The practice of money laundering has a long and storied history, and as the technologies behind finance have evolved, so the crooks have changed tactics in order to evade the authorities and turn dirty cash into currency they can use freely.
In the digital age, money laundering is more prevalent than ever before, growing rapidly in part as a result of the switch from physical notes and coins over to totally intangible yet still entirely spendable equivalents.
Let’s look at the trajectory this trend is taking, and the steps being made by the finance sector to fight back.
The Problem With Online Payments
As we move towards a cash-free future, the presence of online payment platforms and all-digital transactions has made life easier for consumers, and created an entirely new marketplace with a range of competing providers and solutions.
This diversification gave criminals more places to hide their illegal activities, making it harder for the good guys to trace the ebb and flow of currency in and out of their operations.
So even though digital payments are technically responsible for leaving more of a paper trail than cash transactions, the sheer scope, scale and complexity of the online payment industry has problematized proceedings.
Then there’s the question of cryptocurrency, which took off following the introduction of Bitcoin over a decade ago, and gave criminals a completely anonymous, decentralized way to send and receive tokens outside of the usual financial frameworks.
Understanding AML Compliance
The main means by which underhanded financial activities are being detected and dealt with is a series of rules, regulations, and technologies collectively referred to as AML or anti-money laundering.
Back in 1989, this was formalized with the creation of the multinational Financial Action Task Force (FATF), with further developments occurring after the turn of the new millennium in order to deal with the threat of terrorism being funded globally.
Today, organizations can embrace a full-blown AML compliance solution to ensure that they are up to speed with the legislation that governs how payments are overseen.
This is important not just because it prevents the possibility of fines being levied if standards are not upheld, but also because it ensures that the brand’s reputation does not suffer, as would be the case if it were to be caught up in a money laundering scandal.
Appreciating the Role of AML Technologies
So what are banks and financial institutions using to identify and prevent money laundering right now? Well, there are a few key technologies at play, including
Automated Client Screening
When new customers seek to open accounts, software tools can automatically search global databases to see whether they are legitimate and above-board, or whether they have the potential to be a risk because of their prior activities.
Transaction Monitoring
Once accounts are up and running, even if the customer has a clean history, banks can track their transactions and look out for any anomalous activities which are worthy of further investigation.
This is eminently achievable thanks to the power of AI and machine learning algorithms, which are among the most impactful financial technologies at the moment. Powerful, intelligent systems can oversee millions of users and billions of transactions, sniffing out anything suspicious and alerting human specialists so that further steps can be taken as necessary.
Behavioral Analysis
Within the broader suite of AI-enhanced tools, being able to analyze and better understand user behaviors, especially in a finance context, has all sorts of benefits.
It not only means that banks can provide better, more bespoke products to the legitimate customers they serve, but also that they can be more precise and swift in rooting out any dodgy characters who are trying to subvert their infrastructures for their own nefarious aims.
Looking to the Future
There is little question that money laundering will remain a threat to finance indefinitely, no matter how many new AML strategies and solutions are introduced
The point is that although this is an unavoidable reality, modern banks are getting better at dealing with the threats they face, and moving towards total compliance with regulations to avoid fines and the fallout of exploitation by criminals.
Ongoing vigilance is needed from all industries and sectors if money laundering activities are to be reduced. And the turbulence of the past couple of years has not helped in this regard.
The role of AI and automated solutions paints a tentatively positive picture of the future, which can only be a good thing.