May 19, 2024

Transaction Monitoring Process: Preventing Money Laundering

Transaction Monitoring Process

Money laundering is one of the massive challenges that the corporate world faces nowadays. It is obvious that the illegal transfer of funds is a heinous crime, and legal authorities want to fight it actively by introducing regulations that are more stringent. Last year, a document named Financial Crimes Enforcement Network (FinCEN) files came to the surface, which revealed fraud of around $2 trillion. In the modern world, Businesses must use innovative digital solutions such as transaction monitoring processes to fight money laundering and ensure compliance with international AML/KYC regulations.

Transaction Monitoring Process: A Quick Overview

The procedure facilitates financial institutions to check customers’ transactions to discourage fraudulent activities. Perpetrators use it for ongoing evaluations to detect money laundering in real-time, which examines the users’ records & financial data.

Understanding the Importance of Transaction Monitoring Process

Modern-day corporations must conduct customer due diligence to validate users’ data and strengthen business relationships. This is done by performing risk assessments and in-depth background checks. In this way, customer data gets verified during the onboarding process. KYC ID verification procedure validates the user credentials by evaluating government-issued records. KYC procedure checks the credibility of IDs and uses data for generating user profiles. This not only authenticates customer ID but also eliminates identity theft. 

The software also screens the data against AML watchlists & Politically Exposed Person (PEP) listicles given by international regulatory authorities. Experts can perform customer due diligence at the following events: 

Establishing New Business Relationships

During the onboarding process and connecting with a business partner, companies must ensure that the user is not a high-risk party & not providing fraudulent data. 

Performing Regular Transactions

CDD procedure also facilitates screening of regular transactions or whenever required. For instance, in order to detect when a client makes a transaction above the threshold limit, the customer due diligence process plays an important role. 

Identifying Suspicious Transactions

If there is suspicion of money laundering or other financial fraud about any onboarding client, businesses must execute customer due diligence checks. 

Screening False Documents

In case customers provide fake information or use fraudulent records, experts must use customer due diligence for in-depth evaluation. 

AML Risk-Based Approach

CDD procedure uses a Risk-Based Approach (RBA) to generate scoring and produce client profiles. Companies can examine AML risks of all customers and design their due diligence procedures accordingly. Several customers go through only a standard due diligence system, where document verification happens, and business partnerships get authenticated. In case of low risk, performing standard due diligence is enough, but in case of high-risk other procedures must be performed to ensure fraud prevention. 

Nowadays, money launderers exploit digital platforms and circumvent the verification protocols to avoid detection. A client might not be involved in money laundering, but later, customers can participate for their benefit. The traditional transaction monitoring process evaluates customer data and assigns low-risk through standard due diligence, only to find out that the client was involved in illegal transactions. In July 2021, British experts captured around $250 million of crypto-currency in an alleged money-laundering incident. In order to detect various cases of money laundering, perpetual & ongoing monitoring of transactions is essential. 

Using Transaction Monitoring Process To Monitor Client Activities

Financial institutions deal with thousands of transactions regularly, and manual processing is not enough. Financial firms must monitor the flow of all monetary transactions by utilizing automated digital solutions. AML transaction monitoring process has become a legal requirement for corporations to discourage money laundering. The system triggers an alarm in case of violations, and the compliance department gets notified, which helps professionals take necessary steps. The transaction monitoring process deals with false positives by examining customer profiles to distinguish between normal and fraudulent cases.

Currency Transaction Report 

Banks have an obligation to file a currency transaction report for all transactions going beyond $10,000. Banks do not tell customers about filing a Customer Transaction Report (CTR). In case customers refuse to make a change after getting a notification, experts must file a suspicious activity report immediately. The transaction monitoring process helps financial firms fight fraud and ensure compliance with the latest AML/KYC regulations to avoid fines and permanent bans. Forex market opening and closing times are based on the major stock market times, visit this page for more information.

Suspicious Activity Reporting (SAR)

In light of the Bank Secrecy Act & FATF 40 recommendations, financial firms must file SAR for all doubtful monetary transactions. Suspicious activities are all transactions that point towards money laundering or terrorism financing. SAR must happen when a transaction crosses a threshold or in case of high-worth offshore transfers & other abnormal activities. SAR facilitates governments to be familiar with modern money laundering strategies and introduce legislation to fight them.

Final Thoughts

Teaming up with a verified third-party vendor offers AI-driven AML services that evaluate users’ data against watchlists and validate business relationships. The innovative solution of the transaction monitoring process facilitates compliance with all international regulations to avoid fines.

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