ComplyAdvantage: Why the New EU Money Laundering Rules Won’t Work

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Just this week, an updated Anti-Money Laundering Directive, known
as the 6AMLD, has now come into effect around the world, which
means that any organisations operating within the EU now need to
comply with the new rules. The updated AMLD is designed to better
counter cybercrime and the financing of terrorism, however, not
everyone believes that the new directive goes far enough.

Here, Charles Delingpole, the founder and CEO
of London-based RegTech ComplyAdvantage, which
helps businesses around the world detect and counter financial
crime, explains why he think the latest ruling simply won’t
work.

Regulators’ appetite to toughentheir systems has been
sharpened by the series of recent money laundering scandals
including the likes of Danske Bank and more recently
the finCEN leaks
.

This time around, the key changes include a unified list of
predicate offences; additional money laundering offences of aiding
and abetting, inciting and attempting; the extension of criminal
liability to legal persons; increased international cooperation;
and tougher punishments.

Advances in Artificial Intelligence and Machine Learning have
pushed Adverse Media Screening (AMS) to new levels of
effectiveness. AMS is now a money launderer’s worst nightmare, as
it enables banks and big businesses to identify a much wider range
of potential bad actors.

However, the AML regulatory framework is out of date, as it was
written before technology leapt forward. At present, Adverse Media
Screening is not mandatory. Current regulations only require
financial institutions to run Sanctions and Politically Exposed
Persons (PEPs) checks. This is manifestly insufficient as the risk
landscape continues to evolve — this is particularly pronounced
with Covid and Brexit in mind.

If AMS screening became a mandatory regulatory requirement,
banks and financial institutions would gather a much higher volume
of valuable data as standard, and therefore defences against money
laundering would be stronger across the board.

And why does this matter? Because money laundering is almost
always linked to the most wicked and nefarious of activities:
people trafficking, illegal animal exports, sex crimes, the drug
trade and more. It is time to alter the legislation and to make AMS
a mandatory requirement. Especially because:

The regulatory bar is set too low

Anti-Money Laundering regulations require financial institutions
to run Sanctions and Politically Exposed Persons (PEPs) checks on
clients – but this only captures a tiny proportion of potential
risk and can’t measure ongoing changes. This is manifestly
insufficient as the risk landscape continues to evolve,
post-Covid.

For example, there are only 27,000 names on the
global Sanctions list – at the PEP level, the number rises to a
few million names. Sanctions and PEPs checks can only detect a tiny
fraction of the potential risk facing business.

What checks are conducted are done from a very
limited perspective. Money laundering is almost always linked to
nefarious activities of other kinds: people trafficking, illegal
animal exports, sex crimes, the drug trade and more. However, these
behaviours wouldn’t necessarily land a person on a Sanctions or
PEP list but still pose a risk to business.

Technology is a money launder’s worst
nightmare

The latest Adverse Media Screening (AMS) technology is the most
effective tool to detect money laundering as it allows businesses
to identify a much wider range of potential bad actors. Despite
delivering clear benefits, AMS is barely being used due to a number
of reasons:

  • it’s not a regulatory requirement
  • businesses typically look for the path of least resistance. If
    there’s a perception that AMS is a blocker to growth, they’re
    reluctant to add more time and expense for measures that aren’t
    strictly required by law
  • until recently, AMS hasn’t shone. Old AMS systems are
    keyword-based and create too many false positives, making the
    compliance system unmanageable. For example, an article about a
    footballer ‘terrorising’ the defences of the opposite team
    might show up

AML regulation is badly out of date

Time has moved on and the AML regulatory framework is
badly out of date. It was written at a time before the advances in
Artificial Intelligence and Machine Learning technology that the
global economy has enthusiastically embraced.

If banks and financial institutions were forced to update their
AMS systems, they’d be able to harvest a much higher volume of
valuable data and make their money-laundering defences
substantially more robust. They’ve been able to accurately search
the farthest corners of the internet and glean information on
people who enjoyed undetectable ties to money laundering.

There are better ways to prevent financial
crime

Regulators must take a more modern approach and
force companies to use the latest Artificial Intelligence and
Machine Learning-based tools to make their process more efficient
and robust. Mandatory AMS screening needs to be introduced at
onboarding – it’s the only way to prevent financial crime,
protect consumers and help businesses safely scale.
While it’s become a standard procedure at some banks and
big financial institutions – primarily because their auditors
have insisted they do so – the majority of other financial
institutions view it as an optional extra, much to the enjoyment of
money launderers.

The post
ComplyAdvantage: Why the New EU Money Laundering Rules Won’t
Work
appeared first on The Fintech Times.

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