Combating Financial Crime in Fast Growing Economies – New Tools to Fight Money Laundering

How identity verification can help mitigate the growing problem of money laundering, using the example of two European nations – the Czech Republic and Slovakia.

The Czech Republic and Slovakia are two of the fastest growing economies in the world, with Slovakia’s economy alone expected to grow by over 4.3 percent in 2019. Economic conditions in both countries continue to improve, with rising levels of GDP and foreign exchange. However, with this growth the two countries have seen a spike in money laundering and financial crime.

Thanks to the increasing complexity of modern technology – particularly financial technology – bad actors are now better equipped than ever to disguise their identities in an effort to commit nefarious activities undetected. This presents a growing problem for financial institutions and government agencies who are struggling to keep pace with the rise in fraudulent entities. Money launderers now employ such a vast array of methods to conceal laundered money, such as falsifying documents and misrepresenting financial transactions, resulting in instances of money laundering needing to be mitigated in both traditional and new emerging financial markets.

Both the Czech Republic and Slovakia are required by the EU’s Fifth Anti-Money Laundering Directive (5AMLD) to implement new provisions that eliminate loopholes and consider new technologies that promote transparency, while still placing the utmost importance on protecting personal data. 5AMLD also requires they adhere to international mandates, designed to prompt nations to re-examine their current anti-money laundering (AML) principles in the interest of not only adhering to the legislation but safeguarding their respective economies.

The Czech Republic is particularly vulnerable to money laundering activities due to its geographical location in the middle of Europe and the openness of its economy. As a result, the Czech Republic’s government continues to search for more effective and vigorous methods to fight the high level of financial fraud that the country continues to face. Moreover, the Czech Republic recently joined the United Nations Convention against Corruption (UNCAC) as well as the OECD Anti-Bribery Convention. This is a significant step towards the nation being recognised as a safer and more secure economy.

Meanwhile in Slovakia, the government plans to introduce new legislative measures to combat the rise in fraud and increase trust and transparency. This initiative preserves information that would require and facilitate the identification of ultimate beneficial owners (UBO). Under the act, all legal entities and special purpose asset organisations are required to register and maintain more thorough documentation on ultimate beneficiary owners. The UBO’s identification details must be recorded by a legal entity each year and for a period of five years after the termination of the UBO’s status, according to Cechova and Partners.

As the two economies continue to expand and develop their financial markets, implementing systems to help businesses automate their customer on-boarding process and comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is key to mitigating financial crime.

The ever-increasing risk of money laundering and fraudulent activities, coupled with the pressure on banks and businesses to comply with regulations, demonstrates the need to re-examine existing processes for dealing with these activities in the two nations. Developing a strategy backed by appropriate verification platforms is the catalyst for promoting greater transparency, identifying UBO’s in the financial sector and seamlessly complying with current European legislation.

This article first appeared on SCMagazineUK.