According to the United Nations, 2-5% of the global GDP, totaling between $800 billion to $2 trillion, is laundered annually. The social consequences of money laundering are far-reaching and potentially highly destabilizing for a state. To prevent, detect and combat money laundering from criminal enterprises, drug dealers, corrupt public officials and terrorists, governments adopted a counter-move – a defensive regulatory Anti-Money Laundering (AML) policy.
Anti-money laundering (AML) is a combination of laws, regulations and procedures used by a financial institution to prevent money laundering. Effective anti-money laundering regulations and procedures are of great importance to protect the integrity of markets and the global financial framework. Regulated institutions are mandated to follow these regulations and procedures by creating AML compliance programmes.
Apart from necessary human resources, banks and financial services should have technological resources to carry out their AML compliance activities and duties effectively. In fact, modern institutions that handle large datasets cannot fulfil their AML compliance requirements effectively and efficiently without technology. AML compliance software helps financial institutions immensely by removing a lot of manual processes and speeding up decision making.
What is anti-money laundering software?
An anti-money laundering software (AML software) is a tech solution that helps financial institutions and other regulated entities to prevent, detect and report money laundering and related crimes in compliance with the requirements from regulators.
Financial institutions use anti-money laundering software solutions as part of a wider AML compliance programme, and these solutions are implemented taking into account each and every financial institution's unique AML risk profile. Anti-money laundering software solutions are valuable tools for institutions all over the world in the fight against financial crime as they facilitate faster and more accurate compliance and investigations.
How does anti-money laundering software work?
AML software platforms help financial institutions implement their AML programmes which involve a number of diverse processes. The processes ensure that a customer’s profile and financial behaviour are not against the AML laws of the land. Broadly, AML software solutions increase the effectiveness and efficiency of these processes.
AML software solutions help financial institutions to stop doing business with high-risk people and entities, prevent or detect suspicious activities in their platforms, reduce false positives in workflows and assist in reporting suspicious activities and transactions.
While various AML software platforms differ in their capabilities, the following are the major AML processes they deal with.
- Know Your Customer (KYC): Know Your Customer, or KYC is defined as the process that institutions use to verify the identities of their customers and come to a conclusion on the financial crime risk they may pose. This process helps financial institutions to adequately assess the risk associated with each client.
- Customer Due Diligence (CDD): Customer Due Diligence is the process of evaluating customers’ backgrounds in order to identify their identification and risk level. This is accomplished by analysing a customer’s name, official document photograph, and home address. CDD authenticates a client’s identification and the business they are involved in to have enough trustworthiness.
- Name Screening: Name screening is the process of determining if a financial institution’s existing or future customers (both individuals and entities) are named in any blacklists or regulatory lists such as sanction lists. Customers need to be screened against a number of watchlists at the time of onboarding and at specific intervals to identify the risk they pose and stop doing business with them.
- Transaction Monitoring: The transaction monitoring process involves scanning its own customer transactions manually or electronically based on numerous characteristics such as customer and beneficiary identities, volume, amount, country of origin, and destination. This assesses if the information matches the bank’s current understanding of the customer. The goal of AML transaction monitoring is to notify the bank of any odd business contacts or activity so that it may report money laundering and suspicious transactions.
- Transaction Screening: The transactions enabled by banks and other financial institutions are not limited to their own customers. If a financial institution mediates a transaction to or from a sanctioned person or entity that will lead to regulatory action and severe damage to reputation. In order to avoid this, they have transaction screening systems in place. These systems should screen transactions in real-time in order to ensure a smooth payment process.
- Suspicious Activity Reporting (SAR): To combat money laundering and the financing of terrorism, it is the duty of financial institutions to report any suspicious transactions or activities to authorities following a thorough investigation. For most countries, this takes the form of a document submitted by a financial institution to the appropriate authority, according to compliance regulations for that country.
Using artificial intelligence (AI)
Artificial Intelligence (AI) has brought in disruption in many industries with its ability to mine, structure and analyse huge volumes of data and provide actionable insights. AI can take up repetitive tasks, saving valuable time, effort and resources that can be redirected to perform higher-value functions.
From an AML compliance perspective, AI can extract risk-relevant information from large volumes of data and present that information in a better coherent manner, making the process of identifying high-risk transactions and clients even easier in the fight against financial crime.
The process inefficiencies of rule-based AML software can be reduced significantly by using the power of AI in the following ways:
- Reducing manual efforts and saving time: To go through every AML alert, compliance departments within financial institutions need an army of resources. Considering the ever-increasing number of alerts within these institutions, it is not a feasible and sustainable option for institutions to increase the number of skilled and costly compliance staff. AI can effectively automate repetitive tasks, saving a lot of man-hours for financial institutions and eliminating alert backlogs.
- Optimal use of scarce compliance resources: Prudent use of skilled compliance staff is vital for compliance departments today. The compliance staff have been given the task of finding the needle in the haystack and are wasting most of their precious time in closing low-risk alerts. With advanced machine learning, alerts can be grouped based on risk levels to dedicate more time and talent to those that matter.
- Augmenting processes efficiency and accuracy: Heavy workloads can cause distractions and human errors within AML compliance teams, elevating regulatory risk. While AI cannot replace human judgement in the AML compliance process, it can assist humans with predictions, recommendations and powerful analytics, enabling faster and accurate decision-making.
Today, the banking and financial services industries understand AI's and machine learning's power in preventing sophisticated money laundering techniques.
Looking for the best anti-money laundering software?
Tookitaki is revolutionising financial crime detection and prevention for banks and fintechs with its cutting-edge solutions.
A game changer in the space, we improve risk coverage by democratising AML insights via a privacy-protected shared learning framework powered by a network of AML experts.
We provide an end-to-end, AI-powered AML compliance platform, named the Anti-Money Laundering Suite (AMLS), with modular solutions that help financial institutions deal with the ever-changing financial crime landscape. The key features of our modular AML compliance solutions are given below:
Smart Screening: Our Smart Screening solution provides accurate screening of names and transactions across 18+ languages and a continuous monitoring framework for comprehensive risk management. Its key features include:
- Ongoing and on-demand screening for names and payments
- Detects alerts based on complex combinations of rules
- Watchlist integration
Customer Risk Scoring: The solution features a dynamic customer risk scoring engine which adapts to changing customer behaviour to build a 360-degree risk profile, thereby providing a risk-based approach to client management. Its major features include:
- 360-degree customer risk profile
- Continuous, on-demand and accurate Customer risk scoring
- Perpetual KYC for ongoing due diligence
- Actionable insights based on Customer risk score
Tookitaki Transaction Monitoring: Our Transaction Monitoring solution provides comprehensive risk coverage and suspicious activity detection via a one-of-a-kind typology repository and automated threshold management. Its key features include:
- Scalable community-driven typology library
- No code, drag-and-drop developer studio for creating new typologies
- Auto-generated risk indicators and thresholds
- Identify high-quality alerts using machine learning and risk scoring
Case Manager: The Case Manager provides a centralised investigation workflow for alerts from all AML modules – Smart Screening, Customer Risk Scoring and Transaction Monitoring. Its features include:
- End-to-end case management solution from investigation to reporting
- Single integrated platform for alerts from all AML stages
- Supports the needs of everyone involved in four-eyes checks
- Supports operations to meet compliance requirements
Our modern software solutions based on artificial intelligence and machine learning can manage the end-to-end of AML compliance programmes. It can improve the efficiency of the AML compliance team and better mitigate compliance risk.
Speak to one of our experts today to understand how our solutions help your compliance teams to effectively detect financial crime and ensure future-ready compliance programmes.
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