5 anti-money laundering trends to look out for

This is a sensitive time for the regulatory authorities to watch out for Anti-Money Laundering (AML) activities

Representative Image
Representative Image

Dnyanesh Pandit

COVID-19 outbreak has engulfed countries world over affecting the global economy beyond anybody's imagination. India is no exception to this.

This is also a sensitive time for the regulatory authorities to watch out for Anti-Money Laundering (AML) activities. Those in AML landscape will understand the methods of money laundering and predicate crimes are ever-evolving and are usually one step ahead.

As financial institutions globally struggle with meeting regulatory requirements and expectation while managing the increasing volumes for both local and cross-border transactions, they should still continue to understand and counter potential money laundering risks and employ best practices to even stay ahead of the curve.

While we understand the challenges and expectation, here are some of the emerging trends and challenges in Anti-Money Laundering and Counter Terrorist Financing which will help understand the importance of being proactive in monitoring and investigation as well as remain a customer service champion.

  1. FATF (Financial Action Task Force) Mutual evaluation: FATF conducts mutual evaluations for its member nations basis. The last methodology was released in 2013 and the fourth round of evaluation initiated in 2014 is underway. It evaluates the specific requirements of the 40 FATF Recommendations, including how a member nation relates them to its relevant legal and institutional framework, and the powers and procedures of competent authorities. The focus is on the fundamental building blocks of an AML/CFT (combating the financing of terrorism) system.

If a country has not reached a high level of effectiveness, then assessors give reasons why it fell below the standard, and recommend measures the country should take to improve its ability to achieve the outcome. FATF also publishes the "Call for action" list of countries which have “significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation” and also a list of "Other monitored jurisdictions". Major upcoming evaluation in Asia Pacific and Middle-East regions are Qatar (June 2020), India (February 2021), Laos (October 2020), Oman (June 2021) and Kuwait (Oct 2021). These timelines may be impacted considering the COVID 19 crisis.

The overall prospect for 2020 is a year of transition to combat money laundering. Regulatory authorities and global bodies continue to direct the financial sector for following norms of AML including FATF 40 recommendations. FATF evaluations are bringing about change in the ways the financial crime is fought at a country level.


  1. Financial Innovation: The financial sector is progressing and evolving at an exceptional pace. New technologies have introduced a whole new spectrum of money laundering opportunities. At the same time, these technologies provide an opportunity to develop a sophisticated response to this problem. Innovations such as artificial intelligence and machine learning could facilitate the processing of large volumes of data to spot patterns and anomalies that a human might miss. We foresee 2020 will see more coordinated efforts to employ security standards on these technologies to ensure a baseline of controls is applied to their implementations in regulated environments:

  • Biometric identification: Biometrics is defined as the unique and intrinsic physical and biological characteristics of a person that verifies the person’s identity. Know Your Customer (KYC) check is one of the obligations wherein financial institutions need to verify and authenticate the customer’s identity during the onboarding process and for conducting customer due diligence. This is a fundamental for combatting digital fraud, identity theft, financial crimes, and money laundering. The Reserve Bank of India (RBI) has approved remote video-based authentication through Aadhar as a substitute for e-KYC practices. India is one of the first countries to roll out video-KYC for financial institutions. Integrating biometric identification checks, organisations can streamline the KYC process making it faster and more efficient.

  • Robust Transaction Monitoring: After having seen cases on the scale of some of the bulge bracket financial institutions in the last two years, where illicit funds were transferred secretly for years, and authorities have realised that the technology control environment of FIs is not enough. In 2020, regulators are expected to insist on faster methods for detecting suspicious behaviour, specifically in the field of transaction monitoring. Smart technology will be the key here. Businesses will need to be able to set their risk radius and work with tools that reduce false positives as well as use data analytics significantly to identify outliers.

  • Virtual Assets: A major innovation that has drastically changed the financial landscape is the introduction of virtual assets whose anonymity, speed and global reach have provided significant efficiencies. In past, we have seen ransomware attacks and terrorists financing via virtual assets/currencies. Countries and jurisdictions around the world have responded differently to prevent the misuse of virtual assets. The patchwork of regulatory responses, ranging from robust regulation to complete prohibition of virtual assets will take a few more years to stabilize wherein a more informed consensus is achieved across regulators and geographies.

  1. Trade Based Money Laundering (TBML): In January 2020, the US Government Accountability Office released a study conducted in coordination with enforcement agencies regarding an expected increase in TBML which may threaten the integrity of financial institutions worldwide. In US, the cash seizers has reduced suggesting the international crime has pivoted the TBML schemes to keep the regulators and agencies hands out of their illegal funds. Retrospective review of import-export data, suspicious financial activities, patterns and anomalies clubbed with optimised tools and with coordination of public and private sector will be the key to combat TBML. Data analytics methods such as Text analytics, link analysis and statistical analytics are some of the techniques which have shown promising signs in identification of TBML incidents in recent times.

  1. New Methods of Terrorist Financing: The requirement of financing is constant in terrorism by way of a sturdy flow of funds from various sources to point of distribution. In absence of continuous and stable flow funds, any terrorist organisation is less likely to succeed. Enforcement agencies across the world have devised methods to detect such sources but methods of funding have been evolving with much greater promptness. While private donations, abuse of non-profit organisations and state sponsorship of terrorism has been in play for many years, we are witnessing new trends in financing terrorist activities such as fundraising through social media, virtual currencies, prepaid cards, exploitation of natural resources namely oil & gas and mining sector.

 Compliance Vs Customer Satisfaction: Customers of banks and financial institutions have often voiced their discomfort on overtly increase of paperwork and questionnaires and thus leading to customer displeasure. Banks and FIs are in urgent need of finding the equilibrium between being compliant to all regulatory norms and customer’s service quality. This also impacts the digital journey which becomes really cumbersome. Streamlining the details sought and the frequency of such requirements could be one such step in reducing the customer’s discontent. For this, financial institutions should invest more in equipping better storage and retrieval facilities for customer information. Additionally, Independent verification, Biometric identification, Robotics and automation at branches or hub and spoke models can greatly reduce the customer dissatisfaction and time spent on digital and branch journeys.

Dnyanesh Pandit is Managing Director, Financial Services, Protiviti Member Firm for India


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