A Guide to Anti-Money Laundering for Crypto Firms

AML Compliance in the Remittance Industry

AML Compliance Knowledge & Training

aml money remittance

The money remittance industry is growing. In 2018, global remittances reached $689 billion: a figure that is expected to reach $746 billion in 2020. The trend is driven, in part, by digital remittance services, which are expected to see a growth rate of 11.75% between 2019 and 2024. As the remittance industry has developed, so have the methodologies that criminals use to exploit it. In a report on the industry, the Financial Action Task Force (FATF) identified specific vulnerabilities to money laundering and terrorism threats, emphasizing the need for suitable AML compliance in the remittance industry.  

Accordingly, when it comes to the risk of AML, remittance firms must ensure their compliance solution can detect and prevent criminal activity and satisfy the relevant regulatory obligations (such as those imposed by FATF) on an ongoing basis. 

Money Laundering Risks in the Remittance Industry

Money remittance is an attractive target for criminals for a variety of reasons, including global inconsistencies in regulation and the criminal opportunities offered by digital remittance services. In order to detect and prevent money laundering activities, it is important that compliance teams understand the key risks posed by money remittance:

Digital services: The growth of digital remittance services and technology has led to the emergence of new money laundering risks. Online money remittance services are not only harder for the authorities to supervise but make it easier for criminals to circumvent identity verification processes, especially in non-bank remittance firms. 

Prepaid cards: Some prepaid payment cards can be used to send and receive money and to withdraw cash from ATMs with funds loaded anonymously over the internet. Some open-loop cards are integrated with global ATM networks and can be used to transfer money around the world, pay for goods and services or simply withdraw cash with no face-to-face transaction requirement. 

Money mules: The anonymity associated with remittance services means that money launderers can engage third parties to conduct transactions on their behalf. These third parties are also known as money mules and may be coerced or financially incentivized to send or receive money via remittance services in order to protect the identity of the launderers. 

Ownership: Given the proliferation of remittance services, money launderers may seek to obtain ownership of a remittance firm in order to circumvent AML/CFT compliance regulations. Money launderers may set up a remittance firm themselves or by using an agent or may seek to leverage the owner of an existing firm. 

Regulatory disparity: Regulatory supervision of remittance service providers varies depending on jurisdiction, and money launderers may seek to exploit that disparity by moving illegal funds between territories. The AML risks of that disparity may involve a lack of communication between supervisory authorities in different countries or the efforts of money launderers to avoid, for example, reporting thresholds or suspicious activity reporting requirements. 

Structuring: In order to better disguise the origin of illegal funds and thwart investigations, money launderers may attempt to engage in multiple remittance transactions using multiple outlets. This practice is known as structuring and makes it harder for both remittance AML compliance teams and financial authorities to track illegal funds.

AML Compliance for Remittance Organizations

  • FATF requires financial institutions within member countries to implement risk-based AML compliance programs. In practice, this means that firms, including remittance service providers, must conduct risk assessments of their customers to determine the level of money laundering risk that they present. In alignment with FATF recommendations, remittance service providers must put a risk-based AML program in place with the following features:
    • Customer due diligence: Remittance firms should conduct CDD checks to ensure that customers are being truthful about their identities. Customers that present a higher risk of money laundering, such as politically exposed persons (PEPs) should be subject to enhanced due diligence (EDD). 
    • Transaction monitoring: Firms should monitor customer transactions for suspicious activity that might indicate money laundering, including transactions above reporting thresholds, unusual transaction patterns or transactions with high-risk countries. 
    • Screening: Firms should screen customers and transactions against international sanctions lists and watchlists. Customers should also be monitored for involvement in adverse media stories.
    • Compliance officer: Remittance firms must appoint a compliance officer with enough authority and expertise to oversee their AML program. 
    • Training: As part of AML compliance, remittance employees must receive AML training in order to be able to spot potential money laundering activities. 

    Certain transactions or types of behavior may indicate that customers are using remittance services to conduct money laundering. These red flags include:

    • Unusually high frequencies of transactions or unusual transaction patterns. 
    • Transactions above reporting thresholds. 
    • Customers that attempt to conceal their identities. 
    • Customers that know few details about the transaction or the payee.
    • Transactions that are connected to other transactions in a manner that might indicate structuring. 
    • Transactions involving politically exposed persons or individuals on sanctions lists or adverse media stories involving customers. 

Ongoing AML Compliance in Remittance

In order to deliver ongoing AML compliance in a remittance business quickly and efficiently, service providers should consider implementing smart AML software to handle their data collection and analysis needs. An AML software solution not only adds speed and accuracy to the compliance process but can scale with a firm’s needs and adapt to changes in legislation and emergent criminal methodologies on an ongoing basis.

Solutions for AML Compliance in Remittances

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AML Compliance in Remittances: Case Studies

Global trading remittance firm (Customer A) 

Customer A offers money transfers to over 150 countries in over 70 currencies
Regulated by
  • FCA
  • DNB
  • FINTRAC
  • AMF
  • AUSTRAC
  • Hong Kong Customs and Excise Department
Screening workflow Customer A doesn’t run AML checks at onboarding but instead screens both the payer and beneficiary for every transaction run
Data Sanctions – all lists
Fuzziness setting 20%
Match rate 1-1.5%

Remittance firm (Customer B)

Customer B allows individuals from the UK and US to send money to Africa
Regulated by An agent under a payment provider in the UK that is authorized by the FCA
Screening workflow Customer B screens its customers at the point of onboarding, via an app used to sign up for its platform. Customers first go through an identification verification process, then AML checks
Data Customer B uses a search profile and has selected: 

  • Sanctions – all lists
  • Warnings – no lists selected
  • Fitness and Probity – no lists selected 
  • PEP classes – all 4 classes
  • Adverse Media – no lists selected
Fuzziness setting Exact match
Match rate 4-5%

Global payments firm (Customer C)

Customer C offers B2B payments and individual payments to over 160 countries
Regulated by
  • Central Bank of Ireland
  • FINTRAC
  • FCA
  • AUSTRAC
  • Mexican National Banking and Securities Commission
  • Ministry of Business Innovation and Employment – New Zealand
  • Hong Kong Customers and Excise Department
  • Monetary Authority of Singapore
  • Dubai Financial Services Authority
  • Association Romande Des Intermédiaires Financiers (ARIF)
  • Jersey Financial Services Commission (JFSC)
  • Bank Negara Malaysia
  • FINCEN
Screening workflow Customers are screened at the point of onboarding
Data Customer C has set up a search profile and has picked lists from countries it is operating in: 

  • Sanctions – 72 lists selected
  • Warnings – 765
  • Fitness and Probity – 106
  • PEP’s – all 4 levels
  • Adverse Media – 7 categories
Fuzziness setting 20% 
Match rate ~20%

 

aml money remittance The money remittance industry is growing. In 2018, global remittances reached $689 billion: a figure that is expected to reach $746 billion in 2020. The trend is driven, in part, by digital remittance services, which are expected to see a growth rate of 11.75% between 2019 and 2024. As the remittance industry has developed, so have the methodologies that criminals use to exploit it. In a report on the industry, the Financial Action Task Force (FATF) identified specific vulnerabilities to money laundering and terrorism threats, emphasizing the need for suitable AML compliance in the remittance industry.   Accordingly, when it comes to the risk of AML, remittance firms must ensure their compliance solution can detect and prevent criminal activity and satisfy the relevant regulatory obligations (such as those imposed by FATF) on an ongoing basis. 

Money Laundering Risks in the Remittance Industry

Money remittance is an attractive target for criminals for a variety of reasons, including global inconsistencies in regulation and the criminal opportunities offered by digital remittance services. In order to detect and prevent money laundering activities, it is important that compliance teams understand the key risks posed by money remittance: Digital services: The growth of digital remittance services and technology has led to the emergence of new money laundering risks. Online money remittance services are not only harder for the authorities to supervise but make it easier for criminals to circumvent identity verification processes, especially in non-bank remittance firms.  Prepaid cards: Some prepaid payment cards can be used to send and receive money and to withdraw cash from ATMs with funds loaded anonymously over the internet. Some open-loop cards are integrated with global ATM networks and can be used to transfer money around the world, pay for goods and services or simply withdraw cash with no face-to-face transaction requirement.  Money mules: The anonymity associated with remittance services means that money launderers can engage third parties to conduct transactions on their behalf. These third parties are also known as money mules and may be coerced or financially incentivized to send or receive money via remittance services in order to protect the identity of the launderers.  Ownership: Given the proliferation of remittance services, money launderers may seek to obtain ownership of a remittance firm in order to circumvent AML/CFT compliance regulations. Money launderers may set up a remittance firm themselves or by using an agent or may seek to leverage the owner of an existing firm.  Regulatory disparity: Regulatory supervision of remittance service providers varies depending on jurisdiction, and money launderers may seek to exploit that disparity by moving illegal funds between territories. The AML risks of that disparity may involve a lack of communication between supervisory authorities in different countries or the efforts of money launderers to avoid, for example, reporting thresholds or suspicious activity reporting requirements.  Structuring: In order to better disguise the origin of illegal funds and thwart investigations, money launderers may attempt to engage in multiple remittance transactions using multiple outlets. This practice is known as structuring and makes it harder for both remittance AML compliance teams and financial authorities to track illegal funds.

AML Compliance for Remittance Organizations

  • FATF requires financial institutions within member countries to implement risk-based AML compliance programs. In practice, this means that firms, including remittance service providers, must conduct risk assessments of their customers to determine the level of money laundering risk that they present. In alignment with FATF recommendations, remittance service providers must put a risk-based AML program in place with the following features:
    • Customer due diligence: Remittance firms should conduct CDD checks to ensure that customers are being truthful about their identities. Customers that present a higher risk of money laundering, such as politically exposed persons (PEPs) should be subject to enhanced due diligence (EDD). 
    • Transaction monitoring: Firms should monitor customer transactions for suspicious activity that might indicate money laundering, including transactions above reporting thresholds, unusual transaction patterns or transactions with high-risk countries. 
    • Screening: Firms should screen customers and transactions against international sanctions lists and watchlists. Customers should also be monitored for involvement in adverse media stories.
    • Compliance officer: Remittance firms must appoint a compliance officer with enough authority and expertise to oversee their AML program. 
    • Training: As part of AML compliance, remittance employees must receive AML training in order to be able to spot potential money laundering activities. 
    Certain transactions or types of behavior may indicate that customers are using remittance services to conduct money laundering. These red flags include:
    • Unusually high frequencies of transactions or unusual transaction patterns. 
    • Transactions above reporting thresholds. 
    • Customers that attempt to conceal their identities. 
    • Customers that know few details about the transaction or the payee.
    • Transactions that are connected to other transactions in a manner that might indicate structuring. 
    • Transactions involving politically exposed persons or individuals on sanctions lists or adverse media stories involving customers. 

Ongoing AML Compliance in Remittance

In order to deliver ongoing AML compliance in a remittance business quickly and efficiently, service providers should consider implementing smart AML software to handle their data collection and analysis needs. An AML software solution not only adds speed and accuracy to the compliance process but can scale with a firm’s needs and adapt to changes in legislation and emergent criminal methodologies on an ongoing basis. [cta_card title="Solutions for AML Compliance in Remittances" cta_img="" category="" bodytext="Verify customers with live Sanctions, PEPs and Adverse Media data and insights for free " cta_text="Request Demo" cta_url="https://complyadvantage.com/request-demo/"]

AML Compliance in Remittances: Case Studies

Global trading remittance firm (Customer A) 

Customer A offers money transfers to over 150 countries in over 70 currencies
Regulated by
  • FCA
  • DNB
  • FINTRAC
  • AMF
  • AUSTRAC
  • Hong Kong Customs and Excise Department
Screening workflow Customer A doesn’t run AML checks at onboarding but instead screens both the payer and beneficiary for every transaction run
Data Sanctions – all lists
Fuzziness setting 20%
Match rate 1-1.5%

Remittance firm (Customer B)

Customer B allows individuals from the UK and US to send money to Africa
Regulated by An agent under a payment provider in the UK that is authorized by the FCA
Screening workflow Customer B screens its customers at the point of onboarding, via an app used to sign up for its platform. Customers first go through an identification verification process, then AML checks
Data Customer B uses a search profile and has selected: 
  • Sanctions – all lists
  • Warnings – no lists selected
  • Fitness and Probity – no lists selected 
  • PEP classes – all 4 classes
  • Adverse Media – no lists selected
Fuzziness setting Exact match
Match rate 4-5%

Global payments firm (Customer C)

Customer C offers B2B payments and individual payments to over 160 countries
Regulated by
  • Central Bank of Ireland
  • FINTRAC
  • FCA
  • AUSTRAC
  • Mexican National Banking and Securities Commission
  • Ministry of Business Innovation and Employment – New Zealand
  • Hong Kong Customers and Excise Department
  • Monetary Authority of Singapore
  • Dubai Financial Services Authority
  • Association Romande Des Intermédiaires Financiers (ARIF)
  • Jersey Financial Services Commission (JFSC)
  • Bank Negara Malaysia
  • FINCEN
Screening workflow Customers are screened at the point of onboarding
Data Customer C has set up a search profile and has picked lists from countries it is operating in: 
  • Sanctions – 72 lists selected
  • Warnings – 765
  • Fitness and Probity – 106
  • PEP’s – all 4 levels
  • Adverse Media – 7 categories
Fuzziness setting 20% 
Match rate ~20%
 

Originally published July 9, 2020, updated August 26, 2022

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