Why fighting money laundering is vitally important

Anti-money laundering (AML) compliance should not merely be a tick-box exercise for financial institutions, as it not only exposes the organisation to the risk of hefty non-compliance penalties and reputational damage, but could also lead to criminal activity going undetected.

The estimated amount of money laundered globally in a single year is between 2% and 5% of global GDP, or $800bn to $2trillion, making it one of the most serious financial crimes worldwide.

While SA has bulked up its AML regulations and legislation in recent years, it is still losing between $10bn and $25bn a year to this illegal activity. Banks, credit bureaus and other financial institutions have to strengthen efforts and take compliance seriously.

Organisations that do not successfully detect genuine cases of money laundering can potentially create loopholes for criminals to target them, resulting in exposure to severe penalties and reputational damage.

Non-compliant institutions can face fines that run into tens of millions of rand, loss of operating licences and even the imprisonment of directors. So, it makes sense to comply, both from a business and legal perspective.

Today we have the freedom to move money fluidly across international borders from the comfort of our homes, thanks to complex global financial structures. However, these are also exploited to move illegal money. This money can be used by smugglers, corrupt entities, and terrorists. If a financial institution complies, they will save economies, reduce corruption, reduce crime and above all can save many lives.

On the face of it, AML measures such as know your customer (KYC) seem simple, as any financial institution should know who their clients are, where their money comes from and where it is being sent. However, illicit money can flow through a complex financial network of people hiding behind shell companies and highvolume transactions, or dividing large sums of money between multiple headcounts, making it extremely difficult to monitor. This is made even more difficult with the huge volumes of clients and transactions banks deal with on a daily basis.

AML regulations are changing across the globe from rule-based to risk-based. SA is moving towards implementing regulations that force institutions to know their customers and perform stringent customer due diligence. Adopting the right technology is also key.

AML starts with data analytics, to identify patterns or violations that indicate suspicious activity.

Simple analytical algorithms whittle down the flagged transactions to a number of probable money laundering cases that should be investigated.

We need to be more vigilant and SA organisations must pay attention to the global impact it can have. If we allow suspicious transactions through our financial system, they may end up financing terrorism elsewhere in the world.

Money laundering cannot be seen just as a financial crime. It can destroy economies and is a threat to human life and wellbeing. Fighting it is important legally, ethically and morally. AML certainly deserves the attention of our regulatory and financial institutions.