Record bank fines underscore need for greater AML/KYC capabilities

The PYMNTS April 2021 AML/KYC Tracker®, developed in collaboration with Trulioo, notes that even as detection efforts improve, “Money laundering has grown more prevalent due to some financial institutions’ and payments providers’ subpar Anti-Money Laundering (AML) and Know Your Customer (KYC) programs, many of which have been exposed as ineffective during the past year’s digital banking surge.” 

Per the new AML/KYC Tracker, “Fines linked to AML compliance broke records in 2020, but experts believe that this year’s totals could be even higher. Oversight agencies in the United States imposed $200 million in fines in just the first two months of 2021, putting the year on pace to top 2020 by a large margin.” Financial organizations also need to start considering the Anti-Money Laundering Act (AML Act) of 2020, which builds upon the Bank Secrecy Act of 1970.

With zero-tolerance now a post-pandemic reality for banks, knowing where attacks are originating, and who’s being targeted (and why) go a long way toward effective intervention.

Seniors are typically easier to take advantage of due to their lack of digital savvy, but a new demographic is emerging as a target post-pandemic.

According to the April AML/KYC Tracker, a recent study found that more bad actors are beginning to exploit the economic anxiety of consumers between the ages of 21 and 30 to turn them into unwitting money launderers. “Victims in this age range accounted for more than 40% of so-called money mules in 2020, representing a 5% increase from the previous year.” Perpetrators exploit third-party bank accounts to move ill-gotten financial gains fraudulently.

The Financial Action Task Force (FATF) issued a warning against trade-based money laundering (TBML), “a large-scale illicit activity that involves criminals using international trade between corporations to conceal ill-gotten funds.” FATF tells banks to notice TBML tip-offs like circular payment arrangements.

Over USD $6.8 billion in AML compliance violation fines were issued last year, with the U.S. “the most aggressive issuer of these fines, with a total of approximately $3.2 billion in penalties.” At USD $2 billion in fines, Australia is the next-highest issuer.

ID verification tech takes the fight to fraudsters

Fortunately, governments and watchdogs are clarifying what compliance means. It’s incumbent on banks and financial institutions to follow through — or pay. 

The AML/KYC Tracker® notes that the Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration and the Office of the Comptroller of the Currency have “specified four features necessary to implement an adequate AML system and avoid fines. Compliant systems must include internal compliance controls, independent testing, a dedicated AML compliance monitor and training for all employees involved in AML compliance.” 

A main weapon in the fight against fraud are biometric solutions, which bypass “falsifiable fingerprints or selfie scans to more advanced techniques like liveness checks that can catch masks or deep fakes. Hotels are also deploying biometric tools to ensure that customers are vaccinated against COVID-19 and do not risk infecting other guests, for example, giving the technology additional benefits.” 

“Banks are devoting immense resources to meeting pandemic-induced AML/KYC challenges,” the new Tracker states, adding that 79% of financial institutions said compliance spend has increased, with 68% invested in solutions and 32% “devoted to hiring and training AML staff.”