In 2021, CNN reported that NatWest was fined over $350 million as the bank had failed to prevent the laundering of over $500 million. The bank had been charged for not monitoring customer account activity properly. Even trash bags were involved in depositing the money at the bank, and it had no idea what was going on.
The BBC reported a similar incident but with HSBC. However, this time, direct laundering was not found. Rather, it was the lack of a proper anti-money laundering policy within HSBC that had caught the authority’s attention.
Financial institutions are often victims of money laundering, and they have to suffer greatly for it. Thus, comes the need to prevent such activities, and here’s how these banks and institutions can manage it.
Learn to Identify the Red Flags of Money Laundering
Money laundering is a serious offense. If you work in financial services, you must know how to identify the red flags of money laundering so that you can help prevent it from happening on your watch.
Here are some common signs:
- A customer who does not want their name on the account
- A customer who wants to maintain anonymity by using an offshore company or trust
- Customers who ask for unusual wire transfers, such as unusually large amounts sent to multiple foreign accounts
- Customers who refuse to provide documentation about their business or personal background
- Customers who want an account but don’t need any financial services from you
Ensure an Efficient Know Your Customer (KYC) Verification Process
The first step in preventing money laundering is ensuring that you have an efficient Know Your Customer (KYC) verification process.
According to the KYC definition in AU10TIX’s knowledge base, it’s a set of guidelines that financial institutions use to verify their clients’ identity and ensure that they are indeed who they say they are. This can be done with the following:
- Passport or driver’s license copy
- A utility bill with their name on it
- An official document issued by the government
Use Technology to Secure Your Financial Institution’s Technical Infrastructure
One of the most effective ways to prevent money laundering is through the use of technology.
Financial institutions should use technology to secure their technical infrastructure, making it difficult for cybercriminals to penetrate their systems. This is important because criminals may try to access sensitive information about customer accounts or other financial details, which could be used to steal money or commit fraud.
In addition, financial institutions should consider using artificial intelligence (AI) solutions to help monitor the activities of customers. AI can analyze data quickly and efficiently, which makes it ideal for detecting suspicious activity.
Yahoo! Finance reported that British banks are already using AI to provide customer support. This allows them to bring in and handle more customers than ever. Using data and AI makes for a smooth flow of operation that otherwise wouldn’t have been possible.
Finally, any financial institution that handles large amounts of funds should have an effective anti-money laundering compliance program that includes policies and procedures designed specifically for this purpose.
Train Your Staff to Spot Potential Risks
One of the most important things a financial institution can do to prevent money laundering is to train its staff to recognize potential risks. It’s important to make sure that you’re not only training your employees on how to spot suspicious transactions but also paying attention to how they respond to those transactions.
For example, if an employee sees a transaction that raises red flags, they should be able to contact the appropriate authorities with confidence and provide the information needed for them to investigate further. They should also be able to identify where that information needs to go for it to reach the right people.
This sort of training program ensures that your employees will be able to provide accurate information about suspicious transactions when they occur, which is imperative when it comes time for them to report what they’ve seen.
Review Your Anti-Money Laundering (AML) Policies Yearly
It’s important to review your anti-money laundering (AML) policies yearly.
To prevent money laundering, financial institutions must have an effective AML program in place. This program should include policies and procedures that are designed to prevent the institution from being used as a conduit for money laundering activity.
An institution must make sure that its employees understand the importance of their role in preventing money laundering, so it is important to provide them with training and guidance on what they need to do. This can be done through videos or written materials. It is also important for employees to know who they should contact with questions about AML compliance issues or other concerns related to their job duties.
Get started with these policies and infrastructures. Slowly but steadily, you’ll find more ways to prevent money laundering and ensure the integrity of your financial institution.