Globally, there is an increased focus on anti-money laundering (AML), and countering the financing of terrorism (CFT) continues to progress and has grown significantly in extent and complexity – just as illegal actors persist to discover new and innovative approaches to laundering their illegal activities. Furthermore, regulatory agencies are strictly reinforcing restrictions, extending their reach, and imposing new compliance regulations on companies.
Despite challenges by authorities to detect and prosecute money laundering, the crime continues to plague worldwide economies, with an estimated 5% of GDP, or $2 trillion, laundered each year. Furthermore, asset management has become increasingly virtual, allowing money launderers to adjust their tactics accordingly. As a result, regulatory agencies and the financial services sector as a whole are under increased pressure to ensure their AML controls are robust enough to cope with complex and developing money laundering typologies.
As per reports from both the private sector and US government agencies, money launderers' ability to conceal illicit behavior and the impact this has on the global financial system remains a major concern. Regarding money laundering threats, the government has prioritized innovation in the virtual asset market. While the rapid speed of development and innovation poses issues in determining how to integrate innovative financial products and payment supports into current regulatory and compliance frameworks, innovation also provides opportunities in terms of compliance.
This growth has put pressure on regulatory agencies, as well as the financial services sector as a whole, to ensure that their AML systems and controls are robust enough to cope with the new products and the complex money laundering that follows.
Recent efforts by AML agencies throughout the world demonstrate that their attention is increasingly focused on virtual assets and cryptocurrencies, in addition to more classic money laundering trends that are still being closely evaluated. The private sector is under constant pressure to do more to prevent financial crime. And, as the market changes, so do regulatory expectations about what constitutes effective and significant financial crime compliance. Most importantly, companies must be aware of what their competitors are doing in terms of compliance given that market norms unavoidably determine regulatory expectations.
The US permitted several major pieces of legislation, including the Anti-Money Laundering Act of 2020 and the Corporate Transparency Act, to enhance and modernize the US AML and CTF legal framework. Several key components of these pieces of legislation have yet to be completely implemented.
In addition, US agencies have also made further steps to raise compliance standards such as the New York State Department of Financial Services (NYDFS) has issued recommendations on the use of blockchain analytics tools to improve know your customer (KYC) and transaction monitoring capabilities in the virtual asset industry. Similarly, the US Treasury Department's Financial Crimes Enforcement Network (FinCEN) has published recommendations about the money laundering risks posed by public corruption, as well as possible sanctions evasion issues.
In the United Kingdom, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have carried strong and decisive action to prevent money laundering. The Legislation Commission has issued a discussion paper in which it seeks input on whether and how corporate criminal liability law should be amended. The Law Commission has petitioned criticism of a new corporate failure to prevent money laundering offenses as part of that document. All of this indicates increased enforcement actions at all levels to prevent money laundering.
On the legal front, the EU has made some important recent advancements in AML. Last year, the EU published an AML and CTF legislative package that included four legislative texts aimed at agreeing on EU AML regulations. The formation of a new AML/CTF organization, greater customer due diligence (CDD), a beneficial ownership register, improved coordination between financial intelligence units (FIUs), and tracking crypto asset movements are all addressed.
The AML legal and regulatory landscape is becoming increasingly complicated and dynamic. Creating a devoted sector in a firm to integrate information and stay up to date on various global standards, to develop a regulatory map to apply the highest compliance requirements throughout the world, is, therefore, an important first step.
Additionally, companies are encouraged to take the initiative by inventing their AML solutions rather than waiting for specific approvals. Indeed, quicker, more automated technical techniques of identifying suspicious activity, based on artificial intelligence (AI) and aimed at filling gaps in the current AML framework, are sure to be regarded as appropriate, especially if the solutions discovered are ahead of current market practices.
Moreover, companies must understand that competent authorities expect not only a qualitative but also a quantitative analysis, so they must implement key performance indicators (KPIs) to continuously monitor the evolution of their money laundering and terrorist financing risks and take appropriate measures.