With the advancement of technology and more detailed work by regulators to prevent money laundering, money laundering trends have changed and developed in 2020. In particular, the scope of AML regulations of global or local regulators has expanded, and many new regulations have come. In addition to these, the COVID-19 outbreak that occurred in 2020 has also affected and even directed the money laundering 2020 threats. Many authorities have published guidelines on the relationship of COVID-19 with money. As the Sanction Scanner, we published the report "Expected Changes in AML after COVID-19", which includes comments from AML experts from different parts of the world, which we think has benefited the industry.
Challenges of AML Trends in 2020
Sanctions and penalties are increased for non-compliance with Anti-Money Laundering (AML) regulations. For this, all institutions obliged to comply with regulations, such as financial institutions, should do their best and create an AML Program for themselves. There are basic elements to be followed in the AML Program, and some institutions may find it difficult to adapt to these elements. Here are those AML challenges:
False Positives Alarms
Transaction Monitoring systems are used to detect suspicious behaviors, such as excessive cash deposits in financial institutions. In this case, an alarm is generated for every transaction that takes place in financial institutions that can be considered suspicious, but these alarms are not always important enough to prepare a Suspicious Activity Report (SAR). These alarms are called false positives alarms. Examining false positive alerts also causes financial institutions to waste time and costs wasted each year. A large number of false positives can expose financial institutions to reputational damage and fines. Therefore, regulators encourage the use of artificial intelligence and machine learning solutions to reduce false-positive alerts in financial institutions.
Ultimate Beneficial Owners (UBO) Check
UBO means the legal entity known as the beneficiary of the company. Financial institutions must disclose UBOs for various reasons, according to regulators. The most important reason for this is the prevention of serious crimes such as money laundering and terrorist financing. In case UBOs are not disclosed, it sets the ground for criminals to launder money through companies. UBO verification has some difficulties because customers may provide false information in some cases, and information in the available lists may not be scanned correctly.
FATF's Trends Publications in 2020
The Financial Action Task Force (FATF) has published new recommendations for its member states regarding money laundering in 2020. Among FATF recommendations are evaluation reports on COVID-19. Undoubtedly, criminals exploited certain industries to make a profit during the pandemic. FATF has some research on this subject as well. Trends Publications published by FATF in 2020 for its member states are as follows:
- Money Laundering and the Illegal Wildlife Trade: The Financial Action Task Force (FATF) published its report on Money Laundering and Illegal Wildlife Trade in June 2020. IWT is a major organized crime that threatens biodiversity and promotes corruption. The FATF report aims to guide measures that can be taken to combat money laundering resulting from Illicit Wildlife Trade. FATF, together with comprehensive risk assessments, encourages the strengthening of understanding of money laundering risk in Illegal Wildlife Trade offenses and sharing the results of these risk assessments with all relevant authorities.
- COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses: Published by FATF, this article contains a guide on the impact of the COVID-19 crisis period on money laundering (AML) and counter-terrorism financing (CFT) and how FATF Standards will be implemented by member countries in this process. At the same time, the article was prepared very quickly in response to the COVID-19 crisis during the pandemic. The article also includes the Statement of the Chairman of the FATF on how to realize and support the risk-based approach of the FATF Standards and effective management of emerging threats.
- Money laundering and terrorism financing trends in MONEYVAL jurisdictions during the COVID-19 crisis: FATF also published a report on "Money laundering and terrorism financing trends in MONEYVAL jurisdictions during the COVID-19 crisis" on September 2 with its partner MONEYVAL. As a result of this crisis, criminals exploited the chaos caused by the crisis and developed new ways of working in return. As a result, this report has provided a global perspective on the new threats and vulnerabilities arising from crimes related to COVID-19 and the impact on money laundering (ML) and terrorist financing (TF) risks.
In addition to these FATF reports, it identified Jurisdictions under Increased Monitoring (February 21, 2020) ve High-Risk Jurisdictions subject to a Call for Action (February 21, 2020).
European Union Directives in 2020
In order to avoid money laundering activities in companies since 2019 and to ensure compliance with existing regulations, regulations were made more severe in 2020, and new regulations were also published. Money laundering directives issued by the European Union aim to minimize the crimes of money laundering and terrorist financing in the member states. At this point, it is very important to follow the directives. Institutions that do not comply with the directives are subject to some administrative penalties by the regulatory authority. European Union Governments have planned to transpose 5AMLD into national law by January 10, 2020, and 6AMLD by December 3, 2020.
- 5. Anti-Money Laundering Directive (5AMLD)
With 5AMLD, cryptocurrency gains a legal definition. In addition, institutions that do business in this currency are defined as obligatory organizations that are obliged to comply with AML / CTF regulations. Another rule is that governments must publish PEP lists. In addition, Enhanced Due Diligence (EDD) should be carried out with companies responsible for high-risk third countries, together with 5AMLD, and relationships with these high-risk persons should be monitored continuously. Other factors change and develop with 5AMLD. For detailed information about 5AMLD, you can read our blog "Disclosure and Implementation of 5AMLD".
- 6. Anti-Money Laundering Directive (6AMLD)
Money laundering activities carried out by natural persons will be sentenced to up to four years in prison with 6AMLD. Apart from this, severe sanctions such as the closure of criminal institutions and fines of up to 5 million Euros were imposed. An important change in 6 AMLD is that criminal liability is valid for legal entities. In other words, if the incident mentioned here commits a money laundering offense or has contributed to this crime in any way, legal entities will also be liable, according to 6AMLD.
FinCEN's 2020 AML Updates
FinCEN published a recommendation report to US foreign organizations on the classification according to FATF on March 26, 2020. After FATF found 20 countries insufficient in money laundering in 2020, FinCEN also warned US financial institutions that this issue could affect risk-based approaches. Also, on May 8, 2020, FinCEN issued a Geo Targeting Order. According to this order, title deed insurance companies required information about certain real estate transactions and reporting the information. As per the order, title insurance companies must provide information for certain residential real estate transactions in certain metropolitan areas that cost $ 300,000 or more.
On the other hand, there is a crucial point that should be considered, FinCEN has released two important updates during the COVID-19 crisis period. The guide he published also gave the relevant institutions some flexibility regarding compliance with the administrative aspects of AML regulations. But what FinCen points to and warns here is that there are some high money laundering risks associated with the COVID-19 crisis and that these risks must be treated with caution. FinCEN has also published some articles on how organizations such as these should take measures against crimes such as money laundering in the COVID-19 crisis.
Anti-Money Laundering (AML) Fines in 2020
Institutions that do not comply with the AML trends and regulations that have developed in 2020 have been subject to severe fines by the regulators. When we look at the total AML fines in recent years, we see an increase in the total amount of penalties. One of the reasons for this is that criminals try different ways with the development of technology and the systems that are inadequate against this. Regulators have the necessary regulations at this point, but some institutions do not comply with these regulations and are, therefore, subject to fines. While the AML fines given in 2018 were approximately $4 billion, the AML penalties given in 2019 increased by approximately two times to approximately $8 billion. When we examine some of the data announced in 2020, it is seen that the AML fines given in the first half of 2020 are close to 6 billion dollars. In general, some of the reasons for AML penalties are due to deficiencies in the "Know Your Customer", "Customer Due Diligence," and "Monitoring Suspicious Transactions" procedures.
Sanction Scanner Solutions
With Sanction Scanner AML solutions, organizations can meet global and local AML obligations and be protected from legal fines. We strengthen your business's AML compliance globally and locally by developing our solutions in line with the Financial Action Task Force and European Union regulations. The key to effective AML programs is a risk-based approach and risk assessments. Organizations can determine customer risk levels with our AML Screening service while opening a customer account for an accurate risk assessment. In addition, institutions can be done in seconds via screening, web, API, or batch search with Sanction Scanner.
In addition, AML risk monitoring, which is a more focused issue for organizations in 2020, is possible with Sanction Scanner. With the Sanction Scanner's Transaction Monitoring tool, companies of all sizes have end-to-end features that allow them to counter money laundering and the financing of terrorism obligations. Our Transaction Monitoring software has improved features such as Dynamic Rules and Scenarios, Advanced Sandbox Test Environment, and Powerful Alarm Management.