The Evolution of Money Laundering

November 08, 2017

Check cashing businesses spend a great deal of energy complying with Anti-Money Laundering (AML) policies and procedures. The goal of these efforts is to prevent money laundering and other financial crime from entering the check cashing outlet. At the same time, the check cashers maintains meticulous records and sends reports that help the industry at large ward off fraud. As fintech blossoms and financial criminals change their tactics, the action of money laundering is no longer as straightforward as running dirty money through a financial institution to clean it.

The New Face of Money Laundering

Money laundering uses secrecy and fraud to turn illegal funds into seemingly legal tender. Criminals engage in an illegal process to hide the source of their financial gains so that they can use their funds in the financial system without repercussion. Money laundering is also used as a means to move money around or hide money from the state in order to skirt rules and regulations.
Money laundering as we know it in the United States began in the 1920s as a means to bring illegal gains from alcohol production, distribution, and sales into the legal financial system. Fast forward nearly one hundred years and criminals are still using money laundering to bring their dirty money into the financial system. Why is money laundering so bad? The action of laundering money disrupts financial systems by undermining the integrity of financial institutions. When money launderers move money through illegitimate businesses, they are competing directly with legitimate business owners.
When money launderers invest their money in markets where detection is unlikely, they falsely inflate these markets. Currencies and global financial markets can be affected by money laundering activity. Additionally, money laundering makes it difficult for law enforcement agencies to track criminals, stop dangerous and illegal behavior, and seize fraudulent funds.
Today’s financial criminals are well-funded, skilled, and equipped with the latest technology. This makes staying ahead of them harder than ever before for financial institutions, law enforcement agencies, and regulators. Money launderers use modern accounting and financial tools to trick the financial systems into accepting dirty money. Criminals employ complex networks and covers to defraud both the traditional and alternative financial industries.
Access to computers and programming enables criminals to use new tactics to hide their identity and spread out illegal transactions. Both of these tactics present huge challenges for financial institutions and law enforcement agents. As a result, the financial sector and regulators are taking increasingly complex and robust steps to prevent money laundering.

Check Cashing AML Efforts & Regulation

In 2017, the increasing threat of terrorism is fueling new AML efforts and regulation for check cashers and beyond. In recent years, the Financial Crimes Enforcement Network (FinCEN) has strengthened its AML program requirements and imposed new Know Your Customer (KYC) rules. In fact, FinCEN has added a fifth pillar to their Bank Secrecy Act (BSA) program requirements. Previously, a financial institution’s BSA program was built on four pillars: 1) internal AML policies, procedures, and controls, 2) the employment of a designated BSA Officer, 3) ongoing AML training for employees, and 4) annual independent audits. The new fifth pillar is enhanced customer due diligence.
Enhanced customer due diligence and KYC rules are aimed at identifying new customers before they start using your financial services. If the customer is an individual, their identity must be confirmed as well as their purpose for opening an account through your institution at that time. If the customer is an entity rather than an individual, the beneficial owners who are in control of the entity must be properly identified at the time of the account opening. After the account is opened, financial institutions are responsible for continuing to monitor and update their customer due diligence efforts.
The best defense against money laundering is transparency and accountability. Using a robust strategy across the front, middle, and back-end can help protect your check cashing business from fraudulent activity. On the front-end, train your customer-facing employees to spot red flags and provide a strong first line defense. As the middle step, maintain customer due diligence and meet KYC standards for all customers while supporting a strong compliance program. On the back-end, keep proper records, send necessary reports, and stay up to date with your external audits. Finally, use customer data and new tools for communication to strengthen your efforts.

Global Financial Crime Trends

On a global scale, cyber-security and terrorism are two of the largest threats facing the financial sector today. And the threat extends beyond individuals to countries that are using technology to spy on and influence their global competitors. In some cases, like in North Korea, countries are even using money laundering tactics to avoid regulation and sanctions. From small scale crime to global heavy weights, regulators are working feverishly to secure financial systems.
Financial regulators must balance many complex and ever-changing threats to protect themselves, their customers, and the financial system from criminals. Luckily, data is helping regulators and institutions spot trends and identify anomalies. Every transaction and customer touch point generates massive amounts of data. While this data holds the key to uncovering trends and identifying fraud before it becomes a full scale problem, processing the data is a huge undertaking.
Data management is now the name of the game for financial compliance. The massive amount of data generated by financial transactions can be used to uncover the true identities of customers and track the source and journey of funds. When coupled with transparent and efficient communication, this data can empower check cashers and banks to detect, prevent, and aid in the prosecution of financial crime.

AML & Compliance Solutions for Check Cashers

As the threat of money laundering evolves, compliant check cashers must use data, technology, and robust compliance to stay ahead of criminals. The first step in preventing fraud is to identify customers and run their data through national databases. Advanced POS technology allows check cashers to capture data including fingerprints, ID scans, check images, and transaction details. This data can be quickly communicated to large databases and the check casher’s financial institution. This instantaneous communication allows the check casher to confirm the identity of the customer and refuse to open an account if there are any discrepancies or warning signs.
National Check and Currency supports your check cashing AML efforts with cutting-edge technology, a staff of compliance experts, access to check cashing friendly banks and real check cashing business bank accounts, plus a lineup of supporting services. NCC’s ancillary services include cash logistics, extended deposit times, and 24/7 customer service. In a world where AML regulations and challenges change daily, NCC is on your team to help you stay compliant and prevent fraud from entering your check cashing business.

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