Understanding and mitigating money laundering and terrorism financing risks in your firm


Australian RegTech firm Arctic Intelligence recently provided a guide to understanding and mitigating money laundering and terrorism financing risks.

Money laundering and terrorism financing (ML/TF) represent a significant threat to businesses, economies, and societies around the globe. These criminal activities can have severe consequences, from damaging reputation and media exposure, to regulatory fines, and even customer distrust. Any organisation, from financial institutions to gaming industries, may become a tool for criminal networks to clean the proceeds of their crimes, therefore, it is vital to be aware of these risks and have strategies in place to mitigate them.

Understanding ML/TF’s potential impact is critical. Regulations like Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) not only fight against these activities, but also help businesses gain better insight into their customers and bolster their defenses against criminal abuse. Ensuring compliance with these laws while causing minimal disruption to business operations is a challenge, particularly for companies operating globally with multiple lines of business, products, services, and channels.

This guide aims to provide essential insights and strategies to assess and mitigate these risks. Proactively aligning your business practices with robust AML/CTF frameworks will protect your business’s reputation, guard against financial losses, and fulfil regulatory obligations.

Money laundering is the process of making illegitimate money appear legal, concealing its illegal origins and ownership. This supports various criminal actions worldwide such as corruption, trafficking, fraud, and more. On the other hand, terrorism financing, although harder to detect due to its often legitimate sources, involves using funds to finance terrorist activities. By hindering the financial flows associated with money laundering and terrorism financing, we can effectively combat global criminal and terrorist activities.

Impressive figures emphasise the scale of money laundering on a global level. Criminals launder between $800m and $2tn each year, and in 2020 alone, global banks were fined $10.4bn in money-laundering violations. The costs of money laundering schemes account for 2%-5% of the world’s total GDP. Despite the imprisonment of over 90% of money laundering offenders, 90% of these crimes remain undetected and only 1% of criminal proceeds are ever recovered.

To effectively counter money laundering and terrorism financing, it’s essential to understand the specific risks within your industry or region. Laws and regulations are constantly evolving, particularly as criminals adopt more advanced technology and techniques. Therefore, businesses should familiarise themselves with the latest laws and regulations relevant to their region or industry, ensuring compliance and adherence to required protocols and reporting deadlines. Arctic Intelligence CEO Anthony Quinn emphasised the importance of identifying and addressing money laundering risks, stating, “Failing to do so can not only damage your reputation but lead to regulatory sanctions, all of which can harm your long-term reputation and bottom-line.”

In assessing your business’s risk level, an enterprise-wide ML/TF risk assessment can identify areas of your business most vulnerable to money laundering and terrorism financing. This involves evaluating your business operations, jurisdiction, product/service features, and customer base. It’s also crucial to perform Know Your Customer (KYC) checks, implement internal controls, cooperate with authorities, monitor and report suspicious activities, and stay updated and adaptable in response to technological advancements and changes in laws, regulations, and industry best practices. With a robust financial crime risk assessment, you can identify and manage your financial crime risks effectively.

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