Money Laundering Vs Terrorist Financing
Money Laundering is a vicious method of making illegitimate money look legitimate by following the classic PLI (Placement-Layering-Integration) process. Criminals use this process to hide the original ownership and make the proceeds appear to have originated from a legitimate source.
Terrorist Financing is even more deceptive due to the possibility of its legal sources that can create a complex situation for tackling the financing. It refers to processing of funds in order to support, plan or encourage a terrorist activity.
To counter these issues there are ways to discover, avert and report money laundering and terrorist financing activities, which are referred to as Anti-Money Laundering and Combating the Financing of Terrorism.
We all know that Money Laundering is generally a three-step process. The dirty money is first made legitimate by infiltrating it in the financial system after which it is layered to separate it from its source and then returned to the criminals from a source that appears legitimate.
Terrorist Financing has a slightly different take on the origin and purpose as compared to Money Laundering. The motivation for terrorist financing is rather ideological than for profit. The source of the funds can be illegitimate or legitimate that makes the detection focus on suspicious relationships like random wire transfers between two completely unrelated parties. Most of the times, the transaction amounts are under the suspicion level which challenges the detection.
There have been cases where money laundering for banks has proved to be extremely risky. Recently in Canada, there were 21 crimes out of which 17 have been deemed as risky and in addition to that, there has been a threat that determines possibility of terrorist financing with 10 different terrorist groups.
New AML Directives
According to AME, the fourth AML directive will give EU countries two years from 26th of June 2015 to implement the new rules into national laws as per the directives. According to Michael Ruck, who is the financial services litigation and compliance expert, UK is in a regulatory and political atmosphere where money-laundering prevention is supreme.
According to FATF, banks should take notice of sudden wire deposits and withdrawals especially with the smaller accounts where client information is not up-to-date. To avoid being a channel to convey money laundering and terrorist financing, financial institutions should leave no stone unturned in cases like high volume transactions, suspected terrorist links with an account holder, large deposits with non-profit organizations, etc.
Rules for avoiding Money Laundering and Terrorist Financing
There are rules that help avoid Money Laundering and Terrorist Financing. Few of them are listed below.
Regulations |
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| Bank Secrecy Act | Necessitates assistance to the US Government in detection and prevention of frauds. |
| Know Your Customer (KYC) | Urges financial institutions in gathering information to guarantee a clean customer before conducting any transactions and keep a record of all processes used. |
| The Foreign Account Tax Compliance Act | Makes sure foreign financial institutions report any holdings of US citizens to the IRS and restricts any US person to hide money outside the United States in order to bypass. |
Hadoop Simplifying AML
Hadoop orchestrates big data right from the collection to the evaluation and further investigation of the data, which facilitates AML. It controls and retains the data in one place that makes the data easily accessible. It consolidates data improving data transformation and fraud detection. There are various techniques including language processing, machine learning that help tackle the AML problem.
Hadoop further facilitates models to develop various parameters and get a better historical Panorama, that in turn polishes the model accuracy reducing the time and cost of AML. Hadoop is flexible and economical which makes it the ultimate platform for AML.
Hexanika Boosting AML with Hadoop
We at Hexanika use Hadoop to help create the right big data deployment strategy for the customer’s business. Our advanced data management and reporting solutions help financial services firms adapt to the fast-changing environment. We make Big Data work by providing simplified, scalable products and services to tackle rapid change, regulatory pressures and increasing global competition. We have mapped recommendation of Hadoop architectural components (HDFS, Hive, Pig, Hbase, Sqoop, Flume etc.) to the business requirements.
Hexanika’s expertise, tool sets and services define linkages and association rules for identifying parties within legacy data. Customer data is first matched against UN sanctions list. The adapters are then implemented to convert and normalize incoming data formats to standard formats and reject bad data using business rules.
This helps generate customized dashboards to enable regulatory compliance. The client can then feed the Reports back into depository participants (DP). The DP also provides “Know your customer” to complete the cycle.
Contributor: Anand Ranade
Reference Links
https://www.unodc.org/unodc/en/money-laundering/
http://www.lexology.com/library/detail.aspx?g=44abdf95-22e6-4d18-b862-8da46f07c654
http://www.fincen.gov/statutes_regs/bsa/
http://www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules
http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx