December 10, 2020

Combatting financial crime in the current climate

The current pandemic poses various challenges to organisations, one of which being the increase in financial crime. Digitalisation continues to grow at a rapid rate and criminals appear to be taking advantage of this opportunity. As Nirvana Farhadi, Financial Services RegTech Pioneer and Expert pointed out, ‘Criminals are getting more sophisticated and the current environment is proving an extremely advantageous breeding ground for criminal scams and laundering opportunities associated with the crisis’. Due to the sheer volume of cyber crime and the growing sophistication of criminal activity, it is becoming increasingly harder to detect. Financial institutions must therefore be extra vigilant if they are to prevent money laundering.


Firstly, financial institutions must conduct due diligence and undertake the know-your-customer (KYC) process in order to identify and authenticate the nature of the customer and their business. Although it is tempting, firms mustn’t compromise on due diligence for the ease of customer experience. Under EU’s 5th Money Laundering Directive (5MLD) and expected 6MLD regulation, businesses are required to conduct more thorough due diligence to comply with the stricter AML regulations, however the current pandemic presents many new challenges

One such challenge is that non-essential travel is prohibited, making in-person verification impossible. Digital identity verification processes must therefore be just as thorough as the in person equivalent. Ways in which firms can verify the customers virtually include accepting scanned documentation alongside digital photos or videos. Firms can also seek third-party verification of identity (from lawyers and accountants), or use commercial providers who triangulate data sources to verify documentation provided. They may also gather and analyse additional data to triangulate the the evidence provided by the client, such as geolocation, IP addresses and verifiable phone numbers. A combination of these methods must be used in order to verify the customer’s identity and where there is a high risk, more information will be needed.

If financial institutions do detect any suspicious activity, they must respond to it immediately by reporting it in order to mitigate risks and issues. The filing of Suspicious Activity Report (SAR) to National Crime Agency (NCA) is fundamental to the cyber integration program and is required under the Proceeds of Crime Act 2002 (POCA). Submitting a confidential SAR upon suspicion of money laundering defends individuals, organisations and financial institutions from committing any money laundering offences. Failure to do so can lead to hefty monetary penalties. In March of this year, 5 Kenyan banks including KCB Group and Equity were fined $3.75 million for violating AML laws. This is the second time these banks have been fined as in 2018, they were also fined $4 million for failing to report suspicious transactions. If financial institutions do not revise their AML programmes and enforce them by conducting due diligence, monitoring transactions and reporting suspicious behaviour, they risk continuing to incur fines and damage their reputation.

Indeed, the amount of AML penalties are on the rise. In 2018, approximately $4 billion worth of fines were issued which doubled in 2019 to $8 billion. This figure continues to increase as $6 billion worth of penalties have been issued in just the first half of 2020. This demonstrates the increasing importance of updating, reviewing and implementing AML programmes, particularly in current times.

In conclusion, financial institutions must respond to the challenges that the current pandemic has presented by reviewing and enforcing their AML programmes accordingly.

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