Avoid Dealing With Money Laundering In Banking

How To Avoid Dealing With Potential Money Laundering In Banking

Banks are highly vulnerable to cyberattacks. Cybercriminals are always on the lookout for illegally obtaining money from banks and using it for drug trafficking, selling illegal arms, smuggling, and other terrorist activities.

Today, money laundering has become so prevalent that the amount of money laundered is now almost equal to 2-5 % of the global GDP. The most challenging part about the crime is that most money laundering cases look legitimate and are hard to notice until they seriously hurt a financial institution. 

To prevent money laundering, banks must proactively take the necessary actions to restrict untrusted sources from stealing from them and detect criminal activities early on. 

Best practices to prevent money laundering

All it takes is one loose end within a bank’s security system for the criminals to rob the bank of its funds and run away with it. Make sure you build a robust security system and implement the following practices to avoid dealing with the unfortunate. 

1. Optimize your KYC process

In a world where payments are made digitally, it’s easier for attackers to break in and pose as legitimate customers. 

KYC (Know your customers) verification is essential for any business to know who they’re interacting with and whether they truly are who they claim to be. Typically, these KYC checks involve conducting a full-fledged series of verification measures to confirm their identity. 

Though the process of KYC verification in banking varies from country to country, most practices remain the same. 

  • Companies or individuals seeking a bank account or accessing their financial products must verify their date of birth and registration number. 
  • For businesses, the KYC data is provided through a register of shareholders and directors and their KYC verification documents. 
  • For proof of residence or registered office address, utility bills and trade register entry, respectively, will suffice.
  • Verify company reports and accounts to know a company’s legitimacy.

2. Solidify protection against account takeover attacks

Keeping your customer’s data and funds secure should be a bank’s top priority considering that’s the core part of their job. But, if you’re not following strict protocols and security measures, fraudsters can easily break into your system and steal a customer’s identity. 

As a result, they indulge in illegal activities such as frauds and scams, selling the stolen identity to a third party or alternating the customer’s personal information.

Phishing, bot attacks, and credential stuffing are some ways fraudsters steal data from banks. Below are some measures you must implement to protect against account takeover and build a safer banking system:

  • Compare new user credentials with breached credentials database
  • Limit the number of login attempts to prevent illegal access
  • Implement 2-factor authentication (2FA) to add an additional layer of protection during login
  • Send notifications of updates and changes in the user account
  • Implement AI-based detection of bot attacks and account takeover 

3. Follow anti-money laundering laws and stay compliant

While prevention against money laundering is considered a good practice, different countries have outlined anti-money laundering (AML) regulations to protect financial institutions. Failing to adhere to these regulations results in hefty fines and loss of reputation. 

The bank secrecy act (BSA) urges banks to perform appropriate customer due diligence (CDD) and screening measures for suspicious transactions and customers.

The USA patriot act targets financial crimes associated with terrorism enforcing laws for additional surveillance and investigation once the BSA is escalated. 

Under these regulations, banks and other financial institutions are required to implement the following compliance measures:

  • Create and implement AML regulation programs to identify and match the risk profiles of their customers. This must include written policies, and regular screening and monitoring, among other measures. 
  • Financial firms must maintain detailed customer records and periodically submit these reports to the BSA.
  • There must be a position dedicated to a compliance officer in each firm to oversee the AML regulation program and audit the conduct. 

4. Conduct customer due diligence

Comprehensive customer due diligence programs is created to help banks identify a potential threat of money laundering and nip it in the bud before it’s too late. The most critical part of this process is knowing and studying your customers very closely, including depositors and other users who access your bank services. 

  • Seek appropriate identification verification and complete the KYC process for each customer.
  • Set up automated alerting systems for any unusual or suspicious transactions in the bank.
  • Stay compliant with your local AML laws and report transactions having no apparent lawful purpose. See if it’s something a particular customer is not likely to engage with.
  • Consider the proximity of the customer’s residence or office location and call or visit to verify the information.
  • Check the source of funds a customer has used to open a bank account with you and their prior banking references. 
  • Verify the legal status of businesses opening their accounts with you. Seek an information-reporting agency or banking references or pay a visit to their office to verify this information.
  • Check the databases of people logged in the banned and wanted lists, as these are high-risk customers for money laundering and terrorist financing. 

5. Train your staff and equip them with the best resources

Change starts from home and, in this case, your bank. Create a culture of fraud prevention and anti-money laundering that encourages everyone to seek information about it and discuss it with co-workers. 

  • Make sure your staff is fully aware of the different kinds of fraud associated with banks and financial institutions and how to prevent them. 
  • Reward employees who proactively report any red flags they observe in their day-to-day activities. 
  • Educate and train your staff about implementing preventive measures when they notice suspicious activity on their account. Create a system outlining clear steps to take when encountering such issues. 
  • Hire an expert whose sole responsibility is to oversee the suspicious activities and user accounts in your bank. 
  • Create policies that prevent theft and fraud within your bank, or seek a consultant to help you create them.
  • Never provide access to everything to one employee. Make sure you’re segregating their duties and only providing them access based on their level of responsibilities. 
  • Conduct workshops, training, and boot camps regularly to keep your staff informed of new trends and patterns in money laundering practices. 

Some money laundering red flags to look out for

Cybercriminals today have gotten very smart. They’re often very proficient in laundering money right under your nose without leaving a mark to trace back to them. This is where you need to be extra careful. 

Besides following each and every preventive measure discussed above, keep your eyes and ears open and watch out for any unusual and suspicious activity within your bank. 

Mainly, notice the following red flags in your transactions, customer accounts, business accounts, and employees’ records. 

  • A customer has provided incomplete information.
  • A business is reluctant to provide its past records about banking relationships, the nature of its business, the name of associates, and its location.
  • A customer’s home or office telephone is disconnected or not reachable. 
  • A customer makes frequent transactions involving large amounts.
  • A customer or business doing many small incoming wire transfers via checks and money orders. 
  • They have receipts with no links to legitimate contracts or services. 
  • There is a frequent exchange of small to large dollar denominations.
  • Employees are showing reluctance to take breaks from work.
  • Measure customer behavior—how many failed payment attempts are there per customer.
  • There’s a major mismatch in the location from where transactions are made and the address the user is registered with. 
  • If too many unknown devices are logged for a single user, check if the same device has accessed multiple accounts too.
  • Install VPN across the office to prevent attackers from breaking into your server and educate the staff about its importance.

Think from a cyber criminal’s perspective and try to make out their touchpoints and modes of conduct. Study trends and reports about money laundering to understand how they can conduct their laundering. 

Moreover, identify patterns of their attacks and try to understand their thinking process. It’ll help you stay one step ahead of the criminals and even outsmart them.

Safeguard your bank against money laundering

Even a local bank accommodates thousands of transactions in a single day—they’re the biggest source of financial resources for criminal minds and immoral individuals. They now come equipped to make their ‘dirty money’ look legitimate and keep indulging in illegal activities until they’re caught. 

This is why it’s more important to strengthen your anti-money laundering program than ever. Make it a critical component of a banker’s job and ensure you’re following the best practices and complying with the AML laws to the T.

Don’t take money laundering as an afterthought and act today.