Money laundering and modern slavery may not seem to have many clear connections at first glance. However, there is more than meets the eye on this topic.
In a recent post, RegTech firm PassFort discussed the dark connection between these two actions, what they both entail, how they are linked together and how financial institutions can prevent such things happening.
Modern slavery is associated with a variety of human rights abuses and crimes, including sexual exploitation, domestic slavery, unpaid and forced labour and people trafficking to name a few.
According to PassFort, modern slavery and money laundering are essentially linked because the money criminals and illicit firms make from modern slavery need to be ‘cleaned’ in order for it to enter the mainstream economy. Many of the crimes associated with modern slavery are cash based, which means a range of money laundering tactics are required to process this cash to try to make it legitimate.
Furthermore, as money is at the root of modern slavery, this means financial institutions have an imperative role to play in its prevention by way of AML strategies and compliance with AML regulations.
PassFort said, “A financial institution’s role in AML could be anything from a process of robust KYC checks before onboarding an individual or corporate customer and allowing them to transact through the business to ongoing risk monitoring that looks at ultimate business owners (UBOs), unexplained wealth, and unusual transactions.”
AML procedures, the firm stressed, are a financial institution’s ‘legal and moral obligation’ and are vital in the aim of stopping modern slavery. Many financial institutions implement AML policies and procedures that consider how their firms could be used to launder funds and how they plan to control and mitigate that risk – which spans the whole customer lifecycle from due diligence at onboarding to ongoing risk monitoring.
The AML policy that is chosen by a financial institution will also influence the series of KYC checks that is used to prevent criminals being onboarded and also ensures suspicious or criminal activity is identified and reported to the relevant authorities.
PassFort also underlined perpetual KYC as ‘another important tool in the AML armoury’, due to the fact that duties and responsibilities do not begin and end at customer onboarding. By having the right solution in place, any change in the profile or risk status of a customer can mean their account is being sued to launder funds and can be flagged, reported and investigated.
PassFort added, “Employee training is a big factor in the fight against money laundering and therefore modern slavery by association. Firms can put controls and automated AML procedures in place, but it’s often the people in the business who spot new and suspicious scenarios. They are the ones who can report unusual activity on accounts or flag clients who might have been highlighted in a monitoring system as suspicious.”
To read the full post, click here.
