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.

The danger of not having a good process in place can land your company and clients at an even higher risk.

Demanding customers

Instant gratification amplifies the customer’s requirements for faster decisions, speedier turnaround times. The online world has made same-day delivery the norm, and businesses select suppliers based on their supporting technology to make their lives easier and the opportunities to serve their end-customers better.

One of the main problems with manual AML compliance checks is the time and inefficiency of clearing false positives that arise from sanction screening. These delays cause unnecessary frustration.

How AI can help

With constant AI development and the introduction of rule-based decision systems and Machine Learning (ML), it’s possible to reduce these flagged queries, speed up screening, and approval times. The compliance databases and records update continuously, thereby making machine learning essential.

AI models learn from previous false positives that are normally manually processed and begin to establish patterns. These patterns become new rules to clear false positives that meet the recognized pattern automatically. The benefit of AI and ML in sanction, PEP, and adverse media screening is obvious, and your return on investment is evident.

Affordability

Sanction screening software has traditionally been very costly. Many SMEs simply cannot afford quality solutions. With the advent of RegTech, the number of compliance technology solution providers has increased dramatically. Finding high quality solutions that are also highly affordable is no longer a problem. The challenge now is to find solutions that are not only high quality and highly affordable, but also low-friction and autonomous.  For SMEs, a large percent of the AML compliance cost comes from manually having to clear false positives. With AI and ML you reduce the overheads for manual screenings. Sanction, PEP, and Adverse Media screenings are done faster and more cost-effectively. This allows smaller businesses to remain compliant and still offer their customers the best service and experience.

KYC2020 removes the cost and complexity of AML compliance with use of advanced technologies. KYC2020’s DecisionIQ solution uses AI and ML to clear false positives and deliver real-time actionable decisions to speed up customer onboarding.  KYC2020’s Adverse Media Check uses NLP to process and identify persons, PEPs, and entities in relevant negative news. It is no wonder why KYC2020 is recognized as one of the world’s most innovative regulation technology solution providers by RegTech Analyst. 

To request a free trial or learn more about our solutions, contact us.

For SME’s, credit unions, and Fintech companies, finding efficient and affordable solutions had been out of reach… until now.  RegTech innovators are taking advantage of AI, ML (machine learning), and NLP (natural language processing) to deliver compliant screening solutions that are fast, affordable, and low friction for smaller businesses.

The False Positives Challenge

There are a few factors that slow down the timing of approvals during screening. A main one is the volume of false positives exposed. This is a nightmare for companies looking to improve their customer acquisition. They win customers by advertising faster approvals in opening accounts and managing transactions.

When the volume of false positives spirals out of control, unexpected delays extend from a few days to weeks. Moreover, delays in customer onboarding and transaction processing do not just cause frustration for the customer but also for the company.

Online customers are not sticky, and according to a study done by Forbes, customer experience is perhaps the biggest reason why customers switch vendors.

Machine learning and AI

With AI and machine learning becoming an essential part of the compliance world. Companies can now manage the volume of false positives with autonomous clearing of alerts. AI based decision systems use a rule-based approach and built-in learning models to filter out the data.

Once the AI learns of a particular alert that is cleared manually, it will learn the behavior and create new rules to clear false positives automatically.

Decision systems for automated clearing of false positives can be a business savior. However, replacing human intelligence with artificial intelligence does not come without risks. You need to follow best practices to avoid auditor scrutiny and avoid penalties for non-compliance.

For example, one of the system’s most important features is that it must be auditable and provide transparent proof of decision that is easy to read and track. For more on best practices for AI-based decision systems, download this whitepaper from KYC2020.

An ongoing process

Ongoing monitoring of customers is a requirement for most AML compliance regimes since databases and sanction lists update almost daily.

Algorithms are always learning new alerts and rules. Manual processes are no match against AI-based systems for ongoing monitoring of customer lists. Development of AI, Machine Learning (ML), and Natural Language Processing (NLP) in AML compliance applications reduces the need for human reviews of false positives. This seemingly simple addition shortens the time required to get approvals.

Win-Win-Win

The best outcome for smaller companies is to move towards a tech-based compliance approach for their customers. This will help reduce the possibilities of fines for non-compliance and make it cost-effective for companies to carry out compliance.

KYC2020 provides affordable and effective AML compliance solutions that take advantage of latest technologies. KYC2020 is the best in class source for global Sanction, PEP, HIO, and Adverse Media data. We have designed our AI and NLP based screening and ongoing monitoring solutions to eliminate false positives and reduce manual work.

Contact Us for a free trial or to learn more about why KYC2020 is recognized as one of the world’s most innovative regulation technology solution providers by RegTech Analyst.

The anti-money laundering regulations and controls are in place to identify these activities and alert financial institutions. Reporting red-flags is critical to preventing and reducing these criminal activities, and ultimately stop the source of funds for criminals.

Criminals use “layering” to hide their funds. They move money in-between accounts and companies. The more layers, the harder it is for the crime divisions to track the source of funds.

Layering allows the criminal to remove themselves from the source, and each transaction helps add another layer of the legitimacy to the funds.

Placement of the funds

The first step in the layering process is called “placement.” This happens after the criminals have illegally acquired the funds from their activities. The most common way criminals do this is by moving money through a legitimate business often owned by the criminals or their families. This initial funneling of funds usually occurs through cash-heavy operations and companies like casinos.

The aim is to manage large volumes of smaller transactions that do not trigger deposit alerts at the banks. These reporting thresholds are common knowledge, and the criminals ensure that their transactions are always below these threshold alerts.

Moving money from these companies to suppliers and other criminal associates via false invoices and payments is standard practice.

This first layer of money laundering is only the beginning. Criminals add many more layers to reduce traceable funds.

How to identify money laundering activity

 Reg flags for layering by criminal organizations include:

• Large cash deposits into a variety of bank accounts
• Making international transfers in and out of offshore accounts
• Investing in and reselling high-value items like jewelry or art
• Purchasing property and real estate
• Investing in companies and legitimate businesses
• Using shell companies to move money in and out of accounts
• Multiple transactions via different banks and financial institutions

Banks, FIs, and even many non-financial firms such as charities, universities, MSBs, and even real-estate brokers, are regulated entities and must report suspicious activity (SAR) that indicates money laundering.  Banks are required to have transaction monitoring systems in place to monitor and alert for suspicious activity.  Additional suspicious activities include:

• Prominent transactions: Cash deposits into an account and immediately withdrawn.
• Regular transactions and deposits that are exact amounts or add up to an identical amount will raise a flag as layering.
• Transactions from high-risk countries can also trigger an alert.

With the use of services offered by AML Compliance companies like KYC2020, you can get to know your customer and identify business risks related to money-laundering and financial crime.

KYC2020 provides affordable and effective AML compliance solutions. Our comprehensive databases offer the best global sanction, PEP, HIO, and criminal watchlist data. We offer AI-based sanction screening and adverse media monitoring solutions to complement our data. KYC2020 is recognized as one of the world’s most innovative regulation technology solution providers by RegTech Analyst.

For a consultation or to book a demo, please click here.

Why You Need a CAMLO

Many countries around the world have adopted the Financial Action Task Force (FATF) recommendations which requires a CAMLO be designated. For example, in implementing the Bank Secrecy Act (BSA), the United States government appointed various regulators and oversight groups like FinCen, FINRA, and the SEC. These groups ensure that identified entities, including most FinTech, comply with all AML regulations. FINRA is an example of a Self-Regulatory Organization (SRO) that ensures all dealer-brokers implement an Anti-Money Laundering Compliance Program. This program requires that the AML Compliance Officer (ie. CAMLO) oversee the program and provide a point of contact between the organization and FINRA. Other requirements of an AML Compliance Program under FINRA Rule 3310 include:

• Written approval of the program by senior management
• Reasonable assurance of detection and reporting any suspicious activity
• Achieve reasonable compliance with all AML regulations with a risk based customer identification program
• Provide regular independent testing
• Continuous training for all relevant employees and customers

So, to achieve full compliance your organization is required to designate one of the members of your organization as your CAMLO.

The Roles and Responsibilities of a CAMLO

Essentially, your CAMLO is responsible for ensuring your Fintech startup efficiently complies with all AML regulations. This takes the form of managing risks, advising on business strategies, training relevant employees, staying up to date on changing regulations, and finding cost saving methods to achieve compliance.

Your CAMLO helps your organization determine your acceptable level of risk when it comes to complying with AML regulations. Once your risk levels are determined, they create an AML Compliance Program according to your acceptable risk. While an effective compliance program is required, what constitutes “effective” is left up to interpretation leaving room to match the program to your organization.

A CAMLO also advises on your business strategies to ensure your methods of growth still allows for AML compliance. Taking their recommendations and utilizing them keeps your risks of violating any regulations to a minimum. This also ties into training relevant employees. Keeping those in charge of business strategy up to date on how your organization maintains AML compliance enables them to make better decisions on how to grow your business.

The complexity of AML regulations cannot be understated. As they constantly shift to keep up with new technologies and demands, your CAMLO must understand how they continue to evolve. Some of these shifting rules could lead to ways you can save on your compliance costs. Your CAMLO can identify these regulations and alter your AML Compliance Program accordingly.

Legal & Financial Accountability

Prior to designating yourself or one of the members of your organization as a CAMLO, they need to understand the risks they are taking. If your startup is found to be in violation of AML regulations whomever you designate as your CAMLO can be held personally responsible. For example, MoneyGram’s AML Compliance Officer paid a $250,000 penalty for failing to comply with regulations in New York State. These violations included failure to terminate their relationship with fraudulent organizations and failure to implement organizational policies to terminate relationships with high risk organizations.

In just February of 2018 two other cases like this penalized the compliance officer of the US Bank and Rabobank. The liability of a CAMLO significantly changed after Wells Fargo’s officer was found in violation in November of 2017. Prior to this case, most violations were directed at the organization instead of the individual. This new wave of charging individuals instead of organizations alleviates some responsibility. However, it makes it more difficult for Fintech startups to designate themselves as their organization’s CAMLO without taking on unnecessary risks. So, if you are considering designating yourself as your startup’s CAMLO, you must be sure you fully understand how to achieve full compliance to minimize your personal risk. You may wish to consider ensuring your E&O insurance covers this type of risk.

Alternative Options to Ensure Compliance and Minimize Risk

There are several cost-effective options to ensure full compliance with AML regulations and avoid taking unnecessary risks. These options can include:

• Employing a part-time expert and designating them as your CAMLO
• Hiring a consultant to review and advise you on maintaining your compliance program
• Create a culture of training and learning to ensure your entire organization helps maintain AML compliance

Employing a part-time expert provides a simple way to avoid personal risks of violating AML regulations. They will most likely request that your E&O cover them in any lapses your organization has failed to implement. They can fully understand your organization and goals to create programs that ensure compliance. While this is likely the most expensive method of designating a CAMLO, it minimizes your personal and organizational risks.

Hiring a consultant does not provide you with a CAMLO, however it does minimize the risks associated with designating yourself as your organization’s compliance officer. They can create your compliance program and advise you on how to implement the program. The consultant can also train your employees on keeping your startup fully compliant. Keeping this culture of training and learning helps your employees stay up to date on changing regulations long after the consultant has finished their work.  Here are 5 Key Aspects to Finding the Right CAMLO when you to to hire a consultant.

Conclusion

While becoming the Chief AML Compliance Officer for your fintech startup is possible, it requires extensive work, preparation, and ongoing maintenance to keep yourself qualified and your firm from being fined for a violation. KYC2020 offers a quiz to help you assess your basic knowledge of AML compliance regulations by your business type. Take the quiz and find out whether you should even consider putting on the CAMLO hat and take on the additional liability.

KYC2020 also supports a network of certified independent AML specialists that can advise you on effective options to maintain compliance. They look into your organization and how you operate to provide cost-effective plans your organization can follow. At first glance AML compliance may seem like a burden to getting your fintech startup off the ground, however it does not have to be complicated or costly with the help of KYC2020.

• Financial Industry Regulatory Authority (FINRA)
• Financial Crimes Enforcement Network (FinCEN)
• Federal Financial Institutions Examination Council (FFIEC)

Financial Industry Regulatory Authority (FINRA)

FINRA is a private corporation in the United States that acts as a self-regulatory authority. It became the successor of the National Association of Securities Dealers in 2007 shortly after the SEC approved its formation. Since then, FINRA grew to over 3,400 employees working primarily out of Washington, D.C. and New York, NY with 20 other regional offices throughout the United States.

FINRA’s overall responsibilities revolve around regulating member brokerage firms and exchange markets, one part of which is ensuring AML compliance. With these responsibilities, the 3,400 employees oversee approximately 4,250 brokerage firms, 154,000 branch offices, and 625,000 registered representatives. As a part of these responsibilities, FINRA holds periodic regulatory exams for all member firms they oversee. These reviews help FINRA determine where they see room for improvement within these institutions for more streamlined compliance.

Despite being a private corporation, the Securities and Exchange Commission granted FINRA approval to discipline registered representatives and member firms. They also license individuals, admit firms to the industry, and create the rules that govern their behavior. In 2018 alone, FINRA levied approximately $61 million in fines and another $25 million in restitutions. This makes them one of the primary organizations you will have to deal with to achieve AML compliance if you are dealing in securities. They set the rules and regulate them, so be sure to pay attention to everything they do.

Financial Crimes Enforcement Network (FinCEN)

FinCEN was formed in 1990 with the goal of combating domestic and international money laundering, terrorist financing, and other financial crimes. They’re a bureau of the United States Department of Treasury that analyzes information about financial transactions. They are one of 147 Financial Intelligence Units (FIUs) that make up the Egmont Group of Financial Intelligence Units. FinCEN’s director summed up their mission through a statement in 2013 as, “safeguard the financial system from illicit use, combat money laundering and promote national security.” They accomplish this mission through following any financial trails that might lead to a case of money laundering, terrorist financing, or other financial crimes.

One of FinCEN’s primary responsibilities revolve around data collection and data use. They created the FinCEN Query which allows other Financial Intelligence Units to search the mass amounts of data FinCEN collects on all financial transactions. The search engine operates similar to Google making it easy for any of the Financial Intelligence Units to find any information they need. They also create four yearly reports:

• Suspicious Activity Report
• Currency Transaction Report
• The Designation of Exempt Person
• Registered Money Service Business

These reports contain their findings on various threats and indicators facing the United States when it comes to combating money laundering, terrorist finance, and financial crime

Through the use of the extensive data they collect on financial transaction, they conduct investigations into at risk individuals and organizations. This puts anyone not following AML regulations at risk of an expensive investigation that could halt your business entirely. So, to avoid a nasty letter from FinCEN, make sure you follow all financial requirements and regulations to ensure you do not participate in money laundering, terrorist financing, or any other financial crimes.

Federal Financial Institutions Examination Council (FFIEC)

The FFIEC was established in 1979 through the Financial Institutions Regulatory and Interest Rate Control Act of 1978. They are composed of five banking regulators that create uniform guidelines and standards that every financial institution must follow. The five banking regulators that make up the FFIEC include:

• Federal Reserve Board of Governors
• Federal Deposit Insurance Corporation
• National Credit Union Administration
• Office of the Comptroller of the Currency
• Consumer Financial Protection Bureau

In recent times, one of the top priorities of the FFIEC became protecting financial institutions from cyber-attacks. They achieve this through creating guidelines and standards for cyber security that every financial institution must follow. As part of their effort to help financial institutions combat cyber-attacks, they released the Cybersecurity Assessment Tool. Regulators of the FFIEC use the results of this tool as part of their examination into any financial institution.

Another helpful resource the FFIEC released to simplify compliance with the Bank Secrecy Act and Anti-Money Laundering is their BSA/AML info base. Within this infobase you can find guidelines to help you achieve AML compliance, examination manuals, and a range of other resources to help you maintain compliance. Since their overall goal surrounds helping financial institutions combat financial crimes, they aim to teach appropriate standards you should follow to maintain compliance. You can also use this database to see exactly what the FFIEC looks for during compliance examinations of your organization. This helps ensure you pass your examination when that time inevitably comes. You should look to the FFIEC to help you create procedures and maintain compliance with all BSA and AML regulations.

Do You Need Help Achieving and Maintaining AML Compliance?

These organizations are only the tip of the iceberg when it comes to navigating the complexities of AML Compliance. There is the OFAC which regulates all foreign assets, the OCC, FDIC, FRB, CFPB, and then various state level oversight agencies. These organizations play an important role in ensuring you remain compliant with all AML regulations.

If you need help navigating the complexities of AML compliance, contact KYC2020 for a consultation today. They offer software tools to help you manage all aspects of AML compliance and streamline your AML Compliance Program to ensure efficiency. KYC2020 also supports a network of qualified CAMS certified AML Compliance Specialists to help answer any of your questions and guide you through the process of achieving AML compliance. AML compliance does not have to be costly or complicated, so let KYC2020 help you decide your next steps to achieving and maintaining AML compliance in a cost effective and efficient way.

• 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.

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.

Monetary Fines

If the cost of compliance is high, it’s nothing compared to the fines that result from non-compliance. Last year, the ING group, a Dutch bank, was fined $900 million for failing to comply with AML legislation. The investment bank, Morgan Stanley, also received a fine of $10 million for compliance failures. They failed to monitor low-priced securities worth around $2.7 billion and that became an easy way for criminals to launder money.

In 2017, FinCEN fined Lone Star National bank, an independent community bank $2 million for “willfully violating” AML requirements. Also in 2017 FinCEN issued an $8 million fine to The California Card Club for similar reasons.Even in the case of small institutions, the cost of non-compliance is astronomical but it doesn’t end with fining institutions.

In April 2019, Eric Powers, a currency exchange operator was personally assessed a civil penalty for violating BSA reporting requirements. He was issued a $35,000 fine and was barred from any activity that would make him a “money service business” per FinCEN regulatory definition.

Whether you are a major bank, casino, or an individual operator, willful non-compliance, negligence, or even inadequate compliance, can be very costly.  And claiming ignorance or incompetence is no excuse.

Acting as a Conduit to Criminal Activities

Non-compliance with AML regulations can make you part of criminal activities such as financing terrorism. Non-compliance may also adversely impact international relationships. For instance, Standard Chartered was fined $1.1 billion for failing to observe US sanctions against Iran. According to the charges drawn, they also had inadequate controls against financial crimes. Lack of AML compliance also has a destabilizing effect on financial markets. It influences the flow of funds and investments and that can disrupt the inner workings of the market. Finally, it also influences economic policies which can have a country-wide impact.

Loss of Trust

The financial repercussions aside, failing to comply with AML regulations also ruins the public image of an organization. It automatically places a question mark on the integrity of the business and forces clients to consider other options. This loss of trust can be difficult to recover from, especially for companies still establishing their brand.

Businesses may also lose their investment partners, who no longer want to be associated with an organization that is being scrutinized for non-compliance.

Increasingly Stringent Auditing Processes

Once a company makes the news for failing to comply with rules and regulations, it is likely to be subjected to increased scrutiny during audits. Not only is this time-consuming, but you also have to be prepared to answer obscure questions or risk facing a fine. Most businesses cannot afford to take a second hit to their reputation or the additional fine. The only way to ensure your company doesn’t end up in this difficult situation is to never be caught non-compliant.

To Sum It Up

There are several financial, reputational, and personal repercussions for non-compliance with AML regulations. Small and medium-sized enterprises (SMEs) that are unable to cope with the cost of manual compliance can consider using technological tools instead. These tools improve the efficiency of AML compliance processes while remaining cost-effective for your business.

Need some help?

Contact the team at KYC2020. They can offer you the best solutions for AML compliance and introduce you to some top-notch next-generation technology tools to automate and reduce friction in your sanction screening workflows.