicious activities and collaborates with national and international authorities to enhance the effectiveness of anti-financial crime measures.
• Market stability and integrity: The CSSF oversees the proper functioning of financial markets and the conduct of market participants. It monitors trading activities to prevent market abuse, such as insider trading and market manipulation and ensures accurate and timely market information disclosure. 
• International cooperation: By actively engaging with international regulatory organizations and committees, such as the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA), and the International Organization of Securities Commissions (IOSCO), the CSSF helps shape global regulatory standards and ensures Luxembourg’s financial sector adheres to international best practices.
• Innovation and technology: To support innovation, the CSSF provides guidance and frameworks to help firms navigate the evolving technological landscape while maintaining regulatory standards. The authority takes a “proactive, flexible” regulatory approach to financial innovation, assessing each project “on the basis of the services effectively provided regardless of the technology used.” 

Institutions regulated by the CSSF

The CSSF regulates a wide range of FIs and entities operating in Luxembourg. These institutions include:

Regulatory framework of the CSSF

The CSSF enforces a robust regulatory framework composed of several key laws and regulations:

• Financial sector laws: Establishing the legal foundation for the operation and supervision of FIs, defining the standards and requirements they must meet. Key legislation includes the Law of 5 April 1993 on the financial sector (LFS) and the Law of 23 December 1998 related to the supervision of securities markets and regulates market participants.
• AML regulations: Requiring FIs to implement robust measures to prevent money laundering and terrorist financing, including customer due diligence (CDD), transaction monitoring, and reporting of suspicious activities. These requirements are outlined in the Law of 12 November 2004 on the fight against money laundering and terrorist financing and CSSF Regulation No. 12-02.
• Market abuse regulations: Designed to prevent insider trading, market manipulation, and other forms of market abuse, ensuring financial markets are fair and transparent. This includes Regulation (EU) No 596/2014 on market abuse (MAR), which is directly applicable in Luxembourg, and the Law of 23 December 2016 on market abuse, which implements and complements the MAR within the Luxembourg legal framework.
• Consumer protection laws: Ensuring the fair treatment and protection of consumers in financial transactions, promoting transparency and fairness in financial services. Relevant legislation includes the Law of 22 March 2004 on consumer credit agreements.
• Corporate governance standards: Mandate proper governance practices within financial institutions, including board composition, risk management, and internal controls. The Law of 10 August 1915 on commercial companies provides the general framework for corporate governance in Luxembourg, while the CSSF Circular 12/552 on central administration, internal governance, and risk management sets out specific governance requirements for FIs.

Penalties for non-compliance with CSSF regulations can be severe. They include fines, administrative sanctions, license revocations, and other corrective measures. For example, in May 2024, the CSSF imposed an administrative fine of €3 million on a credit institution for various AML violations relating to managing high-risk clients, including failing to adequately verify the source of funds, insufficiently monitoring transactions, and closing certain accounts without informing the Cellule de Renseignement Financier (Luxembourg’s financial intelligence unit).

Penalties like these are intended to maintain market integrity, protect investors, and deter unlawful activities within the financial sector.

Compliance challenges

Frequent updates and amendments to regulations, driven by the evolving nature of financial markets and EU directives, have required firms to continually adapt their compliance strategies. For example, the Fourth AML Directive (4AMLD) expanded the scope of enhanced due diligence (EDD) to include domestic politically exposed persons (PEPs) and mandated central registries for beneficial ownership, increasing transparency and scrutiny. The Fifth AML Directive (5AMLD) further strengthened these measures by making beneficial ownership information more accessible to the public, extending EDD requirements to cryptocurrency exchanges and prepaid cards, and imposing stricter rules on trusts. These updates required many firms to increase their investment in staff training, technology upgrades, and the development of new compliance frameworks. 

Moreover, the CSSF’s rigorous enforcement and the risk of substantial fines or reputational damage for non-compliance have led to heightened scrutiny within organizations. Balancing compliance with business agility remains a constant challenge as companies strive to meet regulatory demands without stifling innovation or operational efficiency.

Best practices for firms to comply with CSSF

• Implement sophisticated transaction monitoring solutions
  In accordance with CSSF Regulation No. 20-05, obligated entities are required to “implement adequate procedures to detect, monitor, and report suspicious transactions.” Utilizing sophisticated transaction monitoring systems equipped with machine learning algorithms can help firms better identify unusual patterns in real time, ensuring compliance with CSSF’s proactive monitoring requirements.
• Strengthen CDD practices
  To ensure robust compliance with the CSSF, firms should establish a thorough CDD framework, including verifying customer identities, assessing associated risks, and maintaining ongoing monitoring for suspicious activities. Best practices within CDD involve having access to quality, up-to-date PEP data and applying EDD measures to manage associated risks. Firms should also implement real-time sanctions screening against updated global lists and efficiently handle false positives to address genuine compliance risks.
• Invest in comprehensive staff training
  According to CSSF Circular 19/732, FIs must provide “regular training for all employees on AML/CFT issues.” Tailored training programs for different roles ensure that each staff member understands their specific compliance responsibilities and contributes effectively to the firm’s AML strategy. Additionally, simulation exercises and scenario-based training are recommended by the CSSF, as they help staff practice real-world responses to potential compliance issues, reinforcing their theoretical knowledge and enhancing practical skills.
• Conduct thorough risk assessments and audits
  Regulated firms are required to take a risk-based approach to AML/CFT efforts. Employing dynamic risk assessment models that adapt to new threats and changes in the business environment provides a comprehensive overview of potential risks, aligning with CSSF’s expectations.

The post What is the Commission de Surveillance du Secteur Financier (CSSF)? appeared first on ComplyAdvantage.

This article will cover:

• How corporate screening works and why it matters.
• The challenges with deploying corporate screening practices at scale.
• Best practices worth adopting and how technology can help.

What is AML corporate screening?

Corporate screening involves verifying, assessing, and assigning a risk score to companies with which businesses transact. This process encompasses any individual or entity that might represent the company, including employees, partners, and ultimate beneficial owners (UBOs).

Typically, these processes are part of the know your business (KYB) and anti-money laundering (AML) practices all financial institutions (FIs) are obligated to adhere to. However, they also protect businesses from various forms of economic and corporate fraud and the risk of reputational damage accompanying such threats.

Crucially, when executed rigorously and effectively, corporate screening processes prevent criminals and terrorists from using fake corporations to launder money, defraud legitimate businesses, and finance terrorist activities.

AML regulations and requirements for company screening

Regulations governing the need for corporate screening are implemented globally. This section outlines the key regulations in different regions.

Corporate screening regulations in the United States

In the US, KYB requirements were first specified by the Banking Secrecy Act (BSA) of 1970. This act aimed to prevent money laundering by drug traffickers and cartels, requiring organizations to investigate the beneficiaries of the businesses they dealt with.

The Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (PATRIOT Act) of 2001 expanded these requirements, ensuring firms collect and validate the identities of the individuals they do business with.

In 2016, the Financial Crimes Enforcement Network (FinCEN) published further regulations stating that businesses also need to authenticate the status and identities of ultimate beneficial owners (UBO) as part of customer due diligence (CDD).

Additionally, businesses must scan the Office of Foreign Assets Control’s (OFAC) sanctions list to ensure they are not working with companies or individuals mentioned in it.

Corporate screening regulations in the United Kingdom

In the UK, businesses face comprehensive requirements for corporate screening under multiple regulations. These regulations mandate businesses to implement robust risk-based approaches to AML and counter-terrorist financing (CTF), including CDD, ongoing monitoring, and enhanced due diligence (EDD) for higher-risk clients. Key regulations include:

• Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017: Requires businesses to conduct corporate screening by verifying the identity of corporate clients, understanding the nature of their business, and identifying UBOs. It mandates ongoing monitoring of business relationships and transactions to detect and report suspicious activities and EDD for higher-risk clients, including more frequent reviews and deeper investigations.
• Proceeds of Crime Act 2002: Necessitates corporate screening to ensure businesses do not engage in activities connected to the proceeds of crime. It provides a framework for the confiscation of criminal assets and mandates the reporting of any suspicious activities that may be connected to criminal proceeds, requiring businesses to scrutinize and monitor client activities closely.
• Terrorism Act 2000: Mandates corporate screening by criminalizing involvement in terrorism-related activities and requiring businesses to ensure their services are not used for terrorist financing.
• Terrorist Asset Freezing Act 2010: Requires corporate screening to ensure businesses do not facilitate the transfer or use of frozen assets of individuals and entities involved in terrorism.
• Transfer of Funds (Information on the Payer) Regulations 2017: Requires accurate information to accompany fund transfers to ensure traceability. Businesses must collect and verify information about the payer and payee to prevent money laundering and terrorist financing, making corporate screening a critical compliance component.

Corporate screening regulations in the European Union

In the EU, corporate screening requirements have evolved through various directives and guidelines, primarily focusing on AML, know your customer (KYC), and corporate governance standards. The foundation of these requirements was laid by the Anti-Money Laundering Directives (AMLDs):

• The Fourth Anti-Money Laundering Directive (4AMLD) required companies to maintain and provide access to beneficial ownership information (BOI), expanding the scope of regulated entities and introducing stricter CDD measures. 
• The Fifth Anti-Money Laundering Directive (5AMLD) further enhanced transparency by tightening controls on virtual currencies and prepaid cards and mandating EDD for high-risk third countries and politically exposed persons (PEPs). 
• The Sixth Anti-Money Laundering Directive (6AMLD) clarified the definition of money laundering, extended criminal liability to legal entities, and introduced tougher penalties.

Additionally, KYC regulations in the EU require businesses to verify the identities of their customers before establishing business relationships. This involves understanding the nature and purpose of the business relationship, maintaining accurate and up-to-date customer information records, and reporting suspicious transactions to the relevant financial intelligence units (FIUs).

The General Data Protection Regulation (GDPR) also impacts corporate screening processes by setting stringent data protection and privacy standards. Companies must ensure the lawful processing of personal data, often requiring explicit consent from individuals, and implement robust data security measures. Individuals have the right to access, rectify, or erase their data.

Enforcement of corporate screening regulations in the EU is carried out by national regulatory authorities, with oversight from EU bodies such as the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA).

How does corporate screening work?

Similar to the customer screening procedures organizations must undertake before conducting business with consumers, corporate screening involves a series of checks to ensure all the parties involved are who they say they are and aren’t known criminals. However, with corporate screening, firms need to run these checks on companies and all the relevant people associated with them.

Corporate screening, therefore, includes several key components: 

1. UBO checks: Companies must acquire, record, and supply complete, up-to-date information such as the customer company’s registration number, name, address, and official status. They also need to verify the identities of top management employees and determine all-natural, legal persons who directly or indirectly own the business, verifying the number of shares they own and how much management control they have to determine the UBO. Anyone identified as a UBO must then be run through appropriate due diligence checks as per AML/KYC requirements.
2. Sanctions screening: Corporate screening also entails cross-referencing every involved individual and business entity against sanctions lists (such as the OFAC Specially Designated Nationals (SDN) list in the US) to determine whether they are known criminals. If they are on these lists, businesses must either subject them to EDD procedures, report their involvement to the relevant authorities, or cease transacting with them.  
3. Adverse media screening: Businesses should also conduct routine scans of news media worldwide to ensure that no parties involved in the customer business’ ownership chain – or indeed the business itself – appear in negative news stories that may implicate them in criminal activity. This process must also include screening news media in multiple languages, focusing on the locations where UBOs are identified as operating.

Common challenges of company screening in AML

Even though all financial organizations must establish B2B relationships with customers, corporate screening is a complex and intensive process that throws up various investigative and organizational challenges. Some of the most common include:

• The skill of criminals: Firms need to be particularly rigorous regarding corporate screening because criminals are particularly sophisticated when hiding their involvement in illicit transactions. Compliance teams need to uncover the true chain of ownership and identify whether or not any criminals are hiding behind other entities to commit financial crimes. Anything less results in significant penalties and severe reputational damage.
• The dynamism of risk: Firms need to be able to effectively screen their business customers before the start of the relationship and continually adjust the risk score assigned to each customer over time. While a client’s business may pass an initial check, the entire web of entities and individuals around it may change subtly or substantially throughout the relationship. Any time this happens, it exposes the business once again.
• The scale of screening: At an organizational level, firms need to establish teams, processes, and tools that can handle the complexity and scope of corporate screening. If too many of these processes are conducted manually or slowly, the overall efficiency of the compliance organization suffers. Moreover, it becomes harder to scale the compliance team as the business grows because the costs of inefficient screening efforts make it harder to onboard new team members.

Best practices for corporate screening

Given the non-trivial challenges of running and scaling corporate screening procedures, it’s worth considering the following best practices:

• Define policies with a risk-based approach: Every business needs to determine its own approach to risk management before outlining its procedures. By determining the kinds of risk the business is willing to tolerate, which risks it cannot abide by, and the resources it’s able to commit to the effort, it becomes much clearer which policies and procedures need to be implemented for corporate screening. Documenting these principles and processes helps operatives make decisions faster.
• Invest in employee training: Conducting corporate screening with the rigor and tact required takes finesse and nuance. Businesses can overcome the most important hurdles in scaling such an operation by investing time and effort into properly training and retraining staff. It helps employees conduct investigations more effectively and gives them the tools they need to navigate client relationships in a way that will ultimately serve the business in the long run.
• Score risk dynamically: In the interest of short-term efficiency and quickly onboarding corporate clients, some businesses treat risk scoring as a one-and-done activity conducted at the start of the relationship. In practice, this simply exposes firms to penalties and reputational damage when they fail to adjust to new developments that could undermine that risk score. Firms should ensure they’re using technology to update risk scoring dynamically throughout the relationship.  

The importance of advanced technologies

Effective corporate screening involves a massive scale of investigative effort, documentation requirements, and dynamic risk scoring.

Technology can help firms analyze more information rapidly, document processes more accurately, and dynamically update the status of all parties involved with client businesses in a way that manual efforts simply cannot keep up with.

Specifically, AI and machine learning can help firms navigate sanctions lists and adverse media far more efficiently than manual efforts can. Sophisticated software ensures employees have all the information they need at their fingertips rather than switching inefficiently between multiple screens and systems.

AI-driven solutions for company screening

Businesses of all sizes work with ComplyAdvantage to screen corporate clients more effectively and rapidly. Some of the top benefits firms experience include:

• Efficient automation of screening and continuous monitoring: Streamlined processes are achieved through automation for adverse media and sanctions screening. Continuous monitoring also ensures ongoing compliance, enabling firms to keep up with the latest regulatory requirements.
• Customizable screening parameters: Firms can tailor screening and monitoring setups according to their unique risk-based approaches and policies. This customization ensures that the service fits seamlessly into the company’s existing operational framework.
• Centralized information display: With ComplyAdvantage, all critical business information is accessible from a single screen. This centralized approach not only simplifies the review process but also aids in maintaining a comprehensive audit trail of every decision made, simplifying compliance and review processes.

The post What is corporate screening in AML? appeared first on ComplyAdvantage.

This article presents five key tips for firms when selecting the best AML PEP screening software for their business.

How to choose the best AML PEP screening software 

1. Ensure the PEP database is effectively maintained and updated 

Maintaining the accuracy and reliability of PEP screening processes hinges on the regular maintenance and updating of the database. This process not only involves the addition of new PEPs but also the timely removal of individuals who are deceased or no longer hold positions of public trust.

The best vendors can be differentiated from standard PEP screening solutions in this way, as they will keep track of national-level political events such as elections, cabinet appointments, reshuffles, and other significant changes. Once new PEPs are identified, their database should be updated promptly, ideally within 24 hours, to ensure the screening solution reflects the most current information. 

Without up-to-date data, firms can face several significant PEP challenges and risks:

• Increased false positives: Outdated information can cause a spike in false positives, where individuals no longer considered PEPs are incorrectly flagged, adding unnecessary workload for compliance teams.
• Compliance failures: Missed PEPs due to outdated data can result in non-compliance with regulatory standards, exposing the organization to potential legal penalties and reputational damage.
• Derisking: Incorrect or outdated PEP data can lead to financial institutions (FIs) terminating or restricting customer relationships based on incorrect information, harming customer relations and market opportunities.
• Operational inefficiencies: Manually verifying or correcting outdated information can cause significant delays and inefficiencies in compliance processes.
• Regulatory scrutiny: Up-to-date and accurate data is crucial for passing audits and regulatory inspections. Failing to maintain current data can attract increased scrutiny from regulators. To ensure regulatory compliance, firms should prioritize partnering with vendors that update their data promptly – e.g. Less than 12 hours after the UK general election on July 4, 2024, ComplyAdvantage had already updated its PEP data to reflect the results from 644 declared constituencies, including both re-elected and newly elected MPs. 

2. Assess the vendor’s data coverage

When choosing PEP screening software, assessing the vendor’s data coverage and quality is crucial to ensure comprehensive and thorough screening. The software should provide access to a wide-ranging dataset that includes PEP information from all the countries relevant to the organization’s operations. This extensive coverage is essential for identifying PEPs across various jurisdictions, which helps mitigate risks associated with financial crimes.

For example, poor data coverage might mean the software only includes PEP information from a limited number of countries, missing crucial jurisdictions where the organization operates. This can lead to significant compliance gaps and an increased risk of undetected financial crimes. On the other hand, good PEP data coverage looks like: 

• Detailed and up-to-date information: Providing analysts with current and accurate data from a comprehensive list of countries to ensure that all relevant PEPs are identified.
• Adverse media hits: Monitoring local, regional, and international news outlets in multiple languages to identify any adverse media hits related to PEP entities, contributing to a more effective risk assessment.
• Relatives and close associates (RCAs): Highlighting the entity’s RCAs to uncover any potential additional risks.
• Comprehensive historical data: Including data on former PEPs and maintaining records of their previous positions to help create a more thorough risk assessment.
• Accurate hierarchical information: Clear delineation of the level of authority and seniority held by a PEP to help analysts understand the potential influence and risk associated with the individual.
• High name-matching rates: Ensuring the software can accurately match names against PEP lists, accounting for variations in spelling and transliteration to reduce false positives and negatives.

In fact, RegTech Solutions (formerly SQA Consulting) has rated ComplyAdvantage’s PEP data coverage as ‘Excellent.’

“Our benchmarking shows ComplyAdvantage’s name-matching efficiency and effectiveness are market-leading, with name-matching rates of close to 100%. This is very good, almost exceptionally good, a little higher than we often see for exact name tests.”

RegTech Solutions

3. Evaluate the accuracy of the PEP screening process 

When assessing the accuracy of a PEP screening solution, businesses should consider the importance of robust data quality checks and the integration of both automated systems and human expertise. Leading AML vendors will implement a series of built-in quality checks to ensure the data is comprehensive and reliable and provides the best risk insights. This involves verifying data from multiple reputable sources and conducting thorough cross-references to identify and correct discrepancies. 

In addition to automated data collection and updates, human oversight is crucial. While automated systems can efficiently handle routine tasks such as data scraping and initial screenings, human experts are necessary for complex cases where automated tools might fall short. 

For instance, data strategists and researchers should intervene when the structure of a website changes or when PEPs can no longer be found on a page. A multi-eye review process, where multiple experts review each new data source, significantly reduces the risk of human error and ensures data integrity.

The Challenge of PEPs

A comprehensive and practical look at the PEP landscape and how firms should navigate it.

Download now

4. Consider if domestic requirements are taken into account 

The effectiveness of PEP screening software depends on its alignment with the regulations and definitions of PEPs in each country in which a firm operates. These definitions vary significantly and impact how FIs conduct their screening processes.

For instance, the United Kingdom mandates that individuals should be flagged as PEPs for at least 12 months after they cease to hold a prominent public function. Furthermore, following the Financial Conduct Authority’s (FCA) updated guidance, UK firms must treat domestic PEPs as lower risk as a legal starting point. Meanwhile, Canada imposes a longer monitoring period of five years for its domestic PEPs, reflecting a more stringent approach to risk management. 

The diversity in PEP definitions extends beyond the duration of monitoring to include the scope of who qualifies as a PEP. While most countries encompass high-ranking government officials, their family members, and close associates, specific details can vary widely. Some jurisdictions, like the United States, only use the term “PEP” to refer to foreign individuals who are or have been entrusted with a prominent public function. 

This variance underscores the critical importance of PEP screening software that can flexibly adapt to different regulatory frameworks. Ideally, the software should automatically update and reclassify individuals as “former PEPs” once the required monitoring period ends, ensuring compliance with local laws and facilitating accurate risk assessments.

5. Check how the PEP screening software integrates with existing systems and other processes

For senior compliance decision-makers, ensuring new PEP screening software integrates smoothly with current data feeds, case management systems, and CRM platforms via robust API capabilities is essential. Efficient integration enhances team productivity, reduces the risk of errors, and supports faster decision-making processes. This empowers organizations to uphold regulatory standards effectively while safeguarding against operational fatigue, ultimately saving time by eliminating the need for multiple tools or databases.

However, a comprehensive solution should also provide the ability to screen for other critical factors, such as sanctions hits and adverse media, all within the same platform. By consolidating PEP screening, sanctions screening, and adverse media checks into a single platform alongside existing integration capabilities, the best software solutions enable firms to foster a cohesive information environment. This unified approach eliminates silos and allows compliance teams to access comprehensive insights promptly. 

Digital bank Holvi experienced these benefits firsthand when it partnered with ComplyAdvantage for PEPs, sanctions, and adverse media screening. Holvi’s Head of AML & AFC Operations, Valentina Butera was particularly impressed with the integration that led to a speedy set-up: 

“It was the smoothest implementation of tech that we have ever experienced. We did not experience any downtime or any interruption of business operations – not even for a second.”

Valentina Butera, Head of AML & AFC Operations at Holvi

Advanced PEP screening solutions

As transactions become more intricate and regulatory requirements continue to evolve, traditional PEP screening methods that rely heavily on manual processes will be unable to keep up. Luckily, advanced solutions on the market can use the latest technology to improve the PEP screening process.

With PEP Screening by ComplyAdvantage, firms can benefit from:

• Up-to-the-minute AI-assisted PEP data collection curated by experts.
• Tailored global PEP coverage to meet specific jurisdictional requirements.
• Continuous accuracy with frequent data refreshes.
• High precision in identifying PEPs through linguistic identity matching.
• Geographically tailored solutions with a highly configurable platform.
• Impeccable assurance through a 12-eye review process and an expert team’s thorough research.

The post 5 tips on how to choose the best AML PEP screening software appeared first on ComplyAdvantage.

Efficient and accurate data analysis is crucial for effective anti-money laundering (AML) programs. However, AML teams using outdated transaction monitoring programs often face backlogged systems, with their analysts frequently experiencing burnout due to processing high volumes of alerts with too many false positives. Without a way to triage incoming alerts, highly qualified investigators can spend most of their working days on repetitive tasks like clearing overloaded systems and low-risk alerts.

This causes frustration and wastes company time, financial and energy resources, overloads personnel, and increases the likelihood of teams missing illicit activity. It can also result in unwanted organizational costs, as burnout leads to high turnover rates and costs to recruit and train replacements. Furthermore, if a company is deemed to have insufficient risk management processes, it may face regulatory fines, legal action, and reputational damage. Combined with online payment fraud losses estimated to exceed $362 billion by 2028, the stakes for financial institutions (FIs) are high. 

Enter artificial intelligence (AI).

It might feel like every conference, webinar, and white paper in the compliance industry is talking about AI and its transformative potential for financial crime risk management. But what does this potential actually look like in relation to enhancing firms’ know your transaction (KYT) protocols? 

This article explores the use of AI and machine learning (ML) for transaction monitoring, highlighting five key benefits that are helping firms increase the effectiveness of their financial crime-fighting efforts. 

Five benefits of AI-driven transaction monitoring systems

1. Adapt to changing behaviors in real-time

Unlike static rule-based systems, AI-driven transaction monitoring systems can learn and adjust in real-time, staying ahead of emerging risks. Machine learning algorithms within these solutions analyze historical transaction data to identify trends associated with legitimate and suspicious activities. As criminals evolve their tactics, the AI model dynamically updates its understanding of these behaviors. It adapts by recognizing new patterns and adjusting risk parameters, ensuring it stays ahead of emerging threats. This dynamic adaptation allows the system to effectively respond to shifts in the financial landscape, promptly identifying anomalies and potential risks.

The benefits for financial institutions (FIs) are profound. First, real-time adaptation significantly reduces false positives as the system becomes more discerning in distinguishing between normal and suspicious activities. Second, it enhances the system’s agility, swiftly recognizing and responding to emerging fraud patterns. This proactive approach mitigates the risk of overlooking sophisticated fraudulent schemes, safeguarding the FI’s assets and reputation.

2. Identify hidden relationships to uncover patterns and connections

In addition to tracking changes in behavior, pattern recognition in AI-driven solutions can expose connections within the intricate network of financial transactions. Using graph-based representation, AI algorithms can analyze transaction nodes and entity links to identify clusters and unusual connections. 

With this information, companies can better detect new or emerging fraud typologies and establish rules to mitigate them. For example, at the beginning of the pandemic, global payments firm Lumon noticed a sudden rise in COVID-related investment fraud. With ComplyAdvantage’s Transaction Monitoring solution, Lumon was able to develop and implement new rule sets within 48 hours to combat the threat and prevent more customers from falling prey to fraudulent activities.

3. Efficiently triage alerts to minimize false positives

When an alert is triggered, AI models can evaluate the risk level based on various factors, including transaction amounts, frequency, and deviations from established patterns. It then assigns a risk score to the alert. Instead of relying on static rules that may generate false positives due to rigid parameters, the AI model dynamically adjusts its understanding of what constitutes suspicious behavior. Continuous learning is a key mechanism in this process. Feedback from analysts, investigations, and outcomes of previous alerts are fed back into the model, allowing it to refine its algorithms and improve accuracy over time.

As a result of efficient triaging, the identification of high-risk activities is accelerated, enabling a more rapid response to potential threats. Additionally, false positives can be reduced, preventing unnecessary investigations and directing the focus towards genuine risks. This streamlined process enhances the effectiveness of transaction monitoring and improves the overall operational efficiency of the FI.

4. Produce deeper insights to meet regulatory expectations

To further boost the confidence of compliance teams when making decisions, AI-driven systems can provide a deeper understanding of the reasons behind alert generation. This level of transparency becomes especially important during audits since the concept of explainability has become a growing area of concern and legislative focus. Regulators increasingly require those who use or provide AI models to provide transparent and traceable decision-making processes, as well as clear and understandable information on the AI model’s capabilities and limitations.

Interestingly, our State of Financial Crime 2024 survey showed how firms are thinking about AI – and the results were, at times, contradictory. While most firms believed they were on track to meet regulatory expectations around AI, 89 percent said they were comfortable trading off explainability to improve efficiency. 

5. Precisely tune rules for more targeted monitoring

Contrary to common misconceptions, machine learning doesn’t replace rules; it complements them. Rules provide the foundational knowledge of customer behavior that machine learning thrives on, forming a symbiotic relationship. Many firms initiate their system with baseline rules, gradually integrating a more sophisticated, data-centric machine learning model. This phased approach allows time for thorough testing, tweaking, and understanding the model’s nuances.

By tailoring transaction monitoring rules and thresholds to specific behaviors and profiles relevant to a firm, AI outpaces manual tuning, reducing the chances of missed risks. This becomes especially crucial for firms navigating new and dynamic spaces, where precise and scalable tools empower smaller teams to implement a robust risk-based approach (RBA), even with limited resources. 

What does this mean for my firm?

Firms looking to deploy an AI-driven transaction monitoring solution should familiarize themselves with the obligations and guidance issued in the regions in which they operate, as these requirements specifically apply to the use of automated systems, bias, and data privacy. They should also ensure they have adequate documentation detailing risk assessments and risk management processes for AI, model governance, model testing and validation, and how the algorithm makes decisions to account for explainability. 

When training AI models, firms should use data from multiple sources, covering all demographics and from across geographies, to avoid bias. Finally, compliance teams should ensure that they have senior management support, carry out due diligence on vendors, and ongoing monitoring and assurance. 

The post Transforming KYT: The use of AI and machine learning in transaction monitoring appeared first on ComplyAdvantage.

We’ve summarized the key developments:

• Changes to the grey list.
• Revised International Cooperation Review Group (ICRG) criteria.
• Assessment methodology revisions.
• Mutual evaluation preparations.
• Strategic initiatives.
• Priorities of the incoming Mexican presidency.

Changes to the grey list

Monaco and Venezuela added to the grey list

Monaco

Monaco, which has the highest concentration of millionaires and billionaires in the world, was added to the grey list due to insufficient progress in combating illicit financial flows. This decision comes after a review by MONEYVAL in December 2022, which revealed the following insufficiencies:

• A misalignment in Monaco’s investigative and prosecutorial practices concerning ML, especially a shortfall in tackling complex cases commensurate with its risk exposure.
• A need to amplify the country’s measures in prioritizing ML cases and enhance the effectiveness of seizing, confiscating, and recuperating proceeds derived from financial crimes.
• A lack of efficiency regarding beneficial ownership checks, specifically in ensuring the fitness of entities.
• An inadequate sanctions regime that lacks sufficient severity, deterrent impact, and is often enforced after unjustifiable delays.

While Monaco had made some progress since 2022 in identifying ML/TF threats – adopting nine laws to toughen its rules and boost its anti-money laundering (AML) body, the Autorité Monégasque de Sécurité Financière (AMSF) – there were still significant gaps flagged in the country’s AML regime. 

Monaco’s government has stated its commitment to being removed from the grey list, saying, “The principality confirms its determination to implement the latest FATF recommendations outlined in the declaration, in accordance with the planned deadlines.”

Venezuela

In early 2022, an assessment team visited Venezuela to prepare the country’s mutual evaluation report (MER). The team raised concerns about the ML risks associated with the nation’s large informal economy, which includes illegal mining. They also highlighted terrorist financing threats linked to the close economic alliance between Caracas and Tehran. Consequently, Venezuela has been added to the grey list and has agreed to implement its FATF action plan, which includes: 

• Strengthening its understanding of ML/TF risks, including in relation to terrorist financing and legal persons and arrangements.
• Ensuring the full range of financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs) are subject to AML/CFT measures and risk-based supervision.
• Ensuring that adequate, accurate, and up-to-date beneficial ownership information is accessible promptly.
• Enhancing the resources of the financial intelligence unit (FIU) and improving competent authorities’ use of financial intelligence.
• Enhancing the investigation and prosecution of ML/TF.
• Ensuring that measures to prevent the abuse of non-profit organizations (NPOs) for terrorist financing are targeted, proportionate, and risk-based and do not disrupt or discourage legitimate activities within the NPO sector.
• Implementing targeted financial sanctions related to terrorism financing and proliferation financing without delay.

Jamaica and Türkiye removed from the grey list

Jamaica

In February 2020, Jamaica was placed on the grey list due to various deficiencies. These included the need to prevent legal persons and arrangements from being misused for criminal purposes, as well as the prompt implementation of targeted financial sanctions for terrorist financing. Since then, Jamaica has worked to implement its 13-point action plan by:

• Developing a more comprehensive understanding of its ML/TF risk, including all FIs and DNFBPs in its AML/CFT regime.
• Taking measures to prevent misuse of legal entities.
• Increasing the use of financial information.
• Implementing targeted financial sanctions for terrorist financing without delay. 

As a result of their progress, Jamaica has been removed from the grey list. Looking forward, Jamaica’s Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, has said that before the end of 2025, Jamaica will be focusing on amending or introducing new laws to:

• Regulate virtual assets and virtual asset providers.
• Make the registration of non-profit organizations mandatory.
• Promulgate regulations that address certain targeted financial sanctions related to proliferation.

Türkiye

In October 2021, Turkey was added to the grey list for failing to adequately supervise banking, real estate, and other sectors vulnerable to ML, including cryptocurrency. Since then, the country has committed to implementing its FATF action plan by enhancing AML/CFT supervision, imposing strong penalties for violations, and improving financial intelligence use. 

As part of its efforts to enhance the country’s AML regime, the Turkish parliament passed a new cryptocurrency law on June 26, 2024. The law mandates that crypto asset service providers must obtain permission from the Capital Markets Board (SPK) before they can begin operating. Existing service providers will need to apply for a license within one month of the law being enacted, or they must declare their decision to liquidate within three months. The bill also includes definitions relating to crypto assets and providing crypto asset-related services.

After being removed from the grey list, Turkish Vice President Cevdet Yilmaz highlighted the significant positive effects on the country’s financial and real estate sector. In particular, he hopes the development will substantially bolster international investors’ confidence in Türkiye’s economic infrastructure. Moreover, Yilmaz pointed out that the heightened interest in Turkish lira assets, spurred by increased national capital inflows, would further hasten the disinflation process.

Revised International Cooperation Review Group (ICRG) criteria

New criteria have been approved for selecting countries for examination by the International Cooperation Review Group (ICRG). This process aims to identify countries with deficiencies in their AML/CFT frameworks that pose risks to the global financial system. The FATF may list these countries as either “grey” or “black”, indicating different levels of concern. The revised criteria are set to be implemented in the forthcoming assessment cycle.

This update to the prioritization criteria is part of a series of measures intended to refine the FATF’s listing procedure and make it more equitable and transparent. The watchdog also recognized the unique challenges the least developed countries faced in meeting its standards. By considering these challenges, the FATF aims to provide a fairer assessment framework that acknowledges the varying capacities of countries to address AML/CFT deficiencies.

Methodology revisions

The global watchdog also agreed on how countries will be assessed for their adherence to the updated FATF Standards regarding asset recovery and international cooperation. These standards were revised and adopted in October 2023 to enhance the global fight against financial crimes. Moving forward, each country must demonstrate a commitment to several key practices to ensure compliance with these revised standards:

• First and foremost, countries are required to show they are making asset recovery a priority. This involves the competent authorities actively identifying and tracing properties involved in criminal activities. Moreover, these authorities must be successful in obtaining and enforcing confiscation orders. By doing so, they can effectively deprive criminals of their ill-gotten gains.
• Additionally, countries are expected to facilitate constructive and timely international cooperation. Given the often cross-border nature of financial crimes, this aspect is crucial for the efficient recovery of assets and the broader effort to combat such crimes.

These measures aim to fortify global financial security by ensuring countries are equipped and willing to tackle the challenges associated with asset recovery and international legal cooperation. Compliance with these revised standards will be assessed regularly to guarantee countries remain committed to these objectives.

Mutual evaluation preparations: India and Kuwait

Two MERs were discussed in detail at the plenary. Regarding India’s report, the watchdog praised its high technical compliance with FATF standards and acknowledged the effectiveness of its regime in areas like understanding ML/TF risks, international cooperation, and the use of financial intelligence. However, it was pointed out that India could enhance its efforts by:

• Supervising and implementing preventive measures in certain non-financial sectors.
• Improving the timeliness of ML/TF prosecutions.
• Tailoring CTF measures for the non-profit sector to better match a risk-based approach. 

On the other hand, Kuwait’s evaluation concluded that the country has a robust legal and supervisory framework to combat ML/TF/PF. Yet, there are significant weaknesses in achieving effective outcomes. Kuwait is advised to: 

• Deepen its understanding of ML/TF risks.
• Strengthen TF investigations and prosecutions.
• Ensure the quick legal freezing of terrorism or weapons of mass destruction-related assets.
• Enhance preventive measures against legal person misuse while protecting the non-profit sector from TF risks. 

Both countries’ reports are pending publication following the FATF’s final quality and consistency review.

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Strategic priorities

Existing initiatives

Being the final plenary under the FATF’s Singapore presidency, an update was given relating to each strategic priority that T. Raja Kumar initially set out in July 2022. 

• DNFBP compliance review: The FATF has completed its review of the measures that its members have in place to prevent gatekeepers (such as accountants, lawyers, real estate agents, and trust and company service providers) from being used to facilitate ML/TF. The FATF will publish the findings of this review in July 2024.
• Virtual assets standards update: The FATF will publish its fifth annual update on jurisdictions’ progress in implementing the FATF Standards on virtual assets and virtual asset service providers (VA/VASPs). While some progress has been made since the last update, most jurisdictions are only partially or not compliant with the standards, leaving VAs and VASPs vulnerable to misuse. The FATF is calling on all jurisdictions to swiftly and completely implement the requirements and will continue to monitor the situation. The fifth annual update will also be published in July 2024.
• Payment transparency revision: The FATF is updating its standards to reflect changes in cross-border payment systems, industry standards (especially ISO 20022), and ensure AML/CFT compliance. The plenary also discussed the results of a public consultation on draft amendments, aiming to make cross-border payments faster, cheaper, and more transparent. As a result, it was determined that further discussions with relevant experts are needed before finalizing the amendments.
• Global network cooperation: During the FATF-FSRB Annual High-Level Meeting, the representatives discussed progress in implementing the 2022 Strategic vision for the Global Network. As a result, they agreed on three priorities for the coming year:
  • Increasing FATF-Style Regional Bodies’ (FSRB) participation in FATF work.
  • Preparing for new mutual evaluations.
  • Strengthening regional AML/CFT expertise. 
• Women in FATF and the Global Network Initiative: As part of the Women in FATF and the Global Network (WFGN) initiative, Ms. Indranee Rajah, Minister in the Singapore Prime Minister’s Office and Second Minister for Finance and National Development, launched the e-book “Breaking Barriers: Inspiring the Next Generation of Women Leaders.” The e-book is part of the Singapore Presidency’s efforts to support women leaders and complements the multicultural mentoring program and other initiatives to strengthen the FATF and Global Network community.

Priorities of the incoming Mexican presidency

In February 2024, Ms Elisa de Anda Madrazo of Mexico was announced as the successor to T. Raja Kumar as president of the FATF. Ms de Anda will assume the FATF Presidency from July 1, 2024, to June 30, 2026. In addition to the three priorities mentioned above, Ms de Anda emphasized the following areas of focus for the Mexican presidency:

• Promoting financial inclusion by implementing risk-based standards with a proportional approach.
• Assisting in effectively implementing revised FATF standards, particularly focusing on asset recovery, beneficial ownership, and virtual assets.

Next steps

Compliance staff should ensure they are familiar with the outcomes of the June plenary – particularly relating to any upcoming MERs in countries they operate in. Regarding the changes to the grey list, firms must update the risk scores of relevant countries, with appropriate levels of due diligence being administered as required going forward. 

Dates related to forthcoming guidance issued by the FATF should also be noted. Such guidance will help shape and inform the future regulatory approach of national bodies.

The next FATF plenary is due to take place in October 2024.

Previous plenary coverage from ComplyAdvantage can be found here:

• FATF plenary February 2024
• FATF plenary October 2023
• FATF plenary June 2023
• FATF plenary February 2023
• FATF plenary October 2022
• FATF plenary June 2022

The post FATF plenary June 2024: Changes to the grey list and new priorities appeared first on ComplyAdvantage.

This article will cover:

• What it takes to implement an effective AML customer screening process.
• The most common issues businesses face when devising screening procedures.
• How technology can help businesses screen customers more effectively and efficiently.

What is customer screening in AML?

Customer screening in AML is the process of identifying and assessing the risk profiles of new and existing customers so that financial institutions (FIs) know exactly who they are dealing with. This involves checking customers against various databases, such as sanctions lists, politically exposed persons (PEP) lists, and adverse media sources, to detect any potential involvement in illegal activities. 

The goal is to ensure compliance with regulatory requirements and prevent the institution from being exploited for money laundering, terrorism financing, or other financial crimes.

Why is client screening important?

Financial businesses worldwide are required by regulations to implement effective customer screening policies and procedures. These are crucial because they ensure criminals cannot exploit legitimate financial services for nefarious purposes.

However, customer screening processes also have a significant impact on businesses themselves.

If the screening and monitoring procedures aren’t effective at identifying criminals, businesses are exposed to severe reputational damage and regulatory penalties. At the same time, if these processes aren’t conducted efficiently enough, they cost the business time and money every time a new customer is onboarded.

These costs add up quickly. Every additional minute it takes a business to screen a legitimate customer is an extra minute the customer has to wait to get the service they would like to use. So, in practice, customer screening processes directly impact the customer experience, the business’ reputation, and its bottom line.

AML regulations governing customer screening

Customer screening practices are mandated by know your customer (KYC) protocols, AML laws, and global anti-terrorism measures enforced by governments.

In the US, customer screening is mandated by the Unifying and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA Patriot Act), which was implemented in the wake of the September 11 attacks. The US Financial Crimes Enforcement Network (FinCEN) enforces this regulation in accordance with the Financial Industry Regulatory Authority’s (FINRA) Rules 2090 and 2111.

In the EU, all member states are required to implement the ‘new’ 6th Anti-Money Laundering Directive, which sets out ‘mechanisms…for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.’

In the UK, the Money Laundering Regulations of 2017 set out the rules for KYC and customer screening based additionally on guidance provided by the European Joint Money Laundering Steering Group and the Financial Conduct Authority (FCA).

This guidance is laid out clearly in the recommendations put forward by the Financial Action Task Force (FATF) and implemented globally by organizations such as The Middle East and North Africa Financial Action Task Force (MENAFATF) and the Financial Action Task Force of Latin America (GAFILAT). Specifically, the recommendations state:

Financial institutions should develop programmes against money laundering and terrorist financing. These programmes should include:

1. The development of internal policies, procedures and controls, including appropriate compliance management arrangements, and adequate screening procedures to ensure high standards when hiring employees.
2. An ongoing employee training programme.
3. An audit function to test the system.

Source: The FATF Recommendations, updated November 2023

The key components of an effective AML client screening process

Businesses implementing customer screening processes typically involve at least six distinct procedural components.

1. Customer due diligence (CDD): Before a commercial relationship is established, businesses are required to conduct due diligence processes to verify the information customers provide, including their names, dates of birth, addresses, and account information. All customers are subject to this scrutiny, so businesses need to be able to take these steps promptly and efficiently.
2. Enhanced due diligence (EDD): If the information provided is discrepant or the business uncovers any reason to subject the customer to additional scrutiny, the customer must undergo EDD. This involves a more thorough investigation into the customer’s details, businesses, and transactions and typically takes longer.
3. Sanctions screening: An integral part of any customer screening program is cross-referencing the customer name against the publicly available lists of individuals, businesses, and countries that are subject to sanctions globally. Should a customer be implicated directly or by association on such a list, the business will need to subject them to the additional scrutiny of EDD procedures.
4. PEP screening: Businesses also need to determine if the customer in question is listed as a PEP. This might be due to their direct involvement in political activity, such as their job or title, but may also be due to their association with someone holding political office. Notably, businesses need to keep checking such lists as changes in political circumstances around the world may change a customer’s status at any time.  
5. Adverse media screening: Besides checking publicly available sanctions and PEP lists, businesses also need to routinely screen customers against negative or adverse news stories published worldwide as they may implicate customers in criminal activity. This kind of screening needs to be conducted routinely to keep up with world events. It’s also crucial for businesses to track news events in different languages.
6. Ongoing monitoring: It is not enough for businesses to screen customers and their names before they begin transacting with them. An integral part of appropriate customer screening is the ongoing monitoring of all customers over the course of the commercial relationship to ensure that businesses are prepared for changes in the customers’ circumstances, emerging news, and updates to global lists.

Common challenges when implementing customer screening

Customer screening is a critical layer of defense in ensuring criminals aren’t able to use their resources to exploit legitimate businesses. At the same time, businesses must use their own resources to implement these processes, raising several key challenges for them. Chief amongst them are:

• Data quality issues: To effectively screen customer information against multiple lists from around the world, businesses need to ensure they have access to reliable data sources. If the data doesn’t update frequently enough or is incorrect in any way, it could lead to false positives and negatives. False positives make screening processes take longer, wasting time and frustrating customers. False negatives expose businesses to reputational damage and regulatory fines.
• Employee productivity issues: At an operational level, compliance and customer onboarding teams must be able to screen customers thoroughly and efficiently. If employees need to access multiple systems and screens to do this, it slows them down and keeps customers waiting. Crucially, it makes it more expensive for businesses to then scale these processes as they grow.
• Customer experience issues: While customer screening processes are necessary to help businesses manage risk, they also mean it takes customers longer to get what they’re paying for. The longer it takes a business to verify a legitimate customer, the more frustrated that customer is likely to become. In an intensely competitive landscape, this can often affect how likely a customer is to work with a given business in the future.

Best practices for effective customer screening

Given the complexity and inter-connectedness of the challenges businesses face when implementing customer screening, it’s worth considering the following best practices:

• Implement a risk-based approach: Businesses should implement customer screening processes based on a deliberate risk-based approach that accounts for the degrees of risks they are willing to take. That might mean lighter screening procedures for some customers and enhanced processes for others. The important thing is to detail these specifics in terms of policies and implement procedures based on this thorough analysis.
• Use automation to gain leverage: To ensure employees can screen customers quickly and confidently, businesses can use software and automation to traverse the vast data of global lists and dynamically update client risk scores based on new information. This ensures processes move at a faster pace, and new employees can be added to compliance teams with less friction.
• Prioritize staff training: Technology can help businesses screen customers more efficiently, but ultimately, these processes rely on the judgment and intuition of employees. By investing time and effort in improving documentation and employee education, businesses can ensure their screening procedures are implemented with the appropriate care and discretion each customer requires.
• Conduct routine audits: Once implemented, every customer screening program needs to be rigorously tested and scrutinized objectively. Under the pressure of meeting quarterly benchmarks, it’s easy to overlook the issues that might emerge when processes are actually applied. So, it’s vital to routinely audit the program, looking for weaknesses, inefficiencies, and opportunities for improvement.

Market-leading AML customer screening software

Financial businesses of all sizes use ComplyAdvantage to balance the efficiency and effectiveness of their customer screening programs at scale. Here’s how it makes a difference:

• By streamlining the onboarding process, businesses utilize advanced AI technology to screen new customers against a variety of risk factors, including sanctions, PEPs, watchlists, adverse media, and enforcement data. 
• ComplyAdvantage enables access to complete customer profiles conveniently on a single screen. This simplifies the automation of risk assessments, allowing businesses to focus on prioritizing customers who pose the highest risk.
• The platform also offers capabilities to analyze the team’s screening workload easily and maintains a comprehensive record of all case decisions in one centralized location. This functionality is critical to ensuring compliance teams are always prepared for an external audit.

BigPay improves analyst efficiency with integrated customer screening

Award-winning FinTech BigPay experienced these benefits first-hand when it decided to partner with ComplyAdvantage for customer screening to replace its manual, ad hoc processes. The firm needed a flexible, unified platform that could scale across multiple markets and handle volume spikes during periods of peak demand. Furthermore, BigPay needed a solution to automate workflow processes for name screening and adverse media searches, freeing up analyst time for more in-depth investigations. With ComplyAdvantage, BigPay was able to custom-build a single proprietary interface connecting multiple tools, trackers, and databases via a single API. The financial services firm also set up unique screening profiles for its individual markets, providing proportional controls for different products and transaction types – such as remittance and e-money. Accessible search profile configuration and fuzziness fine-tuning streamlined the process of aligning with new regulations.

“We now have the benefit of researching sanctions, PEPs, and adverse media all at the same time from a large number of sources rather than using multiple tools and databases. The time saved comes from only having to research the alerts, rather than wasting time looking for them.”

Ashwin Nazareth, FinCrime Operations & Disputes Principal, BigPay

The post What is customer screening & why is it important for AML? appeared first on ComplyAdvantage.

It’s certainly an essential component in know your customer (KYC) and anti-money laundering (AML) regulations.

But without an efficient, scalable, and reliable way to continuously detect hidden risks in customer activity, it would be almost impossible to prevent financial crime from taking advantage of legitimate financial services.

This article will look at:

• Why ongoing monitoring is so important.
• What it takes to successfully monitor customers.
•  How automation and software can help.

What is ongoing monitoring in AML?

Ongoing monitoring is the process of routinely assessing customers and their transactions for risks for criminal activity such as money laundering or terrorist financing.

Unlike the screening processes at the start of a new customer relationship, an ongoing monitoring program is a continuous effort to verify that customers are who they say they are and that their transactions are legal and compliant.

Why is ongoing monitoring important in AML

Ongoing monitoring is a critical layer in a company’s overall AML efforts because it tracks and verifies both customers and their activities over a long period of time. This is crucial for three reasons:

1. Customers may not be participating in criminal activity when they first start transacting with a financial business. But they might start doing so later on. Without an ongoing approach to detecting risk, the business would be none the wiser and yet completely exposed.
2. Financial criminals go through great efforts to present as legitimate actors, often posing as legal businesses or even manipulating legal businesses to transact on their behalf. But while these efforts might be enough to bypass initial screening procedures, the more they transact the harder it becomes for them to continue fooling a robust AML operation.
3. Even if a customer isn’t participating in illicit activities, their risk levels may change over time. For instance, the outcomes of elections in foreign countries may mean certain customers are now considered politically exposed persons (PEPs), new stories may emerge about their involvement in other criminal activities, and the ultimate beneficial ownership of their businesses may change hands. All these changes merit further investigation as they emerge.

This is why the ongoing monitoring program is so important to ensuring FIs can protect themselves from the regulatory penalties and reputational damage that can result from failing to detect criminal activity.

The AML regulations and requirements for ongoing monitoring

Given its critical role in detecting criminal activity, ongoing monitoring is now a central requirement of every major KYC and AML regulation around the world.

• The UK’s Money Laundering Regulations of 2017 require firms to “conduct ongoing monitoring of a business relationship, including—(a)scrutiny of transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, the customer’s business and risk profile; (b)undertaking reviews of existing records and keeping the documents or information obtained for the purpose of applying customer due diligence measures up-to-date.”
• Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) require all reporting entities to comply with ongoing monitoring requirements as of 2021.
• The Australian Transaction Reports and Analytic Center (AUSTRAC) mandates ongoing customer due diligence with a view to identify, mitigate, and manage the risk of reporting entities being involved in or facilitating money laundering or terrorist financing.
• The Reserve Bank of India (RBI) recently updated its AML and CTF requirements to mandate closer ongoing monitoring of transactions in customer accounts.
• The US’ Financial Crimes Enforcement Network (FinCEN) enforces ongoing monitoring to identify and report suspicious transactions as part of its customer due diligence (CDD) rule.
• The Financial Action Task Force includes ongoing due diligence as part of its International standards for combating money laundering and terrorist financing.

Penalties for non-compliance

Financial institutions have been fined severely and repeatedly for AML-related infractions, amounting to more than $50 billion since the global financial crisis of 2008.

Violations that receive the biggest penalties typically involve a failure to effectively calibrate AML measures with a firm’s risk profile, including deficient customer due diligence processes and a failure to monitor PEPs and high-risk entities.

For instance, in 2022, a European bank received one of the largest fines of the year for insufficient transaction monitoring of high-risk customers and inadequate measures for enhanced due diligence, even though it had claimed its AML systems were effective.

The main components of the ongoing monitoring process

Ongoing monitoring is an essential aspect of a company’s overall efforts to conduct due diligence on its clients and identify any risks of money laundering or terrorist financing activity.

Based on the business’ risk-based assessment, ongoing monitoring will be conducted as part of both standard customer due diligence (CDD) and enhanced due diligence (EDD).

It’s made up of several component processes that typically include:

• Transaction monitoring: To routinely observe and report on the nature of client transactions and whether they’re in line with the client’s stated objectives, historical patterns and within the scope of legitimate transactions of that nature.
• Ultimate Beneficial Ownership (UBO): To maintain an ongoing understanding of the client’s source of funds as well as keeping tabs on the individuals or entities who ultimately gain from the client’s activities.
• Sanctions checks: To regularly consult sanctions lists from all around the globe in the event that anyone representing the client or their business should be subject to additional layers of scrutiny as identified by governments and authorities.
• Adverse media: To continuously monitor media and publications around the world for any indication that anyone representing the client or their business is implicated in nefarious activity that might warrant additional due diligence and controls.
• PEP checks: To regularly determine whether or not the status of anyone representing the client or their business should be updated to highlight their political exposure and therefore require an increase in scrutiny or change in policy.

Ongoing monitoring best practices

Globally, AML regulations expect reporting businesses to continuously monitor their clients’ activity with general requirements around reporting suspicious behavior and maintaining documentation on policies and controls.

But the onus is still on businesses to implement a system of ongoing monitoring that is both effective at detecting risks and efficient enough to run sustainably. Some best practices that can help businesses on this path include:

• Prioritize an ongoing approach to risk scoring: Some businesses only implement risk scoring for their clients as part of a single spreadsheet-based exercise. While it might seem to reduce the effort required from compliance teams, this leaves businesses exposed to inevitable changes in the client’s circumstances and patterns. For ongoing monitoring to effectively detect risk, businesses need risk scoring to be constantly updated.
• Leverage automation to scale efficiently: Machine learning can have a sizable impact on a business’ ability to monitor all of its clients on an ongoing basis successfully. With the right integrations and interfaces, it can dynamically update risk scoring and proactively collect new information on clients from sanctions lists and adverse media to ensure compliance teams can reliably detect risk at scale.
• Documentation cannot be an afterthought: A constant audit trail of every decision, policy and control is absolutely essential to ensuring that regulators have the information they need while also ensuring internal audit teams have everything they need to assess processes. This documentation needs to be an innate, ideally automatic part of the AML process rather than an additional step to be manually implemented after decisions are made.

Automated ongoing monitoring solutions

Financial institutions around the world rely on ComplyAdvantage’s ongoing monitoring solution to run more efficient, effective AML processes. They’re able to combine:

• An easy-to-use, highly configurable platform that intuitively presents data from multiple sources so analysts can get the full picture faster.
• Market-leading proprietary data that leverages machine learning to dynamically update profiles based on adverse media, PEP lists, and sanction lists globally.
• A process that includes fewer false positives, a faster way to manage alerts, and a constant auditable trail of every decision and action taken.

Investment company Freetrade experienced this firsthand when the company determined it needed to implement more rigorous ongoing monitoring. Freetrade selected ComplyAdvantage as a partner that could deliver ongoing screening and monitoring alongside the flexibility to configure the lists it screened against. 

“The quality of data we get through ComplyAdvantage is really important to us. Through ComplyAdvantage, we have comfort that we’re screening and identifying high-level PEPs and all the way down to local councilors.” 

Rob O’Sullivan, Director, Financial Crime Compliance and MLRO, Freetrade

The post What is the point of ongoing monitoring in AML? appeared first on ComplyAdvantage.

As a predicate offense to money laundering, it’s crucial gambling operators have fraud detection solutions in place to mitigate the risk of “dirty” funds flowing through online gaming platforms and into the legitimate financial system. In this article, gambling operators can learn more about fraudsters’ tactics and discover why implementing proactive fraud prevention strategies is crucial for safeguarding the integrity of online gambling platforms and ensuring a safe and fair gaming environment for all players.

What is online gambling fraud?

Online gambling fraud refers to any illicit or deceptive activity conducted within the realm of online betting and gaming platforms aimed at manipulating outcomes, exploiting loopholes, or defrauding players or the platform itself for financial gain. This type of fraud encompasses various schemes and tactics, including:

• Payment fraud: Using stolen credit cards or fraudulent payment methods to fund gambling accounts or withdraw winnings. 
• Match fixing: Rigging the outcome of sporting events or casino games to ensure a specific result, often in collusion with athletes, referees, or employees of the gambling platform. This undermines the integrity of the game and deceives legitimate players.
• Bonus abuse: Exploiting bonuses and promotional offers provided by online casinos or betting sites through fraudulent means, such as creating multiple accounts or using automated bots to meet wagering requirements unfairly.
• Identity theft: Stealing personal information to create fake accounts or impersonate legitimate users to commit gambling fraud. It can lead to unauthorized access to accounts, fraudulent withdrawals, and other illicit activities.
• Use of cheating software: Developing or using software tools designed to manipulate the outcome of games, exploit vulnerabilities in the platform’s software, or gain an unfair advantage over other players.

How does online gambling fraud work?

Online gambling fraud centers around exploiting vulnerabilities within online betting platforms. One significant factor contributing to the prevalence of fraud in online gambling is the absence of face-to-face interaction, coupled with the anonymity afforded by digital transactions. 

This environment creates opportunities for fraudsters to exploit loopholes, such as using stolen credit cards or engaging in new account fraud, resulting in financial losses for both operators and legitimate customers.

Fraudsters may collaborate with others to manipulate game outcomes, exploit software vulnerabilities to gain unfair advantages or orchestrate sophisticated scams targeting unsuspecting players. Additionally, techniques like phishing emails and social engineering tactics are employed to illicitly access customer data, further exacerbating the risk of fraud.

The impact of fraud on online gambling

Gaming and gambling websites saw a massive increase in interest during the COVID-19 pandemic when many people were forced to change their habits due to stay-at-home orders across the world. In fact, three times as many people visited online gambling websites in 2020-2021 compared to 2018. However, criminals quickly followed suit to tap into this growing market, leading to the average fraud rate for gambling and betting companies skyrocketing by 80 percent.

While the global online gambling and betting industry generated $536 billion in 2023, and projections indicate it will set new revenue records by reaching $1.4 trillion by 2030, this growth is threatened by the rising rates of online gambling fraud. In addition to undermining consumer trust and confidence in the industry, rising fraud rates could hamper the industry’s continued expansion.

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Common types of online gambling fraud

Some of the primary tactics fraudsters employ in online gambling include:

• Bot fraud: The creation of custom code or scripts designed to automatically analyze potential winning odds in various online gambling games such as poker, blackjack, or slot machines. Referred to as value betting, this strategy aims to develop a gambling bot capable of exploiting perceived advantages in the game algorithms. It is often conducted by those with programming experience.
• Affiliate fraud: When deceitful actions are taken by a third party to benefit from marketing techniques such as pay-per-click (PPC) campaigns. This can involve using stolen data or payment details from an iGaming provider to drive leads for their own business.
• Multi-accounting (aka: bonus abuse): The creation of multiple accounts with the same website in an attempt to cheat the system. Often websites offer welcome bonuses for new players, which is a way for individuals to take advantage of these promotions and receive more than they’re entitled to. In matched betting, individuals also deploy multi-accounting to ensure a profit. This tactic entails placing bets on both possible outcomes of an event, thereby guaranteeing a positive return regardless of the outcome.
• Credit card fraud: This can happen in various forms, including the use of stolen credit card information to make transactions on online gambling platforms. This is just one avenue through which criminals can capitalize on stolen financial data.
• Chargeback fraud: A player depositing funds into their gaming account using a credit card, gambling, and then disputing the charges with their credit card issuer, claiming the transactions were unauthorized or that they did not receive the promised goods or services. This may happen unintentionally if, for example, a child uses their parent’s mobile device to make a gambling-related payment unbeknownst to the parent, who subsequently reports it as fraud. 

Advanced fraud detection solutions powered by AI

The predictive capabilities of advanced fraud detection software can help gambling operators anticipate and thwart potential fraud schemes. Some solutions have even been shown to offer significant reductions in all payment fraud-related losses. By harnessing predictive analytics, firms can effectively safeguard against fraudsters’ constantly evolving gambling fraud tactics, ensuring enhanced security and peace of mind.

Robust customer screening solutions are just as vital, helping operators know who they’re doing business with and whether certain entities should receive more due diligence surrounding their gambling activity. Solutions that can also screen customers against sanctions and watchlists, politically exposed persons (PEPs), adverse media, and enforcement data are particularly valuable, especially those that use artificial intelligence (AI) matching algorithms to ensure alert accuracy and reduce the likelihood of duplicated profiles. 

The post What is online gambling fraud, and how can it be prevented? appeared first on ComplyAdvantage.

While traditional casinos can provide criminals with an avenue to convert physical “dirty” cash into casino chips, online gambling presents different types of money laundering risks due to increased levels of anonymity. This article details the financial red flags compliance staff should be aware of, alongside best practices for mitigating these risks.

Money laundering risks in online gambling

Recognizing red flag behaviors and activities in online gambling transactions is essential for firms to mitigate financial crime risks effectively. By understanding these indicators, firms can fine-tune their systems to align with their risk appetite and address the challenges online gambling poses within their industry and jurisdiction. Some key money laundering risks in online gambling include:

• Anonymity: One of the primary risks associated with online gambling is the anonymity it affords users. Unlike traditional casinos that require face-to-face interactions, online platforms allow users to gamble with minimal personal information. Criminals exploit this by using stolen credit cards, fake identities, or cryptocurrencies to place bets and withdraw their “winnings,” effectively laundering their illegally obtained money.
• Multiple accounts and cross-border transactions: Online gambling sites often permit the creation of multiple accounts, which criminals can use to transfer money between accounts to obfuscate the origin of the funds. Additionally, the global nature of online gambling allows for cross-border transactions, further complicating efforts to trace illicit funds. These features make it difficult for regulators and financial institutions (FIs) to effectively track and prevent money laundering activities.
• The free flow of funds: Much like traditional casinos, where money flows freely and transactions are numerous, online gambling platforms facilitate the movement of large sums of money. This environment makes it easier for criminals to integrate their dirty money into the legitimate financial system. By placing bets and withdrawing winnings, they can make it appear as though their funds come from legitimate gambling activities.
• Regulatory challenges: The regulation of online gambling varies widely across different jurisdictions, creating challenges for authorities attempting to combat money laundering. Some countries have stringent regulations and robust monitoring systems (e.g., China), while others have more relaxed approaches (e.g., Malta). This inconsistency can create loopholes that criminals exploit to launder money through online gambling platforms.

Money laundering schemes in online gambling 

Bad actors can exploit online gambling platforms at each of the three stages of money laundering:

1. Placement: Illicit funds are introduced into the financial system by depositing money into gambling accounts using methods such as credit/debit cards, cryptocurrencies, prepaid cards, and checks.
2. Layering: The source of the funds (SoF) is disguised through complex transactions involving multiple bets, transfers, and withdrawals within the gambling platform, making it difficult to trace the money’s origin.
3. Integration: The laundered funds are withdrawn or used for legitimate transactions, which can include purchasing assets or transferring money to other accounts, effectively merging illicit funds with legitimate ones.
   

Understanding these stages can help identify some of the common schemes fraudsters use to launder money through online gambling platforms. Key methods to be aware of include:

• Smurfing: Breaking down large sums into smaller, less noticeable transactions to evade detection.
• Coordinated betting: Placing bets with deposited funds, colluding with other players, and making coordinated bets to obscure the money’s origin.
• Chip dumping: Intentionally losing chips to another player at an online poker table to transfer funds covertly.
• Player-to-player transfers: Using gambling accounts to facilitate illegal transactions between parties through direct transfers.
• Gnoming: Utilizing multiple accounts to help one player win and another lose in head-to-head games.
• Concealment: Hiding illicit funds in gambling accounts without immediate withdrawal, using the same anonymous banking method for future retrieval.

AML regulations for online gambling

In the US, online gambling falls under federal and state jurisdiction, with laws like the Wire Act governing interstate betting and payment processing. However, the Financial Crimes Enforcement Network (FinCEN) does expect online casinos to have the same robust Bank Secrecy Act (BSA) and AML programs as traditional brick-and-mortar casinos. In fact, in June 2021, FinCEN issued its first government-wide priorities for AML and countering the financing of terrorism (CFT) policy pursuant to Section 5318(h)(4)(A) of the BSA. The regulator’s new policy identified eight national priorities for all bank and non-bank FIs covered by the BSA, including online gambling establishments, that must be incorporated into existing BSA/AML programs. The eight priorities include:

1. Corruption
2. Cybercrime
3. Foreign and domestic terrorist financing
4. Fraud
5. Transnational criminal organization activity
6. Drug trafficking organization activity
7. Human trafficking and human smuggling
8. Proliferation financing

Meanwhile, the EU lacks unified gambling legislation, with member states like France, Italy, and Spain each governing their regulations at the national level. These entities enforce licensing, consumer protection, and anti-fraud measures.

In the UK, the Gambling Commission oversees online gambling regulation, ensuring compliance with laws like the Gambling Act 2005. Specifically, all operators must comply with the following:

• The Proceeds of Crime Act 2002 (POCA).
• The Terrorism Act 2000. 
• The Gambling Act 2005. 

Penalties for non-compliance

The UK’s Gambling Commission has the authority to issue fines for breaches of the Gambling Act 2005. These fines can range from a percentage of annual revenue to substantial fixed penalties, depending on the severity of the violation – non-compliant operators may face license suspension or cancellation.

Similarly, in the EU, member states enforce penalties for non-compliance with gambling regulations. For example, under France’s Autorité de Régulation des Jeux En Ligne (ARJEL), operators can face fines of up to €30,000 for violating licensing conditions or regulatory requirements. Repeated offenses may lead to higher fines or even license suspension or cancellation.

In the USA, penalties for failing to comply with online gambling regulations vary at both the federal and state levels. Under the Unlawful Internet Gambling Enforcement Act (UIGEA), FIs can face civil penalties for processing illegal gambling transactions, with fines reaching up to $1 million per violation. Operators may also face prosecution under state-specific laws, such as New Jersey’s Casino Control Act, which imposes fines of up to $200,000 for each regulatory violation. Regarding BSA violations, the US government imposes statutory penalties – which can range from $10,000 dollars for record-keeping violations to over $200,000 for more serious infractions. 

Money laundering red flags in online gambling

By recognizing financial red flag indicators about online gambling money laundering, firms can develop and implement specific rule sets and monitoring systems to identify and mitigate risks, ensuring they do not inadvertently facilitate illegal activities. Some of the most common indicators of potential money laundering in online gambling include:

• Unusual betting patterns: Players who consistently place large bets on low-risk games or matches may be attempting to launder funds by minimizing the risk of loss.
• Frequent and large transactions: Individuals making numerous substantial deposits or withdrawals within a short time frame could be moving illicit money through the platform.
• Funds originating from crypto: Gaming deposits originating from cryptocurrency, due to their pseudo-anonymous nature, can raise a red flag for potential money laundering. In February 2024, the UK Gambling Commission reminded operators that crypto-assets are considered high-risk, and licensees must appropriately scrutinize crypto transactions throughout customer and business relationships.
• Quick turnover: Depositing significant amounts and withdrawing them shortly afterward, without much gameplay, indicates an attempt to obscure the money’s origin.
• Multiple accounts and identities: Operating multiple accounts under different names or using various IP addresses can signify efforts to evade detection or circumvent transaction monitoring.
• Inconsistent behavior: Erratic gaming patterns that do not match deposit and withdrawal behaviors suggest the platform is being used as a conduit for illicit activity rather than for entertainment.

How can online gaming platforms mitigate money laundering risks?

While there are many risks associated with online gambling, FIs can bolster their defenses with the right application of diligence, software, and training. Outlined below are some best practices businesses should consider:

• Risk assessments: Ensure risk assessments align with the latest red flag indicators. This should include evaluating the risks associated with specific products and services, taking into account the user and the product’s functionality.
• Blockchain technology: Blockchain technology offers online gambling companies a transparent way to record transactions, providing an immutable ledger that can be audited for suspicious activities. 
• Staff training: Comprehensive staff training on AML procedures and regulations is critical for ensuring compliance and fostering a culture of vigilance within any organization. Regulations in 21 US jurisdictions mandate that online gaming operators must prepare and submit a plan for addressing responsible gaming issues, which must include employee training and public awareness efforts.

Detect money laundering with advanced AML solutions

Advanced AML solutions employ a mix of sophisticated techniques to help compliance teams effectively monitor and prevent illicit financial activities. At the core of these strategies is transaction monitoring, which scrutinizes financial transactions to spot suspicious activities. Utilizing cutting-edge machine learning algorithms, these systems can identify irregular patterns like significant transfers to offshore accounts, recurring high-value transactions, or movements inconsistent with a customer’s usual profile, triggering alerts for further investigation.

Customer screening is also vital as it aims to verify the identities of both new and existing customers against databases of known criminals, politically exposed persons (PEPs), and sanctioned individuals. This step is crucial for preventing high-risk individuals from using online gaming platforms for money laundering, helping firms mitigate the risk of non-compliance and protect their reputations in the market. 

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The main difference between the DTA and the CDSA is that the CDSA regime adopts a “predicate offense approach,” which specifies that the laundering of proceeds from all drug trafficking offenses and 182 other serious crimes constitutes a money laundering offense. By contrast, according to the CDSA, laundering proceeds from criminal activities outside these categories is not considered “money laundering,” although it is still punishable under other laws.

This article provides financial institutions (FIs) with an overview of the CDSA to help ensure compliance with its regulations.

What is the Corruption, Drug Trafficking and Other Serious Crimes Act (CDSA) in Singapore?

The CDSA is a crucial piece of legislation in Singapore’s ongoing efforts to combat financial crime. The act provides a comprehensive legislative framework to combat corruption, drug trafficking, and other serious criminal activities in Singapore. It empowers authorized officers to confiscate benefits derived from illicit activities, enforce reporting obligations, and collaborate with international agencies for investigations and asset recovery. Key entities subject to compliance include:

• Financial institutions (FIs.)
• Legal counsels.
• Individuals involved in asset management or transactions.
• Law enforcement agencies and authorized officers.

Key requirements of the CDSA

While the CDSA contains anti-money laundering (AML) rules, its primary objective is not focused on money laundering. Instead, the it aims to deprive criminals of any financial gains obtained through criminal activities by establishing a confiscation regime. The CDSA’s AML rules support this confiscation regime by preventing illegally acquired assets from being laundered into other property to evade detection and confiscation by law enforcement agencies.

Key AML requirements set out by the CDSA include:

• Developing comprehensive internal policies: Covered entities must create detailed policies and procedures to ensure compliance and effective AML monitoring. These should be based on a risk-based approach (RBA), considering the specific risks faced by the organization.
• Ensuring effective communication and regular updates: Senior compliance staff are required to ensure that all policies are clearly communicated to new employees at onboarding. Additionally, regular updates must be provided at least annually to keep them informed of any changes or updates in AML policies and procedures.
• Providing staff training: Firms must implement a robust training program for all staff members to equip them with the necessary skills to identify and handle suspicious activities effectively. This program should also emphasize the importance of AML compliance and the potential consequences of failing to adhere to regulations or adequately monitor risks.
• Conducting a comprehensive enterprise-wide risk assessment (EWRA): FIs are required to organize a thorough business assessment to identify their exposure to money laundering and terrorist financing risks. This assessment should consider various risk factors relevant to the business’ operations and market context.
• Appointing a compliance officer: The CDSA requires the designation of a compliance officer, and their specific roles and responsibilities within the AML compliance program must be clearly outlined. This individual should be empowered to oversee the establishment, implementation, and ongoing management of the AML framework.
• Reporting: Establish protocols for promptly reporting suspicious transactions to regulatory authorities. This includes identifying the types of transactions that should be considered suspicious and the process for reporting them in compliance with legal and regulatory requirements.

Who enforces the CDSA?

The CDSA is enforced throughout Singapore by a network of agencies. These include:

• Central Narcotics Bureau (CNB): Responsible for combating drug-related crimes and enforcing laws related to drug trafficking and abuse.
• Corrupt Practices Investigation Bureau (CPIB): Tasked with investigating and prosecuting corruption offenses involving public officials and bribery.
• Commercial Affairs Department (CAD): Oversees investigations into financial crimes, such as money laundering and fraud, including those related to the proceeds of drug trafficking and other serious crimes.
• Singapore Police Force (SPF): The SPF plays a crucial role in investigating a wide range of criminal offenses, including drug trafficking, corruption, and other serious crimes covered under the CDSA.

Penalties for non-compliance with the CDSA

Non-compliance with the CDSA can result in severe penalties, including fines and imprisonment. Some of the key penalties outlined in the CDSA include:

• Rash money laundering: Introduced as a new offense in February 2024, entities that proceed with transactions despite having some suspicion while also failing to make further inquiries may be charged with rash money laundering. The maximum penalty is a fine of up to $250,000, imprisonment of up to five years, or both.
• Negligent money laundering: Individuals who continue with a transaction despite the presence of red flags that would be noticeable to a reasonable person may be charged with negligent money laundering. The maximum penalty is a fine of up to $150,000, a prison sentence of up to three years, or both.
• Disclosing Singpass credentials to facilitate an offense: A Singpass credential refers to the login credentials used for accessing various digital services the Singaporean government provides. Individuals who disclose their Singpass passwords or access codes, knowing or having reasonable grounds to believe that the purpose is to commit or facilitate the commission of an offense, may be charged. The maximum penalty is a fine of up to $10,000 or imprisonment of up to three years, or both.

How can firms comply with the CDSA?

As Singapore continues strengthening its regulatory framework to combat financial crimes and uphold its economic system, compliance professionals face increasingly complex challenges in meeting their obligations under the CDSA. Luckily, advanced AML software options are available to help address these challenges effectively.

Sophisticated transaction monitoring software can help detect and flag suspicious activities that may indicate money laundering or other illicit financial behaviors as defined under the CDSA. With advanced machine learning algorithms, transaction monitoring platforms can analyze vast amounts of transactional data in real-time to identify patterns, anomalies, and red flags indicative of potential illicit activities. Furthermore, with the right solution, compliance teams can create transaction thresholds and rule sets based on their firm’s risk exposure by choosing from a library of red flags and suspicious activity scenarios.

Award-winning FinTech BigPay, which operates out of Singapore and Malaysia, experienced the benefits of these capabilities when it needed to quickly implement a more efficient screening process to meet its regulatory obligations. With ComplyAdvantage, BigPay could custom-build a single proprietary interface connecting multiple tools, trackers, and databases via a single API. The financial services firm also set up unique screening profiles for its markets, providing proportional controls for different products and transaction types – such as remittance and e-money. Accessible search profile configuration and fuzziness fine-tuning streamlined the process of aligning with new regulations, like updates to the CDSA and PSN02.

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