On The Job Project Report

On
AML / KYC & Transaction
Monitoring Process
Prepared by: Mayank Narang

(MBA Executive)

Under the supervision of Prof.

Dr. Manisha Goel

Department of Management Studies

J.C Bose University of Science & Technology,YMCA, Faridabad

(A Haryana State Govt. University)

 Undertaking

I declare that the work presented in this project titled “AML /

KYC & Transaction Monitoring Process” submitted to the
Department of Management studies, J.C Bose University of
Science & Technology, YMCA, Faridabad, as a project work for
Community Development in MBA (Executive) Program is my
original work.

12 December, 2022
Faridabad

Submitted By :- Submitted To :-
Mayank Narang Dr. Manisha Goel
(MBA Executive Programme)
Roll No: 21001704010
 Acknowledgement

I would like to thank my supervisor Prof. Dr. Manisha Goel,

Department of Management studies, J.C Bose university of
Science & Technology, YMCA, Faridabad, for her continuous
encouragement, invaluable suggestions throughout this project
work; she guided us at each stage of this project work. Without
her consistent & illuminating instructions, this work could not
reach its present form. I owe my special gratitude for her timely
help at every stage of the research work in spite of her
multifarious duties and busy schedule. I also thank her for the
tremendous patience and understanding shown during the
supervision for this work.
AML RightSource

Financial Crime Compliance Experts

AMLRS are the leading professional services firm specializing solely in solutions
for AML/BSA and financial crimes compliance needs. Our experience, knowledge,
and infrastructure allow us to serve clients of all sizes and type. By working
remotely we are able to reduce costs and minimize disruption for clients during
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secure facilities located in Ohio, Arizona, New York, and Ontario. Our flexible
team takes the time to learn and follow your processes, work in your systems, and
meet your deadlines.

Benefits Of Using AML RightSource

We are:

 More cost-effective than other firms or adding in-house staff

 Higher productivity and no employee downtime
 Flexible staffing model based on your shifting needs
 Easy to implement, working offsite and within your existing systems
When We Can Help
AML RightSource assists clients of all sizes, nationwide. Experiencing any of the
following challenges? We’re here to help.

 Backlog accumulation
 Regulator scheduling and support
 High employee turnover ratio
 When talent sourcing is difficult or not cost effective
 Performing a thorough lookback

Sisters Companies Of AMLRS/ Expansion Of AMLRS

1. AMLRS Quanta Verse

AML RightSource (“AMLRS”), the leading outsourced provider of Anti-Money

Laundering (“AML”), Know Your Customer (“KYC”), and Bank Secrecy Act
(“BSA”) compliance solutions, is pleased to announce that it has acquired
QuantaVerse, Inc.
Founded in 2014, QuantaVerse uses advanced data science to automate and
improve financial crime identification, alert investigations, and the documentation
of investigation results. The QuantaVerse Financial Crime Platform reduces
financial crime risk by identifying patterns and discerning anomalies that are
regularly missed, increases efficiency by reducing false positives while speeding
investigations, and lowers operational risks by delivering consistent, accurate, high
quality results.
QuantaVerse is the leader of robotic process automation (RPA) and machine
learning solutions purpose-built for identifying financial crime. QuantaVerse
utilizes its validated and proven Financial Crime Platform to reduce financial crime
risk by identifying patterns and discerning anomalies that current approaches and
systems regularly miss. The QuantaVerse solutions have helped customers more
efficiently comply with AML, KYC, and FCPA (Foreign Corrupt Practices Act)
regulations. Most importantly, QuantaVerse is helping to rid organizations of
money laundering and other financial crime that support our greatest global ills –
the drug trade, human trafficking, terrorism, and political corruption.
“We could not be more excited to be joining forces with AML RightSource,”
shared David McLaughlin, Founder and Chief Executive Officer of QuantaVerse.
“Combining our technology solutions with AML RightSource’s global advisory
and managed services offerings, in an integrated deployment framework, will
enable customers to improve flexibility, scale, and regulatory compliance. The
strategy that’s been put in place by AML RightSource is going to drive a paradigm
shift in the industry.”
QuantaVerse uses robotic process automation (RPA) and machine learning to
automate financial crime identification and investigation, helping to rid
organizations of money laundering and other financial crime related to drug trade,
human trafficking, terrorism, and political corruption. QuantaVerse solutions have
helped clients more efficiently comply with AML, KYC, and FCPA (Foreign
Corrupt Practices Act) regulations.
“We are thrilled to have David and the QuantaVerse team join us in our mission to
fight financial crime and diversify our services for customers,” added Frank
Ewing, Chief Executive Officer at AML RightSource; “Adding QuantaVerse will
help us provide our clients improved ROI by eliminating noise and unproductive
reviews, through their nimble infrastructure which seamlessly integrates with in-
place systems. It also accelerates our strategy to offer more tech-enabled services
to support our clients.”
AML RightSource provides custom solutions to financial institutions, FinTechs,
money service businesses, and corporations using a blend of highly trained anti-
financial crime professionals, cutting edge technology tools, and industry leading
consultants. AMLRS is backed by Gridiron Capital, LLC (“Gridiron Capital”), a
leading investment firm focused on partnering with founders, entrepreneurs, and
management teams.
 2. AMLRS Blue Umbrella

AML RightSource (“AMLRS”), the leading firm focused on fighting financial

crime for our clients and the world, is pleased to announce that it has acquired Blue
Umbrella Limited (“Blue Umbrella”), increasing the breadth of compliance
services and technology solutions available to corporates and financial institutions.
Founded in 2009, Blue Umbrella offers third-party compliance technology and due
diligence services using custom automated workflows to corporate clients across a
range of industries, including technology, food and agriculture, life sciences, and
financial services. Blue Umbrella’s differentiated technology platform and 200
team members support clients across Asia, Latin America, Europe, and North
America.
Blue Umbrella provides due diligence research and innovative third-party
compliance technologies. Combining global research excellence with disruptive
RegTech SaaS solutions, Blue Umbrella serves multinational corporations and
mid-size companies working in technology, manufacturing, life sciences,
defense/aerospace, agriculture, energy, finance, and consumer goods, as well as
top-tier investment banks. With a global presence and local focus, Blue Umbrella
helps compliance teams increase automation and efficiency, reduce costs, and gain
critical understanding of their partners, vendors, and agents.
Allan Matheson, CEO of Blue Umbrella, stated, “We’re delighted to be joining
forces with AML RightSource to integrate our technology offerings and custom
due diligence processes into their suite of client-centered compliance solutions.
Together, we can provide end-to-end solutions to corporate and financial service
clients around the world, better supporting their compliance activities and efforts to
reinforce ethical corporate and individual behavior.”
Allan will continue to lead strategy for Blue Umbrella as Vice Chairman and
contribute to strategic initiatives across the AML RightSource group.
“We are very excited to bring Allan and the Blue Umbrella team onboard. Their
sophistication, innovation, and commitment to high-quality service sets them apart
in the compliance technology industry,” stated Frank Ewing, Chief Executive
Officer at AMLRS, “With our collective capabilities and footprint, we are now
able to address and support a broader range of our clients’ governance, risk and
compliance needs around the globe.”
AML RightSource is backed by Gridiron Capital, LLC (“Gridiron Capital”), a
leading investment firm focused on partnering with founders, entrepreneurs, and
management teams.

3. AML Arachnys Information

Services Limited

AML RightSource (“AMLRS” or the “Company”), the leading outsourced

provider of Anti-Money Laundering (“AML”), Know Your Customer (“KYC”),
and Bank Secrecy Act (“BSA”) compliance solutions, is pleased to announce it has
acquired Arachnys Information Services Limited (“Arachnys”).
Arachnys accelerates onboarding and monitoring by providing the best global
KYC and AML data. Enriched, intelligent data on customers enables straight-
through processing and means fewer customer touchpoints, less risk and quicker
revenue. Founded in 2010, Arachnys has helped some of the world’s biggest banks
avoid regulatory fines and remediation costs while significantly improving
operational efficiency.
Arachnys, an innovative RegTech platform based in the United Kingdom, provides
enriched, intelligent KYC and AML data and software solutions to accelerate
customer onboarding and monitoring for financial institutions and other high-risk
industries. Its platform and suite of APIs support KYC and onboarding, AML and
investigations, Enhanced Due Diligence (“EDD”), adverse media monitoring,
Third-Party Due Diligence (“3PDD”), and other critical anti-financial crimes
(“AFC”) processes.
“It’s an exciting time to join AML RightSource and we look forward to adding our
technology and expertise to an industry-leading and rapidly growing organization,”
said David Buxton, CEO and Founder of Arachnys, who will continue leading
Arachnys and will join AMLRS as Chief Product Officer. “Together, we can offer
a wider and more sophisticated range of scalable, KYC and anti-financial crimes
compliance solutions, helping our customers reduce the friction of onboarding,
monitoring, and AML investigations.”
Arachnys offers a technology platform that is powered by unparalleled data
coverage. The platform employs machine learning to normalize and enrich entity
profiles, automate manual tasks, and provide screening at scale. Arachnys’ global
customer base includes financial institutions, asset and wealth management firms,
FinTechs, insurance providers, pharmaceutical manufacturers, oil and gas
companies, and commercial real estate firms.
“We are delighted to be joining forces with David and his team to expand our
capabilities and geographic footprint,” Frank Ewing, Chief Executive Officer at
AML RightSource, added, “Arachnys has developed a differentiated suite of data
and software solutions that, combined with our proven delivery model, will allow
us to better arm our clients with the tools and technology needed to fight financial
crime.”
AML RightSource is backed by Gridiron Capital, LLC (“Gridiron Capital”), a
leading investment firm focused on partnering with founders, entrepreneurs, and
management teams.

4. AMLRS Passcon GmbH

AML RightSource (“AMLRS”), the leading outsourced provider of Anti-Money
Laundering (“AML”), Know Your Customer (“KYC”), and Bank Secrecy Act
(“BSA”) compliance solutions, is pleased to announce that it has acquired Passcon
GmbH (“Passcon”).
Passcon, founded in 2016 and based in Hamburg, Germany, offers managed
services, advisory, and technology solutions across the anti-financial crime
(“AFC”) spectrum, including KYC, transaction monitoring, sanctions, and
investigations. Passcon provides operational and advisory coverage worldwide,
with 300 team members and more than 10 offices across EMEA, APAC, and North
America.
Gridiron Capital is an investment firm focused on partnering with founders,
entrepreneurs, and management teams, and creating value by building middle-
market companies into industry-leaders in branded consumer, B2B and B2C
services, and niche industrial segments in the United States and Canada. We help
transform growing companies by winning together through hard work, partnerships
grounded in shared values and a unique culture that comes from hands-on
experience building and running businesses. As a team led by former operators and
entrepreneurs, we know what it takes to run successful businesses on a day-to-day
basis.
Corinna Reibchen, Founder and Managing Director of Passcon, stated, “We
couldn’t be more excited to be joining forces with AML RightSource to provide a
comprehensive suite of compliance solutions on a global scale. Together, we can
better support our clients around the world in the fight against financial crime.”
As Managing Director of AML RightSource, Corinna will continue focusing on
international sales and operations, leveraging over 20 years of experience in
financial services and AFC consulting.
“We are thrilled to bring Corinna and the entire Passcon team onboard to further
expand our footprint and enhance our international delivery capabilities,” stated
Frank Ewing, Chief Executive Officer at AML RightSource, “Following the recent
acquisition of Arachnys, this combination will allow us to provide a broader range
of cost-effective, tech-enabled services, cementing AML RightSource as the
leading provider of financial crimes compliance solutions around the globe.”
AML RightSource is backed by Gridiron Capital, LLC (“Gridiron Capital”), a
leading investment firm focused on partnering with founders, entrepreneurs, and
management teams.
Money Laundering

Money laundering is the illegal process of making large amounts of money

generated by criminal activity, such as drug trafficking or terrorist funding, appear
to have come from a legitimate source. The money from the criminal activity is
considered dirty, and the process “launders” it to make it look clean.

Money laundering is a serious financial crime that is employed by white-collar

and street-level criminals alike. Most financial companies today have anti-money-
laundering (AML) policies in place to detect and prevent this activity.

Process of Money Laundering

Money laundering is a three-step process, namely, placement, layering, and
integration.

Placement- At this stage, the money launderers inject the crime money into the
financial system. That is often done by depositing funds into a bank account
registered to an anonymous corporation or a professional middleman.

Layering- The money so injected by placement is moved or spread over various

transactions in different accounts of the same country and other countries where
anti-money laundering laws are not so stringent, thus, making it difficult to trace
the source.
Transactions like the purchase of tradable assets like expensive cars, artwork, and
real estate can also be included in layering the funds.
Integration- Such well-placed and well-layered money again enter the financial
system, obliterating the original association with crime and using such laundered
money as if it came from clean sources, thus defeating the law.
The criminal might then invest such clean money into a legal business claiming
payment by producing fake invoices or even start a bogus charity, placing
themselves on the board of directors with an exorbitant salary.

How is Money Laundering done?

The ways to launder money are always evolving as criminals have come up with
creative ways to launder their illicit funds. The most commonly used methods of
money laundering are-

Smurfing- Smurfing, also referred to as structuring, is when criminals break a

large number of funds into small chunks of cash, making multiple transactions and
spreading the amount to different accounts, thereby making it hard to detect the
origin.

Electronic money- There are many ways where criminals can acquire money,
whether by infusing malware, phishing, account hackers, or other vectors. Stored
value cards are often used to launder such illegal money by purchasing items from
that money.

Offshore Accounts- Individuals with unexplained excess credits place such

money into bank accounts of countries with less or no jurisdiction related to anti-
money laundering. The no disclosure policy in those tax haven countries makes the
criminals feel safe, defeating the law.

Money Mules- Cash smugglers who help carry the illegal cash across different
countries and deposit that cash in countries with less stringent tax laws are equally
liable as the money launderer is.

Crypto currencies- The newly inserted online transacting currency in the form
of crypto such as Bit coin and several others has increased the chances of money
laundering. Increasing amounts of OTC trade might result in the heavy transfer of
funds between countries. The lack of strict KYC norms in some crypto currencies
has also acted as an invitation to money laundering.

Casinos- Money launderers buy chips from the casinos with their cash and later
get those chips exchanged with checks provided by the casinos, sometimes without
betting or gambling.

Prevention of Money Laundering

It is a huge step back for the governments as approximately US$800 billion to
US$2 trillion of the estimated amount is laundered globally every year.

Financial Action Task Force (FATF) was formed as an international committee in

1989 by the Group of Seven (G7) nations to fight money laundering
internationally.

The Bank Secrecy Act passed by the United States in 1970 asks financial
institutions to report suspicious transactions or cash transactions exceeding
$10,000 to the Department of the Treasury.
The USA Patriot Act assists in tracking money laundering by investigating and
preventing organized crimes and drug trafficking, which can also be helpful in
terrorist tracking.

Red Flags Of Money Laundering

One of the most important aspects of BSA/AML compliance is the responsibility it

places on regulated financial entities to report suspicious transactions. This
responsibility requires an organization to be able to monitor and identify
transactions, evaluate them in real time, and flag the ones that are suspicious. In
many cases, a Suspicious Activity Report (SAR) should be filed with the Financial
Crimes Enforcement Network (FinCEN).

Financial organizations need to build AML compliance systems that assist trained
employees to flag suspicious transactions as efficiently as possible. Internal
controls and procedures should have the means to recognize clues that a
transaction is potentially illegal, and ensure that employees know it. There are a
number of factors these controls would monitor, mostly concerning a customer’s
behavior.

1. Insufficient or Suspicious Information

BSA/AML compliance involves due diligence in the scrutiny of a customer. One
of the first clues something is wrong would be that the customer provides dubious
information. For examples:
  Documents that cannot be verified.
 Multiple tax ID numbers.
 Reluctance to provide detailed information about the business.
 Large cash transactions with no history of prior business experience.
 Shielding the identity of beneficial partners or owners.

2. Avoiding the Recordkeeping Requirements

AML compliance rules mandate recordkeeping and reporting. Customers that resist
complying with these requirements may be evading detection.

3. Inconsistent Business Activity

Financial institutions need to know what their customers do, first in order to assess
business risks, and second in order to assess money laundering risks. When a
customer initiates transactions that are outside the scope of routine or established
activity, the change may cover an illegal activity. For instance:

 Currency transactions change in number, type, or volume.

 Cash transactions are made that do not appear related to the customer’s
business needs.
 Transaction patterns for the customer are significantly different than those
for other similar businesses.

4. Changes in Transaction Patterns

Sudden unanticipated changes in a customer’s transaction pattern may justify a
closer look to see if illegal activity is possible. If these changes are unusual due to
the kind of business, or simply seem out of scope for the business type, employees
should investigate for suspicious activity. Simply using an unusual number of large
denomination bills in cash transactions in a way that diverges from normal activity
may be significant.

Some of these “red flags” are easier to spot by employees during the due diligence
research on a customer. Others, such as cash transactions patterns, might be built
into digital controls that can be set to alert employees. In either case, employees
and managers have to be trained to recognize potential risks, and put them under a
magnifying lens for a closer look. Submitting a SAR is not a legal action against a
customer—it is just prudent activity that helps the financial business stay in
compliance.

Why prevent money laundering?

Money laundering is a bane to society as a whole. It makes the rich richer and
thereby causing an imbalance in society. Legitimizing the proceeds of illegal
activities like drug trafficking, terrorism funding, people smuggling, etc., have a
tremendous social and economic cost on the society. Therefore, money laundering
should be combated.

Anti-Money Laundering

Anti money laundering (AML) refers to the web of laws, regulations, and
procedures aimed at uncovering efforts to disguise illicit funds as legitimate
income. Money laundering seeks to conceal crimes ranging from small-time tax
evasion and drug trafficking to public corruption and the financing of groups
designated as terrorist organizations.

AML legislation was a response to the growth of the financial industry, the lifting
of international capital controls and the growing ease of conducting complex
chains of financial transactions.

A high-level United Nations panel has estimated annual money laundering flows
at $1.6 trillion, accounting for 2.7% of global GDP in 2020.
Anti-Money Laundering History

Financial Action Task Force (FATF) was formed in Paris in July 1989 when a
group of countries came together to fight against money laundering. FATF has
been imposing regulations since then. FATF expanded its mission and started
imposing regulations to fight against terrorist financing after the 9/11 attacks.

Another important global institution in the fight against money laundering is

International Monetary Fund (IMF). Like the FATF, the IMF regulates and
compels 189 member states to comply with international standards to prevent
terrorist financing.

The European Union also released the first anti-money laundering Directive in
1990 to prevent the financial system's misuse of money laundering. The European
Union AML Directives are constantly being revised to reduce the risks associated
with money laundering and terrorist financing.

The UK AML laws are imposed by the Proceeds of Crime ACT 2002 (POCA).
Several organizations were established in the U.K. to prevent financial crime, like
NCA, SFO, FCA, HMT. Even though the U.K. has left the European Union, The
UK's laws and regulations comply with FATF recommendations and European
Union Anti-Money Laundering directives.

Office of Foreign Assets Control (OFAC) is a functional financial sanction

organization in the USA. OFAC develops programs to protect U.S. Foreign Policy
and national interests.
KYC (Know Your Consumer)

As its name suggests, Know Your Customer (KYC) implies the process of
validating a customer’s identification. It’s a subset of the larger term AML.

It is used by businesses to gather information about their clients and verify their
credentials. Clients wanting to use a company’s service must present their
identification documents. Likewise, it helps the organization to adequately evaluate
the risk involved with every client.

The 3 Components of KYC

1. Customer Identification Program (CIP) : As part of CIP in KYC procedure,

the ‘Personally Identifiable Information’ (PII) of customers is collected and
analyzed. Based on the verification’s goals, an institution can gather any PII
it wants. For the most part, this will consist of info like the customer’s entire
name, address, and birth date. In addition, the institution has the prerogative
to request any document from the listed list of OVDs for the same. As this
stage isn’t standardized, customers may discover it differs from bank to
bank.
2. Customer Due Diligence : As part of CDD, all of a customer’s credentials
are gathered to validate their identity and determine their level of risk
exposure. Simplified due diligence (SDD) and enhanced due diligence
(EDD) are two subcategories of CDD. Low-risk bank accounts, such as
standard bank accounts or low-value bank accounts, are suitable for SDD.
EDD is for people who might be involved in money laundering or terrorism
funding. Additional data collection is required if a consumer is deemed to be
a high risk. Information about a person’s location, occupation,
 property/asset, banking activities, and transaction kinds are all included in
EDD.
3. Continuous Monitoring: One-time security checks aren’t enough.
Continuous monitoring is the only way to assure that your customers are
safe to deal with. Understanding and monitoring a customer’s account
activity helps discover abnormalities and eliminate dangers.
A ‘Customer Profile’ outlines risk levels and transactional behaviour of any client.
Any suspicious behaviour will be flagged in the future by comparing transaction
data to this profile.

Customer Due Diligence

Customer due diligence is integral to the KYC process, for example by ensuring
the information a potential customer provides is accurate and legitimate. But it is
also a constant process extending to customers old and new, and their transactions.

Customer due diligence requires ongoing assessment of the risk of money

laundering posed by each client and the use of that risk-based approach to conduct
closer due diligence for those identified as higher non-compliance risks. That
includes identifying customers as they are added to sanctions and other AML lists.

According to the U.S. Treasury's Financial Crimes Enforcement Network, the four
core requirements of customer due diligence in the U.S. are:

 Identifying and verifying the customer's identity

  Identifying and verifying the identity of beneficial owners with a stake of
25% or more in a company opening an account
 Understanding the nature and purpose of customer relationships to develop
customer risk profiles
 Conducting ongoing monitoring to identify and report suspicious
transactions and update customer information

Customer due diligence seeks to detect money laundering strategies including

layering and structuring, also known as "smurfing"—the breaking up of large
money laundering transactions into smaller ones to evade reporting limits and
avoid scrutiny.

One rule in place to foil layering is the AML holding period, which requires
deposits to remain in an account for a minimum of five trading days before they
can be transferred elsewhere.

Financial institutions are required to develop and implement a written AML

compliance policy, which much be approved in writing by a member of senior
management and overseen by a designated AML compliance officer. These
programs must specify "risk-based procedures for conducting ongoing customer
due diligence" and conduct "ongoing monitoring to identify and report suspicious
transactions."
Transaction Monitoring

Transaction monitoring is the process of monitoring a customer’s transactions such

as transfers, deposits and withdrawals. A transaction monitoring system will seek
to identify suspicious behavior which could indicate money laundering or other
financial crime occurring.
Transactions that the monitoring system flag as suspicious need to be investigated
to determine whether the alert is a true hit or a false positive. True hits should be
filed as a suspicious transaction report (STR)* to alert law enforcement to
suspected cases of money laundering or terrorist financing. Ongoing transaction
monitoring is a regulatory requirement for the wide range of business sectors that
come under money laundering regulations.
What is the transaction monitoring process?
There are several ways a business can conduct AML transaction monitoring. The
chosen transaction monitoring process will depend on many factors and
considerations unique to the business, including:

 Sector, size, complexity and geographic reach

 Customer profile, including any intermediaries
 Corporate culture
 Associated operational risk
While money laundering regulators do not provide prescriptive guidance on the
transaction monitoring process, there are a number of considerations:
Transaction monitoring procedures: the risk-based approach
Regardless what of transaction monitoring process a business chooses to adopt,
regulators around the world expect to see a risk-based approach to AML activities
with enhanced due diligence for high risk customers. For transaction monitoring
this means adjusting the process according to the customer risk profile.
Financial Action Task Force (FATF) advises that financial institutions adjust the
extent and depth of their transaction monitoring in line with their institutional risk
assessment and individual customer risk profiles.
FATF also advises that ongoing transaction monitoring/customer due diligence
should be carried out on a continuous basis or triggered by specific transactions.
The Joint Money Laundering Steering Group (JMLSG) makes the case for when
simplified due diligence might apply, acknowledging that the frequency and
intensity of transaction monitoring may be reduced to carefully considered
thresholds when the risk is considered low.
In contrast, where the risk is greater, there is the case for enhanced due diligence
measures, such as increasing the frequency of reviews, in order to sufficiently
manage risk and gain further intelligence.
The risk-based approach was first introduced by the Third Money Laundering
Directive in 2005. It later became central to adopting the global FATF
Recommendations.
Transaction monitoring recommendations
There were several recommendations to achieve the most efficient and effective
detection of financial crime:

1. Adopt flexible rule building

Rules are integral to transaction monitoring but require ongoing work to be as
effective as they can be at detecting suspicious activity. For this reason, the
transaction monitoring system should provide independent, flexible rule-building
and testing. This will avoid a scenario of lengthy timescales, high operating costs,
ineffective monitoring and high levels of false positives.

2. Enhance rule-based transaction monitoring systems with AI

Transaction monitoring systems traditionally rely on rules to help detect
anomalous activity. For example, a rule may dictate that an alert is generated if a
customer spends over £10,000. While rules are important for detecting suspicious
activity, they can only detect what is already known about money laundering.
While traditional rule-based transaction monitoring processes are straightforward
to monitor and audit, they are not very effective or accurate because criminals are
constantly changing their tactics.
For this reason, transaction monitoring systems should be enhanced with artificial
intelligence (AI) that give greater insight and spot behavior and patterns that rules
cannot. This helps to reduce the incidence of false negatives.
While regulators do not require organizations to use AI for transaction monitoring,
AI is now widely recognized as relevant and important to fighting financial crime.
AI is able to look at all data and detect anomalous transactions that humans can’t.
Moreover, AI is able to detect the unknown unknowns, i.e. new patterns of
suspicious behavior that slip past the rules.
AI’s role in transaction monitoring is to enhance, not replace, a rule-based
approach.

3. Transaction monitoring should be streamlined and start with the

customer
A snapshot view of a customer’s transactions is often meaningless. To provide real
intelligence and insight, AML transaction monitoring must bring together disparate
sets of customer-related data to give a ‘single view of the customer’ across the
entire customer lifecycle.
End-to-end AML should be the aim. While this will look different for every
organization, the basic principles (which follow a successful customer onboarding
process) are the same:
End-to-end AML is the practice of implementing a fully connected compliance
infrastructure to seamlessly link the mandatory money laundering regulatory
requirements of client screening, transaction screening and transaction
monitoring.
Depending on the compliance maturity of the organization, this process can extend
into additional best practice activities, including customer activity
reviews, customer risk scoring and advanced AML intelligence insights.
An end-to-end approach to AML provides:

 A fully connected infrastructure for AML compliance, with just one

workflow and one system for all data, including customer attribute data
 A fully united client screening, payment screening and transaction
monitoring platform
 The infrastructure to further optimize AML compliance with best practice
capabilities, including the use of artificial intelligence
Why is transaction monitoring essential for AML regulatory
compliance?
Transaction monitoring is a mandatory process for any organization that falls
within the remit of the money laundering regulations. Transaction monitoring may
follow a simple, traditional rule-based approach or be enhanced with artificial
intelligence to detect unknown suspicious activity and equip analysts with vital
intelligence.
Effective transaction monitoring requires a fine combination of processes,
technology and human expertise to successfully separate innocent transactions
from the suspicious as criminals constantly evolve their methods of money
laundering.
Napier’s Intelligent Compliance platform is trusted by the world’s leading
financial institutions and is transforming compliance from legal obligation to
competitive edge. As a single unified platform, it integrates multiple compliance
solutions into one master dashboard:

 Transaction Monitoring
 Transaction Screening
 Client Screening
 Client Activity Review
 Risk-based Scorecard Review
*Suspicious transaction reports (STRs) is the term used in North America and by
FATF. In the UK these reports are known as suspicious activity reports (SARs)
while in Australia they are suspicious matter reports (SMRs).\
SAR (Suspicious Activity Report)

What Is The Suspicious Activity Report?

A suspicious Activity Report (SAR) is a tool to track suspicious activities that

would not be normally stated in other reports. For example, when money
laundering or fraud is suspected, financial institutions and those associated with
their business should apply to the Financial Crimes Enforcement Network
(FinCEN). These SARs are required under the Bank Secrecy Act(BSA) of 1970.
SARs alert law enforcement agencies to potential money laundering or terrorist
financing cases. SARs are an important source of intelligence not only in economic
crime but also in criminal activities. The overall purpose of SAR is to identify
illegal activities such as money laundering and terrorist financing, tax evasion, and
other financial fraud.

Although the report varies from country to country, monitoring any activity that
could threaten public security is often necessary. However, there is a suspicion that
the account holder is trying to hide something or take illegal action. The
Suspicious Activity Report is usually sent to the country's financial crime
enforcement agency to collect and analyze transactions and then report them to the
relevant law enforcement agencies. SAR file must be submitted no later than 30
calendar days from the date of the first identification of facts that may serve as the
basis for filing.

Suspicious Activity Report for Transaction Monitoring

Transaction Monitoring also has an important place for Suspicious Activity
Report. Transaction Monitoring responds to companies' AML (Anti-Money
Laundering), CFT (Counter-Financing of Terrorism), and KYC (Know Your
Customer) requirements. Transaction monitoring generates an alarm for suspicious
situations. When the software issues an alarm, the transaction is automatically
stopped, and the transaction is reviewed in detail by the Firm's Compliance or Risk
Department. At this point, if the SAR comes into play and detects crime in the
customer transaction, the suspicious transactions report to the AML, CFT, and
KYC regulators.

Suspicious Activity Report Process

Suspicious Activity Reports are a tool provided by the BSA of 1970. SARs allow
governments to identify and analyze trends and patterns that arise in a wide range
of personal and organized crime. With this information, they can predict and resist
fraudulent and criminal behavior before gaining a place. Even though most SARs
come from the financial sector, institutions such as law enforcement, public safety
workers, and business owners also submit a SAR. Federal law requires that a
financial institution and its managers, officers, employees, and agents reporting
suspicious or known criminal violations or suspicious activities not report to any
person reporting the transaction.

The following information sections are required to submit a SAR file:

 Information such as the names, passport numbers, birth dates, addresses,

social security numbers, and phone numbers of all parties related to the
suspicious event is collected.
 Dates of suspicious events that took place and documentation of suspicious
activity codes are required.
 Contact information is required for the financial institution and the
institution where the auspicious event took place.
  A written description of the suspicious event is developed.

Regulators of the Suspicious Activity Report

A suspicious Activity Report (SAR) is made by the financial institution that

observes suspicious activity in an account. The report is sent to The Financial
Crimes Enforcement Network (FinCEN), which is investigating the incident.
The financial institution can report within 30 days of any account activity they
deem suspicious or unusual, and a 60-day extension can be obtained to gather more
evidence as needed. Financial institutions should keep a copy of SAR for five
years. Failure to comply with any of these regulations may result in civil and
criminal penalties, including significant fines, legal restrictions, loss of banking
contracts, and even prison terms. Total monetary settlements collected by
regulatory agencies and law enforcement agencies for money laundering,
sanctions, and tax evasion.

Transaction Screening

Anti-Money Laundering (AML) rules may vary across jurisdictions but generally
require organizations to take prudent steps in detecting and reporting any
suspicious activity such as securities fraud and terrorist financing (some examples
include the U.S. Patriot Act and Bank Secrecy Act (BSA). A critical component of
an anti-money laundering program involves transaction screening.
While transaction monitoring refers to the process of observing customer
transactions in real-time or retroactively to spot trends and red flags, transaction
screening involves verifying customer identities and ongoing screening of their
transactions. The goal of transaction screening, like many parts of the Know Your
Customer (KYC) process, aims to stop financial crime in its tracks. The goal here
is to screen transactions to ensure that they are not being processed on behalf of a
restricted party, either sender or beneficiary, as well as other elements of a
transaction before it materializes into something worse.
What seems like a straightforward task is quite time-consuming. Firms create
internal systems or work with third-party vendors to screen large volumes of
transactions against encoded rules that may include available sanction lists or other
official lists. These screening environments, which form the foundation of
transaction screening, are frequently tuned to meet the latest challenges.

Elements of transaction screening

One of the most effective ways to do that is to screen, monitor and analyze as
much information as possible. Making informed decisions from a large volume of
data can help keep both criminals and regulators at bay.

Effective transaction screening systems also help accelerate the remediation

process. Having every transaction in one centralized location gives firms more
control in reviewing activity, managing alerts, and meeting regulatory
requirements.

Challenges of transaction screening

Challenges in transaction screening include: keeping up to date with regulatory
changes, misconfigured systems due to multiple data source entry points, false
positives and ongoing maintenance to address increasingly sophisticated methods
criminals use to avoid detection. Further information on these challenges is
included below:
 Changing regulatory requirements: The war against financial crime is fought
on many different fronts and keeping up to date with new regulations is essential.

Misconfigured systems or databases: Most systems aggregate information

from various sources, including watch lists, transaction lists, and many more.
Putting all this together may cause technological hiccups.

False positives: Models or systems may flag a client for suspicious activity,
when, in fact, they pose no such threat.

Ongoing maintenance: Firms must revisit their systems, models, and data
feeds to address the increasingly sophisticated methods criminals use to avoid
detection and regulations.

Challenges In Transaction Monetoring

“One size fits all” Approach

When transaction monitoring systems became a regulatory requirement, many

businesses ran out and purchased off the shelf systems and implemented them
with little to no customisation
Ready to use rules can be applied in transaction monitoring systems. These rules
can make it much easier for an institution to do its job and not have to worry
about customer irregularities. But, because these rules are generalised and not
prepared according to an institution’s specific risk exposures, problems can rear
their head.

An inappropriate system, not calibrated to personal risks, can be majorly

damaging. While off the shelf systems can and have offered a quick fix, they
will more likely be a massive drain on resources as you try to fix errors and
problems that are thrown up by the generic nature of the system. In the long-
term, they are costing far more long-term than ever anticipated.

False Positives

Preset rules are helpful, and they can help, especially if you do not have the
expertise needed to implement a system, but they can never be wholly accurate.
In the case of transaction monitoring systems, these presets will result in the
system generating a high volume of positives, not all of which will be true
positives, which increases the workload for compliance officers.

Traditional transaction monitoring systems can get it wrong up to 90% of the

time, so for every 1,000 alerts, 900 of them could be false positives. This is an
incredibly high number and results in spiralling costs; not only in terms of
incorrect alerts but trying to fix or patch the broken system and the resources it
will take to sort through the backlogs these false positives can create. False
positives come at a huge cost for manpower and some banks have backlogs of
alerts they simply can’t cope with.

This issue has resulted in a gargantuan amount of spending by companies;

Deutsche Bank spent $1 billion enhancing AML, while Wells Fargo spent $20
billion, just two examples. The highest cost however is in time and manpower,
much of which will be wasted dealing with this issue.

The application of predictive analytic methods like machine learning or

artificial intelligence can help eliminate the occurrences of false positives and,
as a result, increase the accuracy of results.
Poor Data Hindering AI
A truly successful transaction monitoring system that leverages the power of AI
will rely on a single source of truth for all data, meaning that it aggregates the
data from many systems within an organization to a single location. AI must be
integral to any AML strategy, so ignoring weaknesses and inaccuracies in data
is not a viable option. Preparing data for AI deployment is a process that must
be handled effectively and efficiently, and not rushed.

Ignoring weaknesses in data isn’t a possibility as your AI will be rendered

ineffective until your data is organised and completed. Data must be carefully
collected, and great attention needs to be paid to any signs of corruption.

No Uniform Approach
An issue that affects areas of compliance and regulation across the board is a
difference in viewpoints across different jurisdictions from different regulators.
In the case of transaction monitoring, many regulators have differing ideas on
what is acceptable. An example of this is system alerts. If an alert was to arise
from a calibration issue, then some regulators would see it as acceptable not to
review that alert, while others say an alert should be reviewed regardless of how
it arises.

The differences in approaches and rules create confusion and further muddy the
waters in an already complex regulatory landscape.

It is extremely important to know what your regulatory obligations are, but that
is no easy task when it differs depending on who you are dealing with, and it’s
not getting any easier.
Certification Of Anti Money Laundering

A Certified Anti-Money Laundering Specialist (CAMS) is a professional who is

skilled at tracking cash that originates in fraud or other crimes but has been
subjected to complex financial maneuvers in order to obscure its origins. From
day to day, the work of a CAMS professional is focused on preventing such
activities from slipping through the global banking system.

An anti-money laundering specialist is trained to detect, investigate, and unravel

financial crimes.

The Association of Certified Anti-Money Laundering Specialists (ACAMS) offers

courses and certification in this specialty. Candidates for the test must meet
certain eligibility requirements regarding educational background and work
experience

An anti-money laundering specialist may have a different job title, such as

banking compliance officer, financial consultant, or Bank Secrecy Act analyst.
They are employed by financial institutions or brokerage houses, large
corporations, and the federal government.

About the Association of Certified Anti-Money

Laundering Specialists

ACAMS is the largest international membership organization dedicated to

advancing the professional knowledge, skills and experience of those dedicated to
the detection and prevention of money laundering around the world, and to
promote the development and implementation of sound anti-money laundering
policies and procedures. ACAMS achieves its mission through:
 Promoting international standards for the detection and prevention of money
laundering and terrorist financing;
 Educating professionals in private and government organizations about these
standards and the strategies and practices required to meet them;
 Certifying the achievements of its members; and
 Providing networking platforms through which AML/CFT professionals can
collaborate with their peers throughout the world.

In particular, ACAMS seeks to:

 Help AML professionals with career enhancement through cutting-edge
education, certification and training. ACAMS acts as a forum where
professionals can exchange strategies and ideas.
 Assist practitioners in developing, implementing and upholding proven, sound
AML practices and procedures.
 Help financial and non-financial institutions identify and locate Certified Anti-
Money Laundering Specialists (CAMS) designated individuals in the rapidly
expanding AML field.
 Bibliography
 https://www.amlrightsource.com/
 https://www.investopedia.com/terms/a/a
ml.asp
 https://sanctionscanner.com/knowledge-
base/anti-money-laundering-aml-49
 https://www.investopedia.com/terms/c/ca
ms.asp
 CONCLUSION
That money laundering is illegal has done nothing to curb its spread. The evolution
of global standards is helping the financial world catch up with the trading world.
Because of regional accords, such as the North American Free Trade Agreement
(NAFTA), emerging markets, such as India and China, and especially the creation
of the World Wide Web, the world is smaller and money laundering has now
become an occupation, not just a footnote in the compliance manual. Estimates of
the size and pace of money laundering vary, but all agree that the advent of new
digital currencies will position the financial sector for a significant change in
method and approach to controlling money laundering. Learning methods and
technology have expanded through banks and other businesses, permitting
regulators and law enforcement to reduce and prevent the laundering of illegal
funds. Nevertheless, just around the corner, money laundering can adapt to leap
past the established control processes as banking services via electronic networks
and other technologies evolve.

Historically, combating money laundering has been a cat-and-mouse game. From

required paper records to the dawn of the cashless era, and with the regulators
increasing requirements steadily, money launderers respond with more inventive
schemes and abuses of technology. With the Patriot Act, the focus shifted from the
prosecution of narcotics traffickers to the suppression of terror financing. Since
both use the same ...