When thinking about the emerging trends in Anti-Money Laundering, one has to understand that money laundering has hit extremes, forcing major financial sectors and regulatory bodies of every country to respond with stringent measures.
Every day, illegally obtained funds continue to enter the legitimate business sphere and governments, regulatory bodies and financial institutions cannot seem to find a veritable solution to end the scourge once and for all.
As new technologies like cryptocurrency and instant money transfer emerged and continue to gain momentum, many criminal and terrorist organisations have found ways to clean their illegal money right under the noses of the authorities.
In this article, we shall be figuring out Emerging Trends in AML: What Businesses Need to Know in 2023 and Beyond. Before we get right to business, we would have to find out what these terminologies mean.
What Is Money Laundering?
Money laundering is the process through which individuals or criminal organizations attempt to make illegally obtained funds or "dirty money” appear legitimate by passing them through a series of transactions. Simply put it is the act of making unlawfully obtained money appear to have originated from a legitimate source by hiding its true source.
The ultimate goal of this act is to obscure the source of the funds, making it difficult for law enforcement and authorities to trace the origins of the money back to criminal activities.
Learn more about What is Money Laundering
How Do Criminal And Terrorist Organisations Launder Money?
Criminal organisations launder money in three major ways including
a. Placement:
The illegal monies get placed into the financial system at this point. Cash deposits into bank accounts, asset purchases, and other financial dealings are all ways to do this.
b. Layering
The process of layering involves moving and rearranging the money through a complex network of transactions in order to conceal its true source. Constructing an untraceable web of transactions may entail moving money between accounts, purchasing and selling assets, and engaging in a variety of financial activities.
c. Integration:
The last step entails re-entering the "cleaned" monies into the economy in a way that makes them seem legal. This may entail making investments in lawful enterprises, making a real estate purchase, or taking part in other legal financial activities.
What Is Anti-Money Laundering (AML) About?
The goal of anti-money laundering (AML) is to make legislation, rules, and practices to stop criminals from exploiting financial institutions to conceal the profits of their illicit activities.
Why Do Businesses Need Anti-Money Laundering Policy?
Businesses need AML because it guards against being exploited as a means of money laundering by criminals. If a company is discovered to have engaged in money laundering, it may be subject to harsh sanctions, such as fines, criminal charges, and reputational harm.
The entire integrity of the financial system benefits from compliance with AML requirements.
As a result, companies must set up efficient AML programmes, investigate clients thoroughly, keep an eye on transactions, and swiftly alert the appropriate authorities to any suspicious activity.
AML policies essentially safeguard businesses and society by preserving the integrity of financial transactions and halting the flow of illegal money through authorised channels. These policies include:
- Implementing customer due diligence (CDD) procedures to verify the identity of customers and understand their business activities.
- Monitoring through identifying and reporting transactions for unusual or suspicious activity:
- Keeping records of transactions to track the flow of money and identify any suspicious activity.
- Training employees on AML regulations to help them to identify and report suspicious activity.
Emerging Trends In AML That Businesses Need To Be Aware Of In 2023 And Beyond
As the years go by there are a few trends that will emerge or restructure to help regulatory bodies and businesses keep money laundering activities to the barest minimum. These activities include:
1. The Emergence Of The “Gig” Economy
The phrase "gig economy" refers to a labour market where people accept temporary assignments or "gigs" as opposed to traditional full-time employment. These work arrangements may be short-term, freelance, or project-based. Employees of an organisation are frequently viewed as independent contractors or freelancers in the gig economy.
Technological developments and internet platforms that connect employees with opportunities have greatly aided this trend. It is advantageous in that it offers workers greater control over their work-life balance, the ability to explore different roles and industries, and the potential to earn income from multiple sources.
How The Gig Economy Can Propagate Money Laundering?
The gig economy presents opportunities for people to embrace autonomy and flexible work schedules, but this developing industry has also sparked worries about how it might be used to launder money. This is because of the abundance of small-scale transactions and peer-to-peer interactions that could lead to opportunities like
i. Fragmented Transactions
Because freelancers frequently conduct a number of tiny transactions, it might be difficult to spot suspicious trends. It would be more difficult for authorities to identify the source of the money if money launderers used this fragmentation to mix their illegal monies with lawful income.
ii. Lack of regular Oversight
Gig workers could not be subject to the same level of financial reporting and scrutiny as those with regular employment. Money launderers may be able to influence transactions in this way without raising any suspicions.
iii. Cross-Border Transactions
A number of global gig economy platforms enable cross-border transactions. Criminals can use this worldwide reach to shift money between jurisdictions, making it more difficult to monitor and control money laundering operations.
Suggested Read; What are the Requirements for AML Screening?
How AML Can Tackle The Gig Economy Trend?
Several steps may be taken to combat the potential abuse of the gig economy for money laundering, they include:
i. Platform Rules
To confirm the identity and authenticity of users, gig economy platforms should adopt effective Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols.
ii. Reporting Mechanisms
Systems for Reporting Suspicious Activities and Transactions: By establishing reporting systems, platforms might encourage accountability and transparency in the gig economy.
iii. Collaborative Regulatory Efforts
Governments, financial institutions, and platforms for the gig economy should work together to establish efficient methods for identifying and combating money laundering in this quickly changing industry.
2. The Emergence Of New Technologies Like Artificial Intelligence (AI) And Blockchain
The world continues to advance in technology and innovation and one of the most popular ones include Artificial Intelligence and Blockchain.
Artificial intelligence (AI) is the simulation of human intelligence processes by machines, especially computer systems. AI research has been highly successful in developing effective techniques for solving a wide range of problems, from game playing to medical diagnosis.
Blockchain on the other hand is a distributed ledger technology that allows for secure, transparent, and tamper-proof recording of transactions. Blockchain is used in a variety of applications, including cryptocurrency, supply chain management, and healthcare
How AI And Blockchain Can Facilitate Money Laundering
The following are ways that AI and Blockchain technology can aid in money laundering:
- AI robots have now found a way to mimic human thought, actions, collect data and even identities and many are of the opinion that they can be used to develop phoney identities and set up tamper-proof, untraceable transactions with blockchain technology.
- This set-up can make it much faster and easier for criminals to move their money around and disguise its origins. AI can be made to even manipulate transaction data to evade detection.
- The use of blockchain technology is ideal for criminals who want to move money without being caught. It can also be used to create anonymous wallets and make it difficult to track the flow of money.
- These new technologies can be used to exploit loopholes in the financial system. For example, criminals may use AI to identify vulnerabilities in anti-money laundering (AML) systems. They can then exploit these vulnerabilities to move their money undetected.
How AML Can Tackle AI and Blockchain Technology Risks
The following can be done to tackle the risk posed by the use of Artificial Intelligence and Blockchain technology in money laundering. They include:
i. Invest in counter technologies
Financial institutions need to invest in new technologies to improve their AML compliance programs. Presently many AI developers are now creating other AI systems that can help counter the illicit use of other AIs.
ii. New Law Enforcement Methods
Law enforcement agencies need to develop new methods to investigate and prosecute money laundering cases. They have to make out teams that can monitor, identify and tackle the use of these new technologies for money laundering activities.
iii. International Cooperation
International cooperation is essential to combatting money laundering, as criminals often operate across borders. Countries need to work hand in hand to share intelligence and conduct operations to apprehend criminals exploiting these technologies.
iv. Public Enlightenment And Orientation
The public needs to be aware of the risks of money laundering and how to report suspicious activity. They should be made to understand how money laundering, especially with the use of these technologies, affects the well-being of society.
Explore more on Blockchain and AML Compliance.
3. The Emergence Of The Metaverse
Augmented and Virtual reality are taking over the world of gaming, construction and even medicine. Over time, experts believe that a lot of things in human society will be done virtually or remotely and that brings us to the phenomenon of the Metaverse.
The Metaverse is a virtual world where people can interact with each other, play games, and attend events. The metaverse is currently within the confines of individual virtual worlds or online games.
As it grows, it aims to create a cohesive and interconnected network of these digital spaces, allowing users to move seamlessly between different platforms and experiences. In the Metaverse, users could potentially socialize, work, play, create, learn, and conduct various activities, blurring the lines between physical and digital existence.
How The Metaverse Can Be Used To Launder Money
Though the Metaverse is still in its early stages of development, it has the potential to be a major platform for commerce and financial transactions.
Experts believe that it will use blockchain technology and aims to grow into having its own digital economy, with virtual goods, services, and currencies. This is where the issue of money laundering comes in and here are a few ways it could be used to facilitate it:
i. The Use Of Cryptocurrencies And NFTs
The use of cryptocurrencies and non-fungible tokens (NFTs). Cryptocurrencies and NFTs are digital assets that can be traded anonymously. This makes them ideal for criminals who want to launder money.
ii. The Lack Of Regulation
The Metaverse is still in its early stages of development, and there are currently no laws or regulations governing it. This could make it difficult to track and prevent money laundering.
iii. The Use Of Avatars
Avatars are digital representations of people in the Metaverse. They can be used to disguise the identity of the person behind the avatar. This could make it difficult to track down criminals who are laundering money.
iv. The Use Of Peer-To-Peer (P2P) Transactions.
P2P transactions are transactions that are conducted directly between two parties without the involvement of a third party. This makes them difficult to track and trace.
How Can Money Laundering Be Tackled In The Metaverse?
Here are a few ways money laundering can be tackled in the Metaverse:
1. Enforcement Of AML Compliance
Financial institutions need to develop AML compliance programs for the Metaverse. These programs should be designed to identify and prevent suspicious transactions.
2. Law Enforcement Presence In The Metaverse
Law enforcement agencies need to develop new methods to investigate and prosecute money laundering cases in the Metaverse. These methods should be able to take into account the unique features of the Metaverse.
3. Internal Checks By Metaverse Platforms
The Metaverse platforms themselves need to take steps to prevent money laundering. This could include implementing identity verification requirements and transaction monitoring for suspicious activity.
4. Public Awareness And Orientation
The public needs to be aware of the risks of money laundering in the Metaverse. People should be cautious about who they interact with in the Metaverse and should report any suspicious activity to the authorities.
Examples of Money Laundering and How to Prevent it
Final Thoughts
We have checked out some Emerging trends in Anti-Money Laundering and have shown businesses how they are very likely to happen in the near future. We have also offered up possible solutions.
Youverify is a tested and trusted compliance platform that prides itself on growth and versatility. Arrangements are in place to ensure we are on hand to help businesses tackle these issues when they come up in the nearest future.
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