AML Guidance for Money Transfer Companies

Blog / AML Guidance for Money Transfer Companies

For years, people have been transferring money in different ways. Although many methods have been tried for transfer, these processes have become electronic with technological development. With the development of the telephone, fax, e-mail, and the internet, sending money has become much easier and faster. People now use online money transfer transactions rather than traditional money transfer methods. How can you be sure that your transaction is safe when transferring money with one click anywhere?

With such technological development, transaction infrastructures like money transfers are developing incredibly. Still, at the same time, criminals are developing the infrastructure of the methods they use to launder money for these transactions. Therefore, Money Transfer Companies should take more active steps to avoid money laundering and terrorist financing of transactions.

What Does Money Laundering Mean for Money Transfer Companies?

The money sent by the money transfer company should be sent securely over the internet; money laundering and terrorist financing should not occur, and this process should not be vulnerable to cyber-attacks. Some AML regulations by regulators to avoid these, and Money Transfer Companies must comply with regulations set by the respective countries to combat money laundering. If they fail to comply with these regulations, money transfer companies may be subject to sanctions by regulators. These sanctions can be fines or disciplinary penalties. In addition, Money Transfer Companies with money laundering and terrorist financing cause serious reputation losses.

Why does a Money Transfer Company Have a Risk of Money Laundering?

Money Transfer Companies use electronic funds transfer (EFT) or Remittance Transactions systems to send money. In the modern world, sending money internationally or abroad makes international payments very fast, developing this system. Thanks to the internet, data is exchanged instantly, and money is sent. However, there is a crucial point that should be considered on the other side. Money transfer companies are one of the riskiest institutions in money laundering and financing terrorism. Financial criminals use remittance companies to launder money and support terrorism, so why?

No matter how advanced the internet is, there is always a security problem, which means it can be hacked, and money laundering and terrorist financing can occur through the transactions performed by customers. Transaction Laundering (Electronic Money Laundering) is popular these days, and therefore, Money Transfer Companies have become a potential target for financial criminals.

transaction laundering's role in facilitating illicit activities, and the preventive measures businesses can implement

Hawala Remittance System and Money Laundering

Some alternative remittance systems have been operating for years, and most countries are legal and legitimate; Hawala is an example. Hawala remittance systems, also called alternative remittance systems by Financial Action Task Force (FATF), are unofficial banking regulations that allow the transfer of funds at home and abroad. Hawale, a cheap, fast, and reliable money transfer system, is primarily used by immigrant workers who send money to their families abroad. Alternative referral systems such as Hawale are of great interest to law enforcement and AML regulators because of the risks associated with their abuse, such as money laundering from transactions. Concerns are growing about the potential role of regulators in money laundering through transactions such as Hawale, so they are working more frequently on this issue.

AML Compliance Program of Money Transfer Company

Money Transfer Companies should establish systems for detecting and reporting suspicious activities and ensuring the continuity of these systems. Otherwise, they may face heavy fines. There are legal Anti Money Laundering Compliance Programs for criminal liability or company management. AML Compliance Program covers every activity of companies at risk of financial crime in combating financial crime and compliance processes. FATF and the European Union announced the measures organizations should take with various guidelines and reports each semester. Money Transfer Companies must also follow this published guide. Money Transfer Companies should develop and monitor compliance programs, provide personnel training, make recommendations regarding money laundering risks, and assess the risks in transactions.

Risk Assessment in the Money Transfer Company

This article mentioned the money laundering and terrorist financing risks of Money Transfer companies. Generally, Money Transfer Companies should conduct a risk assessment to help them identify the nature and extent of AML/CFT resources needed to reduce and manage this risk. Risky transactions should always be properly documented and regularly updated when assessing risk. The risk assessment should be commensurate with the nature and complexity of the company, the type of products and services offered, the conditions of the proposed transactions, and the characteristics of the customers.

Money Transfer Companies should also consult various sources of information to identify and manage these risks. The main purpose is to consider typologies, guidance, risk indicators, red flags, and recommendations published by FATF. As a result, after the risk assessments are made considering these, the money laundering rate may decrease or even be prevented completely.

procedure that helps companies understand what conditions increase the chances of a customer's involvement in financial crime

Risk-Approach in Money Transfer Company

Money Transfer Companies are expected to identify, use, and understand the ML/TF risks exposed. Money Transfer Companies should carry out risk assessments to reduce financial crime in their companies, and the most needed application when performing this risk assessment is the Risk-Based Approach. When evaluating ML/TF risk, Money Transfer Companies should analyze how the ML/TF risks they identify affect them and take appropriate measures to reduce them. Therefore, risk assessment provides the basis for the risk-based implementation of AML/CFT measures.

When making the Money Transfer Companies Risk-Based Appr, it performs Customer Due Diligence and determines customer procedures to determine the customer risk level. Some of the most used methods to assess customer risk levels are a PEP and adverse media scanning. After these checks, the risk profile of the customer is determined.

KYC Requirements for Money Transfer Company

Getting to Know Your Customer (KYC) is done by Money Transfer Companies to verify their customers' identity before or during the opening of an account. KYC procedures are extensive, and these procedures are essential globally. The FATF's recommendations also emphasize the necessity of the Know Your Client rule because these procedures are an essential step to preventing illegal financial transactions. With KYC, Money Transfer Companies allow protecting their companies in the face of a possible financial crime in their business dealings or transactions made by their customers. A number of checks to be applied in opening customer accounts in accordance with legal requirements in KYC are as follows; Gathering customer information and checking its accuracy, conducting Customer Due Diligence, and Enhanced Due Diligence if necessary, creating a control program suitable for the customer's risk level.

The Requirement of CDD in Money Transfer Companies

The Customer Due Diligence (CDD) process is used in Money Transfer Companies in ML/TF risk assessment processes. CDD processes should be designed to meet FATF standards and national legal requirements. Money Transfer Companies recognize their customers with CDD and reduce their risks. CDD includes identifying the client's stakeholder and verifying the client's identity on a risk basis based on reliable and independent information, data, or documentation as required by the applicable legal and regulatory framework. It is very important to apply the CDD process in new business relationships. After checking the person you will establish a business relationship with, you should start the business relationship. Also, CDD checks should be carried out in case of suspicious transactions a result. As a result, you eliminate these potential risks and prevent the money laundering risks that may occur. Enhanced Due Diligence should be done for much more risky customers.

Transaction Monitoring in Money Transfer Companies

Transaction Monitoring, one of the best methods of combating financial crimes, is an important and necessary application for Money Transfer Companies. Just like CDD, Transaction Monitoring emphasizes the importance of FATF reports and suggestions. Furthermore, transaction Monitoring is software that helps instantly monitor customer transactions. Thus, Money Transfer Companies can instantly control billions of transactions by automating the transaction tracking process. Transaction monitoring software generates an alarm for any risky situation that triggers the rules during customer transactions.

When the software generates an alarm, the process is automatically stopped, and the process is reviewed in detail by the Firm's Compliance or Risk Department. After this review, the Suspicious Activity Report (SAR) should be created for the officers' at-risk transactions, and this report should be submitted to the necessary institutions. With the threat of money laundering, Money Transfer Companies can reduce these risks with this software Transaction Monitoring and protect their companies against money laundering and terrorist financing. It also complies with the AML Compliance Program and is exempt from penalties that may occur.

How does Sanction Scanner Help Money Transfer Companies?

Sanction Scanner provides technology-compatible Money Laundering solutions to strengthen Money Transfer Companies' AML compliance processes. You can control your customers with PEP and Adverse Media data. Sanction Scanner makes your AML queries automatically. Sanction Scanner checks for updated Sanction and PEP lists at fifteen-minute intervals. The Sanctions Scanner's listings comply with all regional sanctions, CTF, and Anti-Money Laundering requirements. With our AML Screening, Transaction Screening, Transaction Monitoring, and Adverse Media Screening, you can easily adapt to the AML Compliance Program. 

Sanction Scanner Request Demo

You Might Also Like