In this blog, we will explore the intricate landscape of regulations as it applies to cryptocurrencies, the critical issue of sanctions compliance in the cryptocurrency space, and how KYC2020’s DecisionIQ, with the power of AI and collaborative intelligence, is transforming the way regulated entities benefit from these advancements while maintaining the importance of auditability and transparency over opaque solutions and systems.

The Crypto Conundrum: Money Laundering and Terrorist Financing

As the cryptocurrency industry becomes more ubiquitous in the financial systems, it faces similar challenges to traditional financial systems in combating money laundering and terrorist financing. Terrorists and criminal organizations seek to exploit the pseudonymous nature of cryptocurrencies to disguise the illicit origins or destination of their funds. By doing so, they are attempting to evade law enforcement to fund further criminal activities, while leaving a trail of damage in their wake.

Anti-Money Laundering (AML)/Counter Terrorist Financing (CTF) measures have been in place in traditional finance for some time now to help detect, deter, and in some cases prevent financial crimes from happening. While it is estimated that only 5-10% of ML/TF is actually detected, regulators worldwide have issued comprehensive guidelines and directives to at least try to make a dent. The rapid growth of the crypto industry has outpaced these efforts and is creating opportunities for criminals to exploit the regulatory gaps while they play catchup. The complexity of crypto, as it relates to AML/CTF regulations, has made it challenging for cryptocurrency exchanges to comply with new and ever-expanding regulations.

The Rising Tide of Regulatory Obligations

Many custodial and non-custodial Virtual Asset Services Providers (VASPs) are subject to Know Your Customer (KYC) obligations. Among the primary aspects of dealing with cryptocurrency is to put in place transaction monitoring, adherence to the Travel Rule, and screening for sanctions, PEP and Adverse Media on persons and entities who are involved in those transactions. Failure to perform these and other functions that are required by AML/CTF regulations exposes these businesses to significant reputational risk, civil penalties and criminal charges that could lead to prison.

The FATF and the Future of Crypto Regulation

The Financial Action Task Force (FATF) provided clarity related to AML/CTF regulations in its “Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers”. It makes recommendations on how countries, regulators, and virtual asset service providers should manage ML/TF risks related to dealing in cryptocurrencies. This guidance promotes a risk-based approach, similar to that of traditional regulated entities including those that would be most affected like financial institutions and MSBs. It is the member countries’ responsibility  to implement the recommendations to ensure that there are safeguards against widespread abuse in the use of cryptocurrencies in ML/TF related crimes.

KYC for Crypto Companies

A strong AML/CTF compliance program, rooted in a risk-based approach, is essential to align with the FATF recommendation and country-specific regulations. Customer screening and monitoring, understanding the customer’s financial activities and source of funds/wealth, assessing risk and compliance with the Travel Rule, are all key aspects in preventing, detecting and deterring ML/TF offences in financial systems. The role of a qualified compliance officer is pivotal in maintaining the integrity of a cryptocurrency exchange’s compliance efforts. Any lapses in compliance could result in severe fines and penalties, underscoring the importance of rigorous compliance in cryptocurrency exchanges.

To onboard and engage with high-risk customers, businesses must implement Customer Due Diligence (CDD) procedures as of their AML compliance regime. CDD procedures include screening against watchlists including sanctions, regulatory, criminal, and negative news. For businesses that deal with crypto transactions, this is not enough.

OFAC has expanded its purview by incorporating digital currency addresses into the SDN List, aiming to notify the public about specific digital currency identifiers linked to blocked individuals. Originally, the incorporation of cryptocurrency addresses into these due diligence processes was observed during the Silk Road crackdown and in the context of Darknet markets like Hydra and AlphaBay, as well as mixer services such as TornadoCash and Blender. More recently, we’ve seen the inclusion of Digital Currency Addresses related to the terrorist group Hamas in OFAC’s SDN and other watchlists.

Following this development, it is imperative that businesses implement rigorous screening processes for digital currency addresses. This is necessary to guarantee that they do not engage in transactions or trade involving digital currency identifiers associated with a blocked person.

In Conclusion: Screening for Cryptocurrency addresses with DecisionIQ

The importance of robust compliance solutions that include cryptocurrency address screening for sanctions and other related ML/TF exposure has never been greater. KYC2020, with its innovative DecisionIQ, all-in-one Sanctions, PEP & Adverse Media Screening platform, is aimed at transforming the way VASPs, DeFi, and blockchain innovators meet their regulatory obligations.

Businesses need more than just a compliance screening tool; they need a partner that understands the nuances of cryptocurrency compliance as it relates to sanctions.

DecisionIQ combines the power of AI and collaborative intelligence to significantly reduce false positives, provide transparency in the results, and ultimately demonstrate to the regulator or examiner that all steps have been taken to reduce the risk of dealing with a person or entity on a sanctions list. DecisionIQ ensures that every screening decision is recorded and auditable, similar to the blockchain concept of transparency through “proof of work”, or in our case, what we call a “proof of decision”.

KYC2020’s AI-driven technology with collaborative intelligence empowers those dealing with cryptocurrencies to maintain a rigorous compliance program without compromising on quality or incurring unnecessary costs.

“A compelling part of the technology is that it provides a proof of decision for every screening decision. Unlike other ‘black-box’ AI solutions, KYC2020 approach is similar to the blockchain concept of transparency via ‘proof of work.'” – Coinchange

Click here to read the full Coinchange Case Study and discover how DecisionIQ transformed their screening efforts related to compliance by reducing the cost and manual effort in dealing with false positives and bad data.

Verifiable Auditability: DecisionIQ’s “Proof of Decision” approach aligns with blockchain principles of transparency. It provides a verifiable audit trail for every screening decision and reviewer action. Unlike other ‘black-box’ AI solutions, DecisionIQ ensures clarity and transparency through its ‘proof of work.’

Reduce False Positives: False positives can be a significant challenge in compliance. DecisionIQ uses high quality and structured data and a screening decision system with auto-clearing capabilities to deliver one of the lowest false positive rates in the industry, saving your business time and resources while ensuring that legitimate customers are not held up in unnecessary reviews.

Faster Onboarding: Speed is of the essence in the crypto world. DecisionIQ’s rapid screening processes ensure faster onboarding, allowing regulated entities to provide a seamless experience to their customers.

Rapid Review and Clearing System: KYC2020’s Rapid Review and Clearing System (aka RABBIT) is the solution to the slowdown caused by case management systems that are not ‘human factored’ for large volume reviews. RABBIT is equipped with built-in functions for visualizing and processing information on a large scale, making it a more efficient and effective bulk review process over the traditional methods deployed by many others.

Watchdog‘s Automated Clearing Technology: We further improved DecisionIQ’s capability to handle edge cases in AI that result in false positives. Watchdog’s tech stack is designed around Collaborative Intelligence (CI), and it includes a hit pattern recognition system, Contextual AI to predict gender and nationality of names, and a proprietary name relevancy scoring system that is more effective and intuitive than fuzzy scoring. This additional intelligence is used as part of a rule-based system to lower the rate of false positives caused by borderline cases that humans can detect better than AI. Watchdog is also supported by a clear proof of work for verifiable auditability.

DecisionIQ offers a range of features designed to meet the unique needs of the crypto industry, ensuring compliance is not a burden but a competitive advantage. With DecisionIQ, crypto companies can focus on what they do best – innovating and providing value to their customers – while leaving the complexities of compliance in capable hands.

Remember, you don’t have to compromise on quality and compliance while lowering costs. DecisionIQ is here to make AML compliance a seamless and efficient journey. Stay ahead in the crypto compliance landscape with KYC2020.­­­

One of the distinctive challenges in this region is the complexity of name screening in Arabic script. Transliterating Arabic names into Latin characters presents specific challenges with significant implications for AML compliance.

This blog delves into the world of AML compliance in the Middle East, discussing the challenges of transliterating Arabic names, navigating the regulatory landscape, and highlighting the key authorities shaping AML requirements in the region. We’ll also emphasize the critical role of precision in AML compliance, particularly when it comes to Arabic language screening.

Understanding AML Regulations in MENA

Significance of the Middle East

MENA covers 6% of the world’s population and contributes to 4.5% of the global economy through 21 diverse countries, it holds a complex regulatory landscape for Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF).

Some of the key regulators are:

UAE – CBUAE

The Central Bank of the UAE (CBUAE) is the central financial regulator. It oversees, develops, and maintains the UAE’s financial system. The Regulatory Development Division within its Banking and Insurance Supervision Department sets AML/CFT policies.

Qatar – QFCRA

Qatar’s financial sector is regulated by the Qatar Financial Centre Regulatory Authority (QFCRA). Established in 2002, it authorizes and regulates financial services, with a dedicated AML/CFT unit. The QFCRA also actively engages with international standard-setting bodies.

Saudi Arabia – Ministry of Anti-Money Laundering, SAFIU & SAMA

Saudi Arabia takes a coordinated approach to tackle money laundering. The Ministry of Anti-Money Laundering, the Saudi Arabian Monetary Agency (SAMA), and the Saudi Arabian Financial Intelligence Unit (SAFIU). The Permanent Committee for Anti-Money Laundering, coordinates AML efforts at the SAMA head office in Riyadh.

Oman – CBO & CMA

Oman has two primary regulatory authorities. The Central Bank of Oman (CBO) oversees and licenses financial institutions, implementing AML/CFT regulations. The Capital Markets Authority (CMA) supervises Oman’s capital market and insurance sectors.

Egypt – Egyptian FIU

Egypt’s AML/CFT landscape is managed by the Egyptian Financial Intelligence Unit (FIU). It analyzes suspicious transaction reports and ensures compliance. Egypt also commits to combating financial crimes through the National Committee for Combating Money Laundering and Terrorism Financing (NCMLTF).

Jordan – Central Bank of Jordan

The Central Bank of Jordan leads AML/CFT efforts. It regulates and supervises financial institutions, participating in international initiatives against financial crimes.

Lebanon – BDL

Lebanon’s Banque du Liban (BDL) is responsible for AML/CFT oversight, ensuring the stability and integrity of Lebanon’s financial system.

Comprehensive AML Requirements

AML requirements in the Middle East align with international standards, the MENAFATF adopts and implements the FATF 40 Recommendations in the region in a way that does not conflict with the cultural values, constitutional frameworks and legal systems in the member countries. They encompass key areas like Customer Due Diligence (CDD), Transaction Monitoring, Suspicious Activity Reporting, Record Keeping, Employee Training, PEP and Adverse Media screening, Sanctions Compliance, and a risk-based approach.

The Challenges of Arabic Language Screening for AML

In the multifaceted Middle East and North Africa region, where ancient civilizations meet modern finance, an intriguing challenge emerges for Anti-Money Laundering (AML) screening: the diversity of scripts. Regulatory bodies often maintain watchlists with names in Latin scripts, while Middle Eastern banks may have names recorded in Arabic script. This linguistic divergence poses unique challenges for AML screening providers.

Transliteration Complexities

Transliterating Arabic names into Latin script becomes imperative due to the distinctive Arabic script, which features sounds markedly different from English. Currently, there’s no universally accepted standard for this transliteration, leading to variations in spelling that screening providers must navigate. Let’s delve into some transliteration scenarios:

1. The Elusive “ق”: Arabic’s “ق” represents a unique “k”-sound, pronounced deep in the throat. In Latin script, it’s typically transliterated as either “k” or “q,” adding a layer of ambiguity.
2. The Enigmatic ‘ayin: Arabic’s ‘ayin, represented by the letter ع, introduces another challenge. The sound often gets marked with an apostrophe or omitted in English transliterations, generating diverse spellings.
3. Pronunciation vs. Script: Arabic names occasionally defy their written forms. This discrepancy results in multiple Latin transliterations, further compounded by the presence or absence of hyphens.
4. Dialectal Variations: Arabic’s letter “ج” is pronounced differently in Egypt (“g” as in “good”) and elsewhere in the Middle East (“j” as in “jungle”). This linguistic diversity necessitates multiple spelling choices.
5. Segmentation Variants: A single Arabic name can be segmented differently, leading to variants like ” Ghasem Soleymani,” ” Qasmi Sulayman,” or ” Qasem Salimani,” all referring to the same name.
6. Transliteration Discrepancies: Different languages employ distinct rules for transliterating Arabic letters. For instance, English transliterates “ش” as “sh,” while French opts for “ch.” The challenge arises when English documents containing French transliterations intersect, resulting in multiple name variations.

Beyond Transliteration: AML Screening Complexities

Transliteration challenges extend beyond merely matching names in Latin characters. AML screening entails even greater complexities:

• Diverse Naming Conventions: Arabic naming conventions aren’t universally standardized. Varying cultural influences and historical practices contribute to a rich tapestry of naming styles.
• Cultural Diversity: Arabic culture has transcended geographical boundaries, leading to diverse naming traditions across different regions.
• Religious Variability: Arabic names aren’t exclusively linked to Islam; they span various religions, including Arab Christians.
• Traditional Naming Conventions: Some individuals adhere to deeply traditional naming conventions, which may contrast with contemporary culture.

Navigating this linguistic landscape requires not only precise transliteration but also a deep understanding of the cultural nuances surrounding Arabic names. For AML screening providers, it’s a multifaceted journey through the diverse world of script, sound, and meaning in the MENA region.

The Importance of Arabic Name Screening

The significance of understanding Arabic names cannot be overstated. The Middle East is a region where the diversity and intricacies of names pose a unique challenge. Effective screening requires not only a grasp of the complexities of Arabic names but also an appreciation of their paramount importance.

Imagine this scenario: Middle Eastern banks maintain databases replete with names written in Arabic script. Regulated entities, private institutions, and regulatory bodies across the globe, including OFAC (Office of Foreign Assets Control), the UAE Local Terrorist list, the EU Consolidated list, Iraq AML & CFT Office Individuals and Entities, UNSC Consolidated list, and many others, publish lists that feature names in Arabic script, often in advanced formats.

It’s a testament to the global nature of finance and the need for precise AML screening.

Arabic names encompass various components, each laden with significance: the Ism (forename), Kunya (paedonymic), Laqab (surname), Nasab (patronymic), and Nisbah (geographical or clan indicator). Notably, not all Arabic names follow fixed conventions, and Arabic culture transcends geographical and religious boundaries, further complicating the landscape.

To illustrate the challenge, let’s consider “Ali Saed bin Ali al-Houri.” This name comprises the Ism, Nasab, and Nisbah, with each element holding a specific meaning and cultural resonance. Similarly, “abu Hamza al-Masri” combines the Kunya and Nisbah, with “Masri” signifying Egyptian heritage.

Understanding Arabic names is not just a matter of linguistic curiosity; it’s the key to precise AML screening. It enables financial institutions, regulatory bodies, and businesses to differentiate between individuals, eliminate false positives, and adhere to stringent AML regulations with cultural sensitivity. It’s a critical facet of the global effort to combat financial crime and uphold the integrity of the financial system.

KYC2020’s Enhanced Arabic Language Screening

With an increasing number of customers in the Middle East, KYC2020 is committed to meeting the unique challenges posed by the Arabic language. In a region where precision in Anti-Money Laundering AML and counter-terrorism financing CTF screening is of utmost importance, our product team is rising to the occasion.

KYC2020 has responded with an advanced screening engine featuring a customized scoring system for Arabic names. This enhancement excels at detecting diacritics within Arabic script, elevating precision in name matching and identification of unique name parts. It’s a solution designed specifically for demanding lists, including the advanced formats of OFAC’s Specially Designated Nationals list, UAE Local Terrorist list, EU Consolidated list, Iraq AML & CFT Office Individuals and Entities, UNSC Consolidated list, private blacklists uploaded by users and more.

The Arabic language varies across regions and cultures. Latin and Arabic scripts are distinctly different, demanding a customized approach. KYC2020’s scoring engine is meticulously designed to account for these regional nuances. It’s fueled by cutting-edge Natural Language Processing (NLP) techniques and doesn’t just normalize names; it optimizes them. This includes removing diacritics, eliminating unnecessary elements, and enhancing accuracy.

We employ a range of advanced techniques to ensure the accuracy and reliability of our Arabic language screening. This includes a meticulous normalization process that addresses specific intricacies of the Arabic script. Our normalization procedures encompass:

1. Normalization of Hamza with Alef Seat to a Bare Alef: In Arabic script, the Hamza with Alef Seat is a unique character. We normalize this character to a plain Alef to ensure consistent and accurate matching.
2. Normalization of Teh Marbuta to Heh: Arabic script features the Teh Marbuta, a character representing a specific form of the letter Heh. We normalize Teh Marbuta to Heh to ensure uniformity in our database.
3. Normalization of Dotless Yeh (Alef Maksura) to Yeh: The Dotless Yeh, also known as Alef Maksura, is another distinct character in Arabic. We normalize this character to Yeh to facilitate accurate matching and recognition.
4. Removal of Arabic Diacritics (the Harakat): Arabic diacritics, known as Harakat, are marks that indicate vowel sounds and pronunciation. Removing these diacritics helps streamline the screening process and enhance matching precision.
5. Removal of Tatweel (Stretching Character): Tatweel is a character used to elongate certain letters in Arabic script. We remove this character to avoid discrepancies in matching due to variations in character length.

By implementing these normalization techniques, we ensure that Arabic names are accurately represented and matched within our screening engine. This meticulous approach minimizes the chances of false positives or missed matches, contributing to the overall effectiveness of our AML screening solution.

Our customized scoring engine comprehensively addresses phonetic similarities, spelling variations, titles, and honorifics, as well as issues like missing spaces and hyphens, nicknames, and out-of-order components. In essence, it’s a holistic solution that leaves no room for error.

Transliteration between Arabic and Latin scripts is a minefield of potential errors. KYC2020’s engine tackles this using linguistic, orthographic, and phonological algorithms, it minimizes transliteration errors, ensuring that no true positive goes unnoticed. Beyond that, it’s adept at mitigating common errors that often lead to missed matches, such as misspellings, phonetic misunderstandings, and nicknames.

Our commitment to comprehensive screening extends beyond the Arabic language. We’ve obliterated language barriers, regardless of the script. Names in Arabic script or any other non-Roman script are seamlessly processed. Here’s how it works: we translate and transliterate names into Roman characters, normalize them, and integrate them into our persona database. This advanced feature not only facilitates precise searches in the original script but also enables fuzzy searches on Roman name inputs, guaranteeing comprehensive and accurate results across diverse linguistic inputs.

Adverse media screening, also known as negative news screening, is an integral part of your KYC and AML regime. In its most basic form, AMS is the process by which a current or prospective customer is screened for negative news mentions and other unfavorable information. AMS allows your organization to flag a person or business as a potential risk and thus avoid future reputational and compliance damages.

Getting AMS right, however, comes with many challenges, including:

• AML compliance teams are often already bogged down by time consuming, manual processes. Manually searching news sources via search engines just adds to the complexity.
• The sheer volume and complexity of the news data that must be scanned and sorted is staggering.
• Dealing with news feeds versus public watchlists is exponentially more complex. It goes beyond filtering false positives and identifying the correct person or business. One has to resolve the news article for sentiment, context, and other aspects of relevancy to determine if it is truly adverse media.
• AML compliance reporting requirements are becoming more stringent among smaller financial institutions and MSBs. Credit unions in particular are currently facing many changes to their AML compliance requirements. This leads to either under-reporting or over-engineering, either of which can lead to costly mistakes.

Institutions need to develop AML compliance systems that can successfully and efficiently identify high-risk customers. In particular they should define:

• When to perform adverse media scans?
• What types of data to search for and from which sources?
• What type of systems and procedures to use in order to balance manual and automated interventions?

Adverse Media Screening: Finding the Right Balance

Luckily, AMS is not rocket science. However, developing an effective and efficient AMS does require a structured approach as well as the integration and implementation of some core technologies. It also requires striking a balance between taking a risk-based approach to AMS while maintaining high-level of customer service and flexibility to scale operations for future growth. Done right, and done with the right technologies, such as AI and NLP, AMS should not result in a slow down of your customer onboarding and ongoing monitoring.

That said, here are four best practices that your organization can use to get your AMS off to the right start:

1. Determine Your Risk Tolerance and Perform a Risk Assessment

Setting the parameters for what constitutes an acceptable level risk when deciding whether or not to work with a particular customer, is a critical first step. This process involves answering a number of questions, such as:

• Which high-risk groups of individuals or businesses is your institution comfortable servicing?
• Which offenses would bar a potential customer from being accepted? What offenses would not?
• How much weight do charges and allegations get versus an actual conviction by a court or an admission of guilt?
• Which types of adverse media could be considered lower-risk over time?
• What systems and processes will be in place to take action and perform Enhanced Due Diligence (EDD) when the results of adverse media screening return matches?

Every financial institution and MSB has its own unique exposure to potential financial crime based on the kinds of customers it serves, the locations it operates in, it’s product and service mix, and the channels it uses to service customers. Every financial institution and MSB also has its own unique risk tolerance.

Before you can even begin to design an effective AMS, it is crucial that you set clear risk categorization thresholds and outline the relevant actions and details required for each.

To help with you with that, try our FREE AML Risk Assessment Tool!

2. Decide When is the Right Time to Screen

Though most financial institutions and MSBs engage in customer screening during the onboarding process, many do not have a clear and consistent screening strategy, particularly when it comes to ongoing monitoring for adverse media. When standardized procedures and decisioning are lacking, both routine monitoring as well as monitoring triggered by an event, such as a news item, can result in discrepant responses.

Adding fuel to the fire are increases in regulatory expectations, expanding sanctions data bases and watchlists, and an increasing number of categories that must be screened against. For example, in recent years AML transaction monitoring has grown to include crimes dealing with human trafficking and smuggling, as well as new business customer types that fall in ‘High Risk’ category, such as cannabis-based businesses and a wide range of innovative fintechs, such as crypto-currency.

Some of the best practices to help ensure that your organization screens customers at the right time without increasing the rate of false positives includes:

• Decide which events and activities warrant further examination
• Include AMS in the standard onboarding procedures for all new customers and for any new accounts from current customers
• Establish automated AMS for all customers on a routine basis
• Screen current higher-risk customers based on your organization’s risk-based approach.

3. Use Credible and Current News Sources

These days, anyone with internet access can become a publisher of “news.” Although this helps to ensure that critical information becomes available to the public, at the same time it creates several challenges for your AML compliance system and procedures:

• First, how can you verify the credibility of an original adverse media source?
• How should you handle alternative news sources, such as social media?
• Which of the many tens of thousands of verifiable sources should you choose to monitor for a particular customer– especially since the sources themselves may change?
• How do you ensure that you are working with current news items?
• How far back in time to go for screening adverse media?
• Finally, how can you sift through all of this information in an efficient and effective way?

Given the dynamic nature of sanctions and screening data, you need a smart watchlist database that can actively weed out unnecessary information while focusing in on items of true value. This data can then be coupled with a dynamic, automated system to help you match, sort and analyze the results. You must get this step right before you even venture into the minefield of negative news screening.

That brings us to final best practice in adverse media screening…

4. Use Smart AMS Technologies

Automated AMS technology can help your organization address the deluge of information and alerts by focusing in on the most relevant matches. Sophisticated AMS tools also significantly reduce false positives and help you screen customers according to their risk categories.

Consider our Adverse Media Check ^®. We harness the power of AI, NLP, and machine learning to continuously monitor thousands of quality relevant global news sources. Our sophisticated algorithms get to work identifying sentiment, context, and the prime actors (i.e. personas) in each article. This information is then structured and fed into a persona database of individuals, companies, and politically exposed persons (PEPs) to identify cross-links between news and government and public watchlists. Each Persona is also tagged with FATF supported categorization of risk of financial crime.

Adverse Media Check also feeds into the KYC2020 DecisionIQ decisioning engine to render Pass/Fail/Verify decisions on AMS so that you can speed up your customer onboarding with the help of AI-based decision systems.

Banks must check the identity of their clients at the time of onboarding.  In other words, they must make sure that clients are genuine.  They must also identify the risk they represent as clients to the banking system.  Different types of clients come with different levels of risk. The level of risk determines the frequency of ongoing monitoring and transactional screening that must be conducted throughout the client relationship. 

Lets take a look at high risk clients, and how to identify them.

Sanctioned Persons and Entities

These are the individuals, companies, and organizations that are persona non grata.  They are prohibited counter-parties. You should not be doing business with them.  Depending on your jurisdiction, dealing with them can incur severe penalties.  

Most government bodies and regulatory authorities publish these lists.  These are generally knows as sanction lists.  Sanction lists are regularly updated and you must continually screen your customers against these lists as part of your KYC process. 

PEP’s

Politically Exposed Persons usually have a high profile political role or serve in public office. They may be at increased risk of involvement in money laundering or even terrorist financing based on their position. 

Companies looking to do business with PEP’s need to disclose this and continuously monitor their transactions to ensure they are compliant and not engaging in nefarious activities.

Who can fall into this category?

Here is a list people can make the PEP list.

• Government officials, Presidents, Prime Ministers, and even cabinet members of countries.
• The second tiers are the officials of the ruling parties and their opposition parties.
• Any senior executives and board members of government-controlled entities. Any relatives or close associates of any of the people mentioned above.

Often, nepotism is the easiest way to move government funds to relatives. While employing family members into positions of power may buy loyalty, these appointments often lack the required auditing when going through procurement or tender processes.

Criminal Organizations

Money laundering happens through seemingly legitimate companies. Directors or owners can often be persons of interest who hide criminal activity behind the legitimate business. Your company must do regular screenings of customers against global watchlists and negative news as part of your KYC checks. This will ensure your company remains alert to any underhanded activities that could be funding crime.

Financial Institutions should report any activity identified as possible money laundering or criminal funding activities and will freeze customer accounts until investigations are complete.

Terrorist Activities

Governments release sanction lists that include terrorist activities. Financial Institutions use the lists for sanction screening of individuals, companies, and organizations as part of their KYC process. There are almost daily updates on the targeted financial sanctions lists. They are critical to limit criminal funds’ movement to terrorist organizations to help them fund arms deals and terrorist activities.

Transaction monitoring and ongoing sanction screening of new or existing customers is a minimum requirement for any KYC process. The frequency of ongoing monitoring will depend on the AML risk profile and the risk-based approach of the company.

Reduce the risk of non-compliance

Thanks to regulation technology (RegTech), quality and affordable solutions for KYC check and AML compliance are available to your company. For large financial institutions or small non-financial firms, ensure you stay on the right side of the law. Proper compliance reduces the risk of fines and warnings. Non-compliance, especially as it relates to sanctions screening for KYC, can be costly – not to mention the long-lasting reputational damage for your business.

KYC2020 is one of the world’s 100 most innovative regulation technology solution providers as ranked by RegTech Analyst. For a demo or appointment with KYC2020, please click here.

• Internal technology costs
• External technology costs
• Performing audits
• General management for compliance
• Educating your customers
• Training your staff
• Monitoring and analyzing transactions
• Sanctions screenings
• Routine analysis of compliance
• Know Your Customer (KYC) procedures

Internal & External Technology

More often than not technology use lowers your overall costs for AML compliance. The most promising forms of technology that will quickly disrupt the entirety of AML compliance involves Artificial Intelligence and Machine Learning. As these technologies develop, they will alter the way all other technologies that aid in AML compliance operate. Unstructured data analysis technologies are already beginning to see uses for AI and Machine Learning. These technologies allow for the analysis and organization of unstructured data of any size. This will alleviate countless man-hours spent organizing data for input and analysis.

Performing Audits

The Federal Financial Institutions Examination Council recommends conducting an external audit every twelve to eighteen months at a minimum. An audit requires an external party to review your program documents, records, and training programs. Once this audit is completed, the auditor will go through their entire report with your AML Compliance Officer in an exit interview. Overall, audits accounted for 10% of all AML Compliance costs.

General Management for Compliance

With the increasing and changing regulations required for AML compliance, a general manager to oversee each of these moving parts has become almost a requirement. They schedule audits, organize compliance programs, oversee training, ensure appropriate records are kept, and coordinate all other requirements. On top of all this, they also actively seek out ways to reduce your costs in achieving AML compliance.

Educating Customers

To be fully compliant with all AML requirements, you’ll have to rely on your customers to create accurate reports for you. For them to be able to do this you’ll need to educate them on AML compliance issues regarding what they can and cannot do. Educating your customers helps you maintain compliance and lowers your overall costs by streamlining the way your customers submit information to you.

Training Your Staff

One of the most important aspects of ensuring AML compliance involves ensuring your staff fully understands all aspects of AML compliance. This does not only apply to your team that oversees AML compliance, but also includes any members of your staff that submits information to your AML compliance team. By training your staff on common pitfalls to compliance, you can quickly build a robust program to avoid any fees and ensure your business remains in good standing.

Monitoring & Analyzing Transactions

Transaction monitoring and analysis almost always comes in the form of a software that creates automatic reports for your AML Compliance Officer. It works by monitoring customer transactions combined with an analysis of historical information about the customer. This allows the software to determine customer risk levels, predict activity, generate reports, and identify suspicious activity. While transaction monitoring is not required everywhere in the world, it is quickly becoming a requirement. New York State and the European Union already require transaction monitoring with others quickly following suit.

Sanctions Screening

The purpose of sanctions screenings are to identify, prevent, and manage sanctions risks. How much a financial institution has to invest into sanctions screening analysis depends entirely on the individual financial institution’s risk levels. These risks include proximity to sanctioned countries, whether your customers are international or domestic, transaction volume, and your products and services. Depending on your assessment of these risks you may want to invest in sanction screening software to help your staff manage your risk.

Compliance Analysis

Regularly analyzing how well your business maintains AML compliance will ensure audits consistently report positive results. To make this analysis simple, include the intervals at which you will conduct these analysis within your overall AML compliance program. You can utilize software to help gather information and begin the analysis then have your compliance coordinator review the information to ensure full compliance with all requirements.

Know Your Customer (KYC) Procedures

KYC procedures involve verifying your customer’s identity and assessing the risk of them using your services for illegal purposes. Generally, these procedures include:

• Collecting and analyzing personally identifiable information, referred to as a Customer Identification Program or CIP.
• Screening customer identities against global watch-lists to find out if they are a Politically Exposed Person.
• Analyze the risks of a customer participating in money laundering, terrorist financing, or identity theft.
• Create customer profiles and assess their transactional behavior for suspicious activity.
• Monitor customer transactions and compare those transactions to predicted behavior to identify suspicious activity.

Reducing Your AML Compliance Costs

Simply put, the best way to reduce your costs of compliance involves partnering with experts in AML compliance to review your systems such as KYC2020. Once an expert understands what you currently do to achieve compliance they can suggest alternatives that will save time and money. This could be in the shape of new software or altering your program to speed up individual processes. The least expensive way to maintain compliance depends entirely on the individual organization, so how you can save money depends on you.

Spreadsheets for Everything

While an RA is the foundation for a good risk-based AML Regime, it is often marginalized by many non-bank financial firms.  It is done in a superficial manner, using tools that are convenient and free, but ill-suited for the job. Spreadsheets are generally the tool of choice to input, track, and manage the annual risk assessment compliance requirement. As one can imagine, this approach is rather ineffective. It lacks proper controls, is prone to human-errors, difficult to audit, share, or track revision history. Moreover, as banks enhance their KYC regimes, they require annually updated formal AML Risk Assessment documentation.  The inherent limitations of spreadsheets for RA reporting and management is obvious.

Alternatives to Spreadsheets

So then, what are the alternatives to spreadsheets? The challenge once again for most SMEs and FinTech innovators is Cost, Availability, Competence, and Convenience. In our search for alternatives, we could not find a competent RA tool that met our basic requirements, was available at low-cost, was easy to get started, and convenient to use.

When we introduced our FREE Watchlist Curator Tool, we made the following statement:

“At KYC2020, we could have invested in writing a blog and talked about why “over-screening” is an expensive problem…  Instead, we decided to have our CAMS AML specialists build a tool to help you identify what Sanction, PEP, and watchlists you should be screening based on your company’s risk profile. And we decided to make our watchlist builder available free of charge.”

KYC2020 Free AML Risk Assessment Tool

For our AML Risk Assessment Tool, we decided not to be so lazy. We not only built a tool that we could make available for FREE, but also forced our CAMLO, Joseph Iuso, CAMS, to write a Blog on the What, Why, and How’s of an AML Risk Assessment. Between the information and wisdom of Joseph’s blog and the competence and convenience of our RA tool, I believe we have got you covered. Of course, we have the standard disclaimers, and you should already know that a tool cannot replace the advice of your in-house Compliance Officer.

Get started by clicking below.

KYC2020 AML Risk Assessment Tool benefits heavily from the Federal Financial Institutions Examination Council’s (FFIEC) Risk Assessment guidelines, as well as the Conference of State Bank Supervisors (CSBS) BSA/AML Self Assessment tool.  The tool considers five (5) main categories to arrive at an aggregate risk score for your business. These are: 1) Products and Services, 2) Customers, 3) Geography, 4) Operations, and 5) Agents. For each category, you have the opportunity to specify the High, Medium, and Low Risk definitions inherent to the business. For the inherent risk definitions you then specify your controls and mitigation measures to arrive at the residual risk; the risk that still remains after application of your counter-measures. This residual risk is then scored and aggregated across all categories to complete your risk assessment.

Who said it would be Easy

Sounds complicated? That’s because it is. Even for AML specialists working on a low-risk profile business, this is a minimum 2+ hour investment of time. It is for this reason the tool has the ability to save work and complete the assessment over multiple sessions. With a little bit of study, watching our Get Started Video, and rolling up your sleeves you can get through with your risk assessment on your own and for FREE!

Need Help with your RA?

For those who need a little bit of help completing, we offer some reasonably priced paid options to speed up your risk assessment process and follow best practices. These include, access to business specific templates that can be customized to speed up the assessment, different consulting packages to help prepare, review, and/or audit your Risk Assessment by our CAMS or VSKILLS certified AML specialist.

Once again, there is no catch. The tool is no obligation and we do not take any payment information. We do hope you might take the time to see what awesome and affordable AML compliance solutions we offer, from Global Watchlist Data to Sanction Screening to AML compliance consulting services. Chat with us online now, email us, or just use the tool. Our aim is to help you reduce the cost and friction of AML compliance.

With criminals adopting increasingly sophisticated means for money laundering, it has become harder for organizations and financial institutions to manage effective AML compliance programs. This is especially a problem for small businesses that lack the resources for implementing KYC (Know your customer) and CDD (Customer Due Diligence) processes at the customer and transaction level. Inefficient or inadequately resourced KYC and AML compliance programs impact the onboarding time for a new customer, resulting in lost customers or lost sales. SMEs are often left with two equally bad options:

• Non-compliance with KYC and AML procedures, or
• Risking the longer customer onboarding times (and hope for the best)

Of course, the real problem here is that AML compliance still relies to some extent on manual methods. Fortunately, we now have next-generation technology solutions powered by automated processes that can speed things up. They also help increase the accuracy and effectiveness of anti-money laundering procedures and reduce the overall cost of compliance. Let’s take a look at some of the latest AML compliance solutions available:

VisionIQ

Much of AML compliance is reliant on the quality of the data you use. After all, screening data for potential threats won’t do much good if the data is incomplete or disorganized. This is where VisionIQ comes in. VisionIQ is a comprehensive and well-structured global watchlist database. We aggregate the data from a multitude of public sources, including sanction, terrorist, PEP, HIO, RCA, and criminal lists. The data is organized and structured for easy accessibility and screening. These lists are updated regularly to make sure that the data is as accurate as possible.

Quality of Data determines the effectiveness of your AML compliance program, and Cost of Data determines the affordability of the solution.  This is what differentiates VisionIQ from the other data providers.  It is the most comprehensive high quality source for global sanction and PEP, RCA, HIO and criminal data with the lowest cost price guarantee.

But good and affordable data is just the beginning of AML compliance. A comprehensive database is only as useful as the methods used to screen new and existing clients against the global watchlists.

SmartScan

SmartScan is a search engine tool that leverages KYC2020’s VisionIQ watchlist database to provide businesses with an easy to use, easy to implement intelligent search and scoring engine. The advantage with KYC2020, as a non-techy newbie like me can understand it, is that our system uses a pretty sophisticated search technology based on Apache Lucene, ElasticSearch, that is combined with intelligent name matching algorithms and proprietary scoring methods to assure that you do not miss “True Positives” (i.e. catch the bad guy) while minimizing the need to manually clear “False Positives” (i.e. all similar sounding matches that result from fuzzy or phonetic searches).

I don’t claim to fully understand the technology, but I have come to clearly understand that 80% of the cost of sanction screening comes from the manual screening of false positives according to most reports. Reducing false positives means that SmartScan is able to drastically reduce the overall cost of sanction and PEP screening.

But many solutions in the marketplace claim the same sophistication and smarts to the point that they all sound alike.  In fairness to my readers, I wanted to find the most comprehensive list of screening solutions providers so that you can do your research and make the right decision for your business.  Turns out there is someone who is “watching the watchlists” and provides a rather comprehensive list of vendors.  Here it is.

I am going to assume that most of the vendors and options listed by Mr. Watchlist are acceptable quality.  But for most startups, virtual currency operators, and SMEs, quality options are only as meaningful as they are affordable! Afterall this has been the root of the problem – access to quality without compromising budgets.

I believe this is what differentiates KYC2020.  Since KYC2020 owns both the data technology and the screening technology they can offer the most affordable payment plans without sacrificing quality or access to all of our features. Our own research on market pricing suggests that SmartScan is perhaps below 1/5^th the cost of most enterprise solutions. Maybe you should do your own research and find out.

DecisionIQ

Unfortunately, even the most elegant of search engines will yield a certain percentage of false positives. This is to the tune of 2-7% and must be cleared by a compliance officer. With an industry average of 19 minutes to clear the false positive at $26/hr, the cost and time commitment becomes problematic for small enterprises quickly. And that’s not taking into account the friction and bad experience on the customer side as the false positive is processed. So how does this get solved?  Well, for that you need to move from screening to rapid ‘decisioning’ with some level of AI and machine learning.  A system that can accurately and speedily automate the detection and clearing process to render Pass/Fail screening decisions while keeping a complete and transparent track record of the decision-making process.

For that, DecisionIQ is our answer. It begins with an AML Risk-Assessment of our clients to determine what sanctions lists they need to screen along with search and scoring rules in order to be AML compliant. The DecisionIQ engine is then configured with that information in mind for decisioning. But DecisionIQ isn’t just about detection, clearing, and providing rapid Pass/Fail decisions. An important component of DecisionIQ design philosophy is providing fully transparent and auditable proof of decision.  KYC2020 calls this a ‘Proof of Work’ file, and a ‘white-box’ system design approach to decision systems.

Finally, some SMEs want to completely outsource the compliance function.  For that KYC2020 even offers the assistance of our Vskills certified AML officers in India to securely and cost-effectively outsource the review and audit process. No matter how our clients choose to handle their screening, whether in-house or outsource, quality and affordability are the linchpin of our business strategy. Want additional info about when to switch from sanction screening to sanction decisioning? You can find out more in our whitepaper.

To Sum It Up

Every responsible organization wants to make sure they comply with AML policies and procedures. This is easier said than done and among other factors, the cost of these processes may prevent businesses from acting in a responsible manner. If you’re facing similar problems with screening your clients, then we suggest you contact our team at KYC2020. We offer a wide range of AML compliance solutions that can help you out. Our AML compliance tools are guaranteed to be flexible, easy-to-use, and cost-friendly for your small enterprise.

AML Training Program and Strong Internal Controls

AML compliance cannot be confined to a single department. It is an organization-wide process. If you want to have a proper AML Compliance program in place, then you must carry out training sessions with all of your employees. Make sure they are aware of good AML practices and also play an active role in implementing them. A lot of suspect organizations and individuals will look legitimate to your system and pass security checks, setting up ‘checkpoints’ in the form of diligent employees can prevent this.

Independent Audits

Besides the inclusion of AML policies and procedures within the company, you must also be open to independent audits. These are conducted by qualified teams and can help identify any inconsistencies in the company’s financial records. Audits tend to feel invasive, but they are in everyone’s best interests. They also help make sure that your system of internal controls is working.

Open Communication

Communication is one of the requirements of AML Compliance. You must try and propagate a culture where your employees can approach the senior management and the appointed compliance officer regarding anti-money laundering.  The resulting trust and transparency will encourage the employees to take AML practices more seriously. It will also help identify any existing drawbacks in your current AML compliance program.

Use Technology

This is extremely important. AML compliance does not come cheap. There are significant costs attached to it, which is why a number of small businesses may fail to implement sound AML practices in their company. Technological solutions can help you out in this regard. These not only make it easier to follow AML guidelines, but they also reduce compliance issues. In case any discrepancies are detected, these solutions also enable you to respond quickly and resolve the situation. Let’s take a look at some of the tools you can consider using:

Global Watch Lists and Screening Solutions:

One of the most useful digital solutions for AML compliance is accessing a global watch list. This helps you access a database carrying more than 900 international watch lists. Using this can help speed up your screening process.

There are also screening solutions available that are designed to minimize the chances of false positives. You can look for an option that suits your budget. The best digital solutions providers will offer you flexible packages.

Screening Decisions and Risk Assessment Tools

Carrying out a manual risk assessment and then taking a decision can be extremely time-consuming. Fortunately, you can use software that can take a decision on your behalf. This will ensure that you remain compliant while also speed things up.

The Final Word

AML compliance is not easy, but it is not impossible either. All you really need to do is strike a balance between an organization-wide commitment and seeking aid from technology. If you’re looking for strong AML compliance tools, we suggest you contact the team at KYC2020.

Money laundering may seem like it’s only a problem for large institutions but small businesses are at the same, if not higher, risk than their large counterparts. Though it may seem like large businesses would present more opportunity for criminals to money launder, they also tend to have robust anti-money laundering solutions. On the other side, small businesses, especially start-ups, often don’t have the personnel, expertise, and/or resources to keep up with a sufficient AML protocol, making them easy targets.

If you own a small business it is imperative that you know how to protect your small business from money laundering. Here are four tips to get you started.

1. Constant Vigilance

It may seem like an obvious thing but one of the most powerful tools your business has against Money Laundering is to be aware of any transactions going on under your company’s name. Keep tabs on the flow of cash in and out of your company. A methodical approach to your company’s transactions will ensure that, if anything suspicious should arise, you’ll have a far better chance of noticing before your auditor notices.

Some things to look out for are:

• Keep an eye out for customers that are always paying with prepaid credit cards (the cards are often used to erase a tangible money trail)
• Be wary of large online transactions and promptly notify authorities if need be
• Avoid sharing passwords or bank account details with random clients

2. Make Sure Your Team is on Board

As an owner, you should be sure to keep track of your company’s finances, but you should never be the only one worried about money laundering. Formulating an official anti-money laundering policy helps your staff identify exactly what they need to do operate, while minimizing exposure.

Here are some precautionary measures that you may take

• Maintaining proper financial records like audits and bank statements that might help you identify any abnormal activity in the transactions
• Authorize the access of confidential and sensitive files
• Upgrade security systems and change passwords routinely

3. KYC Protocol

‘Know Your Customer’ is a pretty popular term in the AML world. What this boils down to is you should always conduct a background check on anyone you conduct business with. When it comes to AML regulations, there is no sympathy for companies that unwittingly launder money. It is every company’s responsibility to have a KYC protocol that minimizes the risk of doing business with off-limits clientele.

A good KYC protocol might include:

• Collecting substantial customer information before conducting transactions
• Verifying the legitimacy of big transactions
• Spotting fake identities and incomplete paperwork

In short, keep your guard up whenever someone new approaches your business. You shouldn’t accept funds until you’ve verified the source.

4. Secret Weapon

Lastly, anti-money laundering processes can be costly. They also require a lot of human oversight and labor. For a small business, this can wildly distracting and leads to many small businesses failing to implement AML compliance policies properly.

If you feel that your organization is not prepared to undertake this task, then you can always use AML compliance solutions. These solutions are a secret weapon against the fight against money laundering. By lowering the barrier to access, cost, and required labor, these tools give small businesses sensible and sustainable solutions to this age old problem.

If you want to read more about some of KYC2020’s solutions, you can read more here.

To Sum it up

It’s important that you take the necessary steps to avoid being a conduit for a money laundering scheme. You need to proactively prevent the threat by being alert during transactions and new partnerships. Additionally, get the employees involved and actively enforce AML compliance rules. All these steps will help you combat money laundering in a better way.