How AML Transaction Monitoring Protects Financial Businesses

Money laundering is a serious issue faced by economies across the world. According to the United Nations Office on Drugs and Crime, the amount of money laundered each year stands at around 2% to 5% of global GDP. In absolute numbers, that’s around $2.22 trillion to $5.54 trillion.

This is why, it is important for financial organizations to take anti-money laundering measures. One of the most prevalent processes to aid in stopping money laundering is AML Transaction Monitoring.

What is AML Transaction Monitoring?

Anti Money Laundering Transaction Monitoring, or AML Transaction Monitoring is a process employed by financial organizations to keep track of all the transactions that their clients perform. This is not some sort of forced surveillance method, but a way to avoid illegal transactions passing through the organization.

In the US, payment orders exceeding $3,000 and deposits exceeding $10,000 in a single day attract recording and reporting on the platform where such transactions are made.

Under AML Transaction Monitoring, transactions that are considered to be linked to illegal activities are known as “high-risk” transactions. As mentioned before, these attract reporting obligations, and reports on such transactions are known as Suspicious Activity Reports (SAR).

Factors That Affect AML Transaction Monitoring

As mentioned above, transactions crossing certain thresholds need to be monitored due to potential links with money laundering. However, the amount of money is not the only factor. These are the additional aspects that decide whether a transaction is suspicious or not.

• Location: Financial organizations need to ensure that the origin as well as the destination geography of any transaction is not in a high-risk location. This could mean any location that may be an alien enemy, or in an active war with the concerned platform’s country of operations.

• Volume: Not only do financial organizations need to be aware of transactions that cross the aforementioned thresholds, but they must also consider transactions that actively try to avoid triggering these thresholds. Individuals may indulge in an activity known as structuring or smurfing, where they make transactions right below regulatory thresholds, in an attempt to avoid detection.

• Pattern: Financial organizations must pay attention to their clients’ transaction patterns. This helps them flag and monitor any individual(s) that may show sudden changes in these patterns. For example, a sudden rise or fall in the number of a client’s weekly transactions might need some looking into. It might turn out to be nothing, but it is important to be vigilant than sorry.

• Parties Involved: Just like the geography of the sender or receiver in a transaction, the individual transacting might be cause for concern. A client might fall under surveillance for transacting with an individual with a poor history, a criminal record, or a politically exposed person.

Why Is AML Transaction Monitoring Necessary?

Money laundering leads to loss of wealth for an economy as well as loss of tax revenue for the government. Laundered money is often linked to illegal activities.

This is why financial organizations must conduct AML Transaction Monitoring. Not only does it help in tracking miscreants, but it also saves the organization from having to deal with legal difficulties. Timely recognition, flagging, and capture of criminals also ensure that organizations can maintain credibility among their clientele. Customers might migrate to an organization’s competitors if they feel that their money or security is in danger with the concerned organization.

Which Businesses Need AML Transaction Monitoring?

Under the Bank Secrecy Act (and all related rules and laws), any business that can be considered a financial institution is required to follow AML Transaction Monitoring guidelines.

Therefore, not just banks and credit unions, but insurance companies, brokers, fintech companies, dealers, crypto exchanges, investment companies and firms, credit card companies, and online gaming and gambling platforms are some of the businesses that fall under this category.

How Signzy Helps

Money laundering and terror financing are not problems that are ever going to fully go away. However, as they evolve with the digitizing environment, businesses need to create a robust online security system.

Signzy’s marketplace offers a veritable selection of APIs that help businesses improve the state of various KYC requirements. The APIs range from identity verification with DL verification and SSN verification, to Criminal Screening and PEP screening.

So book a demo with Signzy and see how you can keep your business up to date with the developing business standards.

Conclusion

AML Transaction Monitoring might seem a bit excessive and surveillance-heavy, but when you consider the $390 million fine on Capital One by the Financial Crimes Enforcement Network (FinCEN), it is a minor process that can save a business some serious money.

Therefore, financial organizations must stay up to date with the AML Transaction Monitoring rules and regulations, to avoid legal troubles and possible loss of clientele.