Is AML Worth the Investment?

Technology can help prevent losses as well as fines from regulators.

As any business that is required to implement anti-money laundering (AML) and Know Your Customer (KYC) initiatives knows, those processes can be complicated, lengthy, and expensive. They suck up a large proportion of resources without necessarily providing full protection from government fines.

These challenges have been exacerbated by the pandemic and the demands of remote work.

Yet, it is important to remember that AML checks, in addition to being required in many circumstances by law, help protect businesses, not just from fraud but also from being unwittingly complicit in illegal activity.

But if there is no question that it is worth it for businesses to invest in robust AML tools and practices, which tools are capable of providing the most accurate, comprehensive checks?

For some, there is still no more reliable method than checking someone’s documents in person. It has, however, become almost distressingly easy to obtain everything from falsified bank statements and pay stubs to bogus driver’s licenses and tax returns.

As the Federal Trade Commission itself notes, there’s “no fool-proof way for prospective employers, retailers, landlords, etc., to spot fraudulent financial forms.” This is why it is foolish to think that relying on manual checks alone is reliable enough to prevent fraud and identify potential money laundering.

The pandemic has also highlighted the inefficiencies involved in these manual checks. Once compliance departments for financial institutions were forced to operate remotely, they began experiencing significant difficulties when attempting to conduct many key activities.

For example, some 91% of these departments said that there had been a negative impact on customer risk profiling as a result of Covid-19, while 78% reported a negative impact on their KYC protocols when onboarding new accounts. At the same time, while compliance costs went up, 68% of those increased expenses were spent on technological resources.

The Law’s Demands

It is clear, then, that the future of AML lies in technology. In particular, automation offers many benefits to institutions, both large and small, that are struggling to cope with the demands that the law places on them.

For one thing, as money launderers become more adept at using technology to hide their tracks, compliance departments that rely on manual checks have to implement additional processes and hire more personnel to respond adequately to these new challenges.

In the long term, this is not sustainable for any organization, no matter the size. This is why it is necessary to implement automation wherever possible, both to reduce the stress on existing staff and to keep costs down.

Automated checks can be done in a matter of minutes, making them much more cost-effective when compared to manual checks. It’s not hard to see why. For manual checks to be carried out effectively, employees must cross-check information among more than a thousand different sanctions lists.

Moreover, they must constantly monitor clients’ records in case of any changes in sanctions. For small businesses, the amount of labor required to do this—even for a single customer—is practically prohibitive, and leaves companies vulnerable.

For smaller organizations that lack the budget to hire employees dedicated to AML and KYC activities, adopting automated AML tools allows them to remain compliant and avoid heavy fines.

Additionally, given that automated checks can return results in a matter of seconds, businesses can reduce friction and onboard new clients more quickly. This enables them to continue their work with minimal disruption—and focus on providing services instead of filling out paperwork.

An Easy Target

So, is AML worth the investment? Some might say that it would be worth it no matter what, given the penalties at stake for non-compliance. But there are, frankly, plenty of companies out there that engage in minimal or no AML practices, either because they feel it’s not worth the cost or because they believe it’s not necessary for their business.

Unfortunately, regardless of what industry you’re in, there will always be fraudsters looking to take advantage of an easy target. Having an automated system that can conduct background checks, verify a client’s identity and perform ongoing sanctions screenings gives companies peace of mind while doing the difficult work for them.

Additionally, the Anti-Money Laundering Act passed in 2020 has the potential to significantly change compliance-related processes for businesses as well.

And, on Jan. 1, 2021, Congress passed the National Defense Authorization Act (NDAA) for fiscal year 2021. NDAA includes the most substantial and sweeping legislative reforms to U.S. anti-money laundering (AML) and counter-terrorism financing (CFT) laws since the USA Patriot Act of 2001.

The NDAA introduces AML/CFT amendments and enhancements under the Anti-Money Laundering Act of 2020 (AMLA). U.S. regulators will be focused on prevention, detection, and prosecution of violations, which will require financial institutions to be more prepared to collect, verify, and defend their processes.

Not only will the new AMLA legislation make it more beneficial to automate wherever possible, part of the act will focus on “encouraging and supporting” innovation and “reducing obstacles” to technological innovation. This is sure to increase technology advancements for the entire industry.

The Tech Imperative

Now is the time to move forward from outdated processes and create efficiency where you can to be prepared for the guaranteed change the AMLA will bring over the long term.

AML compliance is not something that most companies get excited about, but that doesn’t mean it isn’t important. As technology advances, money launderers and fraudsters develop ever more sophisticated methods of moving their assets around—outpacing, sadly, the technological advances in tracking such movements.

This is why it is imperative that businesses take every measure they can to stop this from happening. In the end, it will greatly benefit every aspect of the business, from onboarding to customer service to compliance.