Technology in AML

By Daniel Rogers, CEO and Founder of Avid AML.


Every corrupt act in the world, from modern day slavery, human trafficking, organ trafficking, tax avoidance, to child sex exploitation is made possible by money laundering. Combatting this is our collective challenge but without technology the fight could be lost.


What Problem are we Trying to Solve?


To understand what problem technology is helping with we need to understand the problem we are trying to solve. The term anti-money laundering glosses over the problem. So let’s reframe the conversation.


What we are trying to achieve is the protection of businesses, industries, economies and society from being exploited by criminals - criminals trying to launder the proceeds of fraud, tax evasion, terrorist financing, human trafficking, child sex exploitation and modern day slavery.


Criminals are always a step ahead and know how to exploit weaknesses in systems and processes. When considering the larger world of transnational organised crime it must be assumed they have significant resources and access to a sophisticated market of enterprising criminal software developers to develop technologies to protect their ‘operations’. Larger financial organisations and multinational firms are entering a Digital Arms Race to outsmart and outpace the other.


Smaller firms may fly under their radar for the moment but it won’t be long before technology will drive criminal behaviour, not just our response to their actions. Detecting their behaviours is near impossible without using technology to separate the needle from the haystack.


Technology Automates and Simplifies


Digital transformation has historically focused on front line staff and on revenue generation. The risk posed by money laundering is now trending towards redirecting attention to implementing Regulatory Technology (RegTech) to protect organisations from money laundering, tax evasion and drug trafficking – all manner of financial crime.


We are seeing the beginning of a digital transformation and simplification of manual processing and activities across business.


It is Becoming Harder to Comply


There are a lot of moving parts in any organisation - add anti-money laundering compliance into the mix and it becomes harder to comply.


The four pillars of compliance are complicated enough:


1. Compliance Officer;

2. Tailored Internal Policies, Procedures, and Controls;

3. Ongoing, Relevant Training of Employees; and

4. Independent Review for Compliance.


But there is a fifth pillar:


5. Risk-Based Analysis for Customer Due Diligence and Ongoing Customer Due Diligence.


Core tasks such as real-time identity and watchlist verification, beneficial ownership structures, nature and purpose of relationship, and dynamic risk scoring enable ongoing customer due diligence and offer a ‘whole of customer’ AML view.

  • Beneficial owner information can be gathered and assembled from internal and external sources, providing full network analysis of beneficial owners, ultimate beneficial ownership and related parties. This enables the organisation to uncover potential links, threats, and provide insights in visual form to assist case investigation. These trigger events can also be delivered for immediate investigation.

  • Utilising the nature and purpose of the relationship enables the integration of know your customer (KYC) information with ongoing monitoring and is critical in the effective measurement and assessment of customer risk.

Technology enables the analysis of the information garnered from the onboarding process. It should analyse the customer’s:

  • risk profile;

  • their intended use of the firm's products and services; and

  • related parties and external relationships.

In addition to this, where events that alter the customers profile take place, like watch-list updates, it should:

  • trigger changes to the customer's risk profile;

  • interact with transaction monitoring; and

  • alert the compliance manager.


Complex Beneficial Ownership and Related Parties Obligations


It is time consuming and cumbersome staying on top of beneficial ownership requirements using outdated word or excel documents.


Without the use of technology it is difficult to build and display multiple, complex layers of legal ownership, which is key to understanding beneficial ownership, effective control, key managers or associations. Add the risk they pose to the business onto this and it becomes near impossible.


This can’t be static, however. It must be updated when any new activity is identified - at time of the customer review or when an insight alerts the compliance manager of an updated risk.


IBM AML RegTech Innovations notes that:


"...Even though the role of technology in fighting financial crime keeps growing we are actually just at the start of what’s going to be the next wave of technology. It involves both the digitalization of all things financial and the adoption of new tools to both execute financial transactions and safeguard the financial system.”


The Financial Action Task Force (FATF) guidelines encourage firms to consider using reputable technology-driven solutions to minimise the risk of error, find efficiencies in their AML / CFT processes and foster a culture of compliance. These solutions have become more affordable, and more tailorable. This is particularly important for small firms that have less resources available to manage AML compliance.


Onboarding with Ease


Introducing technology and automation reduces risk and the cost of client onboarding. Empowering the first line of defence by giving compliance teams access to on-boarding tools embeds the right culture of compliance from the start.


Reducing the touch-points for customers not only improves speed of service, but also reduces the time needed to manage Know Your Customer and Ongoing Due Diligence obligations.


Technology is becoming more affordable and importantly, is being simplified for easy adoption and use.


AML technology is no longer the domain of the big banks - software like Avid AML’s has been designed for small to medium-sized financial and non-financial firms.


By automating the Know Your Customer process for anti-money laundering, firms can accelerate onboarding and account opening, increase speed to revenue, improve the customer experience and most importantly, ensure that they remain compliant.


This ability to automate will allow firms to take a risk-based approach to compliance, rapidly onboard the low risk cases, all the while focusing skilled resources on cases that the technology has identified as high-risk.


How Technology can Solve the Burden on Compliance Teams


Labour is the largest driver of compliance costs and represents a significant part of a firm's compliance spend. The on-boarding process in particular can be very labour intensive with information still being captured via email and in person. In the most part, labour intensive anti-money laundering compliance is repetitive and manual, results in increased errors, increased operational and legal risk and tends to push anti-money laundering compliance costs higher.


Labour Intensive Compliance Also Impacts Staff


LexisNexis True Cost of Financial Crime Compliance Global Report found firms are also also worried about staff retention, with 67% of firms concerned about job satisfaction as a result of increasing burden on staff. That is nothing to be complacent about.


Daniel Wager, LexisNexis Vice President of Global Financial Crime urges firms to invest in technology to relieve pressure on compliance staff. Reporting entities should take advantage of affordable technology that is available to manage key challenges, simplify, or even remove some of the Know Your Customer (KYC) and Customer Due Diligence log-jams.


Technology should remove laborious screening and provide compliance team insights and risks requiring attention. The human touch is valuable, therefore it is important that it adds to the task, rather than performing it.


Aligning teams with technology can also provide a ‘one customer’ view including identity verification, address verification, politically exposed persons (PEP’s), known close associates and sanctions risk screening, nature and purpose of relationship, and transaction monitoring to better inform a firm’s decision making and management of risk.


Strategi note that one of the most common AML/CFT audit failings is the lack of PEP’s & sanctions screening. Without the right tools this task can be cumbersome, time consuming, increase labour cost, and can be fraught with risk.


Valuing Your Staff


Technology should replace repetition, dig deeper to investigate anomalies and automate workflow management. Implementing technology-based solutions is not about replacing highly skilled and knowledgeable staff, but rather ensuring that these staff are not devalued by performing tasks that could be easily automated.


The Stakes are High


The stakes are high and the risks are real. Gun runners, drug dealers, human traffickers, tax avoiders and the who’s who of the underworld will do whatever it takes to stay out of the limelight. But when things turn bad there is no hiding from the fallout. Even the most reputable firms pay a heavy price of a damaged reputation, sanctions and fines including personal liability for non-compliance.


"Although 49% of global organizations are victims of fraud and economic crime, many are not fully aware of the full extent of their risk exposure." Oracle


Getting your compliance programme wrong and relying too heavily on manual process runs the risk of creating customer frustration and customer concern that they too may be exposed to non-compliance.


Bringing it all Together


With the rise of financial crime, the costs associated with compliance, and the growing threat of digital disruption, it has never been more important for firms to embrace technology that streamlines the compliance process.


Effective regulation technology is no longer a ‘nice to have’, it’s essential for the future of the reduction of financial crime.


Technology’s Biggest Competitor is you


Compliance teams are doing the heavy lifting technology should be doing. Of course there is a payoff, but is the pay-off worth it and will the future you thank you for it?


Employees encounter subtle obstacles in their day-today roles. Whether that be complexity of policies and processes, gaps in knowledge, gaps in capability or varying degrees of individual attention to detail.


My own experience has shown varying levels of attention to compliance. Some follow corporate policy to a tee while others are more focused on getting the deal done with compliance being seen as a hindrance to their roles, not a core part of their roles.


Simplification and automation can remove these obstacles to reduce the burden of compliance on staff. A compliance culture is adopted more readily when changes to processes and technology can be implemented with ease.


Technology should automate much of the repetitive work where it’s easy to miss a beat but also where the human eye is not as adept as technology in finding the anomalies. A culture of compliance should simplify and streamline the process so that, in the money launderers’ eyes, the whole firm is alert and aware


Introducing technology to the firm's risk management workflow improves staff satisfaction, build on firm wide efficiencies and can reduce the negative costs associated with compliance or non-compliance.


The right technology can not only strengthen compliance teams and reduce labour costs, but it can also have a positive effect on profitability and risk externalities. It is not just about managing direct costs, but also indirect costs, direct risks and opportunity costs.


Having the right AML Programme in place with the right technology will help protect your firm against organised crime. An effective compliance culture needs to be enterprise-wide with the buy-in from organisations at all levels.


The more people aware of the risk, the harder it will be for launderers to identify and utilise the firm to launder the proceeds of modern day slavery, human trafficking, organ trafficking, tax avoidance or child sex exploitation.


Daniel Rogers, Founder of Avid AML
Daniel Rogers, Avid AML



Keep reading about the 'Benefits of Technology in the AML Industry' with Murray Towers or hear more from Avid AML with '5 minutes with an Expert: Andrew Weston'.