AML/CTF trends, Developments and Enforcement Actions

COVID pressed the fast-forward button on digital transformation. In fact, the digital channel now carries the majority of all transactions. New devices transacting for the first time are up 24% over pre-COVID rates, according to volume seen on the LexisNexis® Digital Identity Network®. Yet many businesses are managing their Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) compliance risk the same way they have for years. They haven’t adjusted to the increased volume online and are hesitant to add AML/CTF security measures that could cause friction and negatively impact the digital customer experience. 

Digital transformation has created new risks

Financial criminals involved in fraud or AML/CTF activities are capitalizing on the COVID-induced acceleration to digital in a big way. They’re hiding behind these faceless transactions. By blending in with new, legitimate customers using devices that are transacting for the first time, criminals are able to mask their activities and avoid detection. 

Hacker attacks, security breaches and data breaches are all on the rise and becoming more costly. While much about digital transformation is positive, the negative activities coming along with it can’t be ignored. 

Enormous hidden risks lie in financial institutions and corporate sanctions programs as regulatory scrutiny, global penalties and sanctions violations have also greatly increased in the past year, and not just for banks. Many of the OFAC penalties for non-compliance in 2019 and 2020 were for non-bank corporations. E-commerce, technology and energy companies have become frequent targets of regulatory scrutiny and AML/CTF enforcement actions.

The long-term effect of COVID on transactions

Financial institutions and corporations have been challenged to step up financial crime compliance at a time when their workforce may be furloughed or working from home. COVID-19 protocols have negatively impacted the effectiveness and efficiency of key compliance activities including:

• Customer risk profiling
• Sanctions screening
• Know Your Customer (KYC) for account onboarding
• Efficient resolution of alerts

Compliance leaders predict that COVID’s impact on digital transformation will continue to be felt for at least the next one to two years and likely won’t ever return completely to pre-COVID levels. Organizations that planned to just “wait it out” are at risk if they don’t improve compliance. Furthermore, the changes that have occurred can’t be handled with increases in human resources. That approach is costly and unsustainable. 

Digital identity intelligence offers answers

A key element of effective AML/CTF compliance that can also address lost productivity, reduce manual tasks and prevent fraud, is digital identity intelligence. It offers an opportunity to proactively and more accurately identify hazards and can even give a competitive advantage to early adopters.

By harnessing digital identity intelligence related to devices, locations, identities and past behaviors, risk assessment can be fully reimagined. It can be used to:

• Reveal patterns, connections, transactions and devices to deliver insights
  
• Distinguish between trusted and potentially suspicious behavior in milliseconds
  
• Conduct a thorough analysis in near real time using automated workflows
  
• Perform the analysis simultaneously with fraud screening
  
• Operate behind the scenes without the user’s awareness  
  
• Unmask criminals without driving up false positives, increasing manual workloads or creating undue friction for good customers