Reassessment of systems preventing money laundering post COVID essential: Deloitte

As the changing consumer habits in the backdrop of the global pandemic could lead to an increase in the number of ‘false positives’ in the area of money laundering, multinational professional service network Deloitte advised the local financial sector to reassess their efforts in this regard.

With the COVID-19 outbreak continuing to change the consumer and business dynamics, Deloitte India Forensic, Financial Advisory Partner K.V. Karthik said it is imperative to “step back and look at the bigger picture”, as the bulk of the transactions is now facilitated on digital platforms.

“Patterns of payment and receivable across sectors have changed and due to this, the anti-money laundering assessment systems designed during PRE-COVID times would not necessarily work.

There could be many false positives,” Karthik told Mirror Business via a web interview.

“The system currently may not be effective. Banks and financial institutions need to relook at the changing patterns and then identify the additional controls required to prevent the possibilities of money laundering activities taking place,” he added. The Anti-money Laundering Preparedness Survey Report 2020, released by Deloitte, highlighted that the estimated amount of money laundered globally in one year is 2−5 percent of the global GDP, which amounts to about US $ 2 trillion. Although banks have increased their investments on automated systems for transaction monitoring and sanction screening over the years, these investments may have not borne fruit, the report pointed out. According to the survey findings, the challenges in identifying the fraudulent activity are primarily in the areas of technology, processes and people.

While an effective Know-your-customer (KYC) programme involves understanding the customers’ shareholding structure, Deloitte stressed the information must be reviewed regularly.

The report stressed that the risk-based approach is central to the effective implementation of an anti-money laundering regime and a fundamental element in implementing the approach is the Institutional Risk Assessment (IRA), which enables banks and financial institutions to understand how and to what extent they are vulnerable to money laundering risks.