Covid-19 and compliance challenges for payment companies

The COVID-19 pandemic has brought in fundamental changes to many industries, and the payments sector is no exception. Consumers across the globe now have a different approach as they consider commerce and payment options. They tend to flock to those options that are safer and faster. According to the Visa Back to Business Study, 78% of global consumers have adjusted the way they pay for items in the wake of intensified safety concerns. “This shift to digital-first commerce and technologies like contactless payments has ushered in a new generation of consumer tendencies that will have a ripple effect on the global economy for years to come,” says the study.

Businesses also prefer non-cash and contactless payment methods amid lockdowns and changing consumer preferences. Expectations abound for global cash in circulation to reduce in the next few years on the back of digitization initiatives by governments led by Finland and Sweden. Increasing digitalization in payments gave rise to a new number of payment companies, while incumbent payment processors are adapting their strategies to match the new-age payment technologies. However, digitalization may not address the age-old problems related to transactions — money laundering, terrorist financing and other financial crimes. It would rather help criminals adapt their strategies and remain undetected.

Transaction laundering and its possibilities

The proliferation of e-commerce and digital payments have already given new avenues for criminals to run their illegal businesses and then launder crime proceeds. Criminals resorting to transaction laundering, also known as electronic money laundering or cyberlaundering, have a favourable situation now as people shop online more. Criminals can set up apparently legitimate websites to sell illegal goods and divert the payments to merchant payment accounts. They may either open by their own accounts or manage to get access to accounts set up by third parties. By routing payments to these accounts, they would be able to launder criminal proceeds through Payment Service Providers. Given below are some factors that help transaction laundering:

  • The process of creating an online store with a checkout page and credit card info storing feature is very easy now. This helps criminals conduct the three steps of money laundering — placement, layering and integration — digitally.
  • There are a large number of e-merchants and payment facilitators that provide a great degree of anonymity, helping criminals.
  • Banks are outsourcing their merchant acquisition operations to third-party payment service providers and facilitators who don’t have rigorous onboarding systems.
  • Alternate payment methods such as digital wallets, mobile wallets and payment gateways have seen significant growth in userbase but they lack proper monitoring systems.
  • Payment companies either do not come under the purview of AML/CFT regulations or are not governed by the same level as that of banks.

Transaction Laundering puts Payment Service Providers — a group of banks, acquirers and payment processors — into a difficult situation where they unknowingly become facilitators of money laundering. The results are legal actions, hefty regulatory penalties and ultimately severe damage to the reputation.

Transaction Laundering Types

There are three forms of transaction laundering:

  • Front Companies: Appearing as legitimate online businesses selling goods or services, these are set up criminals to launder criminal funds by means of over/under-invoicing, inflating transactions or misreporting earnings. For authorities, it is very hard to detect these criminals as the value of the services involved is often subjective.
  • Pass-through Companies: These are not set up by criminals but they allow criminals to launder money through their accounts, in many cases for a hefty commission.
  • Funnel Accounts: They involve payment processors for multiple companies who knowingly or unknowingly process illegitimate transactions along with legitimate ones. These illegal transactions are hard to detect as they are mixed in with legal ones.

Possibilities of Micro Laundering

Micro laundering refers to the money laundering technique where criminals break large sums of ill-gotten money into tiny portions and transact them without being detected by AML systems. At present, criminals can operate the scheme from their mobile phones making use of digital payment platforms. While a transaction worth US$10,000 would form a red flag, 100 transactions worth US$100 each would easily surpass system checks. A 2018 study by HP Threat Research found that an estimated 10% of cybercriminals are using PayPal to launder money. A further 35% use other digital payment systems, including Skrill, Dwoll, Zoom, and mobile payment systems like M-Pesa.

How to Prevent Money Laundering via Payment Companies

Payment firms must reinforce their AML checks and monitoring processes in compliance with applicable regulations in order to prevent the misuse of their platforms for criminal purposes. Given below are some of the areas where they should focus on:

Know Your Customer (KYC) and Customer Due Diligence

Strengthened KYC and CDD measures can prevent transaction laundering to a great extent. Payment processing companies must ensure they do not onboard malicious merchants by mistake. Firms should gather necessary information on merchants and their beneficial owners, if applicable. They should analyse each piece of information and assess the potential risks of doing business with each client. Proper KYC measures also ensure that honest merchant customers are not troubled at all.

Transaction Monitoring

Payment firms need to properly monitor the transactional patterns of their clients. In the case of online merchants, a sudden increase in sales volumes or amounts compared to historical levels or projections should be thoroughly investigated. Unrealistic sales projections should also form a red flag. International payment providers need to develop deep understandings of the markets and merchant sectors they operate in to be able to pinpoint high-risk interactions.

Proper customer risk assessment while onboarding and on an ongoing basis has become difficult. With systems dependent on a few parameters prescribed by regulations, payment firms might not be able to gauge risk accurately. They need a system that can take into account a large number of parameters and dynamically adjust risk rating. In the case of transaction monitoring, human investigators might find it cumbersome to examine each and every one of hundreds of alerts generated on an hourly basis. The current need is for a mechanism that accurately sifts out ‘false positives’ so that compliance staff can focus on true suspicious cases.

And no doubt, modern technologies such as artificial intelligence (AI) and machine learning can take up the task. For example, machine learning can analyze thousands of transactions in a faster manner than human investigators, helping reduce the number of false positives drastically. In addition, it can detect true cases better than myopic legacy systems.

How We Can Help

Tookitaki’s end-to-end AML operating system, the Anti-Money Laundering Suite (AMLS), powered by AML Federated Knowledge Base is intended to identify hard-to-detect money laundering techniques. AMLS is available as a modular service across the three pillars of AML activity – Transaction Monitoring, AML Screening for names and transactions and Customer Risk Scoring. The AI-powered solution has the following features to aid payment companies with their AML/CFT compliance.

  • AI-powered detection of interactions and network relationships between customers or interested parties to flag suspicious activity
  • World’s biggest repository of AML typologies providing real-world AML red flags to keep our underlying machine learning detection model updated with the latest money laundering techniques across the globe.
  • Smart alert management to identify alerts that matter and that are non-productive
  • Advanced data analytics and dynamic segmentation to detect unusual patterns in transactions
  • Risk scoring based on matching with watchlist databases or adverse media
  • Visibility on customer linkages and related scores to provide a 360-degree network overview
  • Constantly updating risk scoring which learns from incremental data changes

AMLS was designed keeping in mind the ability of AML/CTF compliance systems to integrate with disparate data sources and platforms. Users may it as a standalone system or on top of legacy systems to augment their efficiency.

Our solution has been proven to be highly accurate in identifying high-risk customers and transactions. For more details of our AMLS solution and its ability to identify the latest money laundering techniques, please contact us.

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As the world is working hard to contain the spread of the COVID-19, criminals continue to take advantage of the pandemic. They are devising sophisticated methods to defraud people and launder the crim...

5 Top Myths and Facts about AI Implementation in AML Programs

We are more confirmed about the power of Artificial Intelligence (AI) to transform lives and businesses now. There are countless possible applications of AI and machine learning at present, and we see...

Typology Repository Management: Solving AML Problems Via Collective Intelligence and Continuous Learning

Despite its general strength, the US federal banking system is apparently susceptible to the ongoing economic weakness caused by the rampant spread of coronavirus. Earlier this month, The US Office of...

Money Laundering Amid COVID-19: What Regulators Across Globe Say

As the world continues to fight against the COVID-19 pandemic, there are reports that criminals are taking advantage of the difficult situation. They are seizing the moment to proliferate their crimin...

How will Art Cease to Be a Preferred Money Laundering Vehicle?

Money laundering via high-end art and antiquities is not new yet it is difficult to detect. Art-related money laundering amounts to about US$3 billion per year, according to this blog, quoting the Uni...

Beware! Money Mules in Demand amid COVID-19. Here’s an Effective Cure

If reports are to be believed, cybercrooks are taking advantage of the COVID-19 situation. They are targeting people who were laid off or working from home due to the pandemic to work for them as mone...

How do we weather a tornado of change?

“Great works are performed not by strength but by perseverance” – Samuel Johnson All of us are in challenging times. However, we cannot afford to be lethargic to life, work, and busi...

Roundtable Rewind: Embracing Next-gen Tech & Collaboration Key to Sustainability

As a regtech player with a vision to enable sustainable compliance programs in financial institutions, Tookitaki organized a first-of-its-kind industry roundtable in Charlotte, NC, USA to discuss oppo...

Tookitaki Appoints Industry Veteran Joe Friscia as Advisor

Tookitaki Holding Pte. Ltd. appointed industry veteran Joe Friscia, former President of NICE Actimize and BAE Systems as Advisor to the Company’s Advisory Board. Joe brings over 25 years’ extensi...

Should Modern Machines Be Ethical?

There are mounting concerns across the globe about the reliability and safety of artificial intelligence (AI) based systems and its enabling technologies such as machine learning (ML). On the air are ...

Tookitaki Raises Another US$11.7 million in Series A; Closes Round at US$19.2 million

– by Abhishek Chatterjee, Founder & CEO The Tookitaki team and I are excited to announce that we have raised an additional US$11.7 million in Series A funding, taking the total investment in...

30 Years of FATF: Notable Facts About Global AML Watchdog

The Financial Action Task Force (FATF), the intergovernmental body formed in 1989 to combating money laundering, is celebrating its 30th anniversary this year. Since its inception, the global agency p...

Tookitaki Joins Aite Financial Crime Forum as Sponsor

Technological advances have fundamentally changed the operational landscape of financial institutions. However, there are also new risks emerging in forms of sophisticated financial frauds and complex...

Will Machine Learning Replace Compliance Professionals?

The impact of modern technologies such as artificial intelligence (AI) and machine learning on job security has been a widely discussed topic today. Of course, AI has advanced very quickly in the last...

6 Most Prevalent Cyber-Laundering Methods in APAC

Despite being a medium to exchange information in real-time and with scale, the Internet is being misused in several ways. Among the slew of financial crimes facilitated by the Internet, money launder...

What Made Us Earn the WEF Technology Pioneer Title

Tookitaki has bagged another global acknowledgement for its outstanding works in the regulatory compliance field. Our company was selected among hundreds of candidates as one of the World Economic Fo...

We Stay as a Team, We Win as a Team and We Flourish as a Team

“Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to a...

ABA Regulatory Compliance Conference: 10 Sessions You Can’t Miss

The 2019 edition of the American Bankers Association (ABA) Regulatory Compliance Conference is a few more days away. Organized by the Washington, D.C.-based trade association, the conference is touted...

Tookitaki AMLS Wins SBR Technology Excellence Award 2019

Tookitaki’s Anti-Money Laundering Suite (AMLS), an end-to-end machine learning-powered transaction monitoring and names screening solution, has bagged the inaugural Singapore Business Review Tec...

Watchdogs Grow Optimistic about AI Prospects at Banks

Proper regulation of banking operations is important as any failure in the banking system would affect the wider economy. Therefore, banking is one of the most regulated industries across the globe. F...

Pitfall of Black Box AI at Banks: Explaining Your Models to Regulators

The use cases of artificial intelligence (AI) and machine learning in front-office, middle-office and back-office activities at banks are growing slowly but steadily. The major areas of AI play includ...

AI for Regulatory Compliance at Banks: 4 Assessments Before You Okay the Solution Proposal

Banking is one of the industries where artificial intelligence and machine learning find their applications at a rapid pace. Regulatory compliance within banking is an area which has become a costly a...

We Believe in Innovation, the Key to Survival and Growth

“Innovation distinguishes between a leader and a follower.” -Steve Jobs What comes on the top of your screen when you google the meaning of the word innovation is – the introduction of somet...

Compliance Functions in Need of a Technological Overhaul. Can Machine Learning be the Game-Changer?

McKinsey in its latest compliance benchmarking survey found that compliance function at financial institutions has reached “an inflection point” and current compliance standards are in an “incho...

Tookitaki Raises US$7.5 mn Series A from Global VCs to Transform Regulatory Compliance

Tookitaki, a regulatory technology company that aims to enable financial institutions to develop sustainable compliance programs, has raised US$7.5 million in Series A round. The round was co-led by L...

From Wachovia to Danske Bank: Biggest Money Laundering Cases in Recent Times

Money laundering – the criminal activity of processing criminal proceeds to disguise their origin – is one of the gravest problems faced by the global economy, and its size is growing rapidly. It ...

A Modern Approach to Address the Reconciliation Challenges of Financial Services

Reconciliation of transactions is deemed critical for the smooth running of every financial institution. The speed and accuracy of data reconciliation can distinguish a successful institution from its...

Busting a Myth: Compliance Officer’s Job is All About Risk

Regulatory compliance has become a dreadful task for banks after regulators across the globe set stricter norms in the aftermath of the 2008 financial crisis in an effort to prevent financial crimes s...

SocGen Goes Next-Gen with Tookitaki Reconciliation Suite

Société Générale leveraged Tookitaki’s Reconciliation Suite to automate the bank’s existing break reconciliation system. Key Challenges Addressed The bank’s finance department was unable to ...

Attending ACAMS Conference in Singapore? Tookitaki Awaits You with Its Disruptive AML Solution

“In today’s era of volatility, there is no other way but to re-invent. The only sustainable advantage you can have over others is agility, that’s it.”- Jeff Bezos Singapore is hosting ACAMS’...

MAS’ Stress on Transaction Monitoring for Effective AML/CFT Compliance and Machine Learning is the Answer

Singapore is known for its top-notch AML/CFT regime created through up-to-date legislation, stringent policy and uncompromising supervision to safeguard against the abuse of the city state’s financi...

Mifid II and the Pressing Need for a New Reconciliation Approach

The financial services industry in the EU has been confused with the introduction of a revamped version of the Markets in Financial Instruments Directive (Mifid II). The ambitious regulatory reforms t...

Is Automated Reconciliation Next to Impossible in Today’s Complex Financial World?

The 2008 global financial crisis and fairly new regulatory requirements like Basel III asked financial institutions (FIs) to cut operating costs and adopt a lean operations structure, pushing FIs to r...

Modern Tech to Reshape US AML Compliance with Regulators’ Recent Handshake

George Bernard Shaw once said: “Those who cannot change their minds cannot change anything.” The past week has seen a significant change of mind from financial regulators in the US in their ardent...

Skills Development: We Have Talents and We Strive to Multiply Them

“Mastery lies on an infinite continuum, and as a result, we will never reach the end. We can, however, see to it that we are as far along that continuum as our circumstance allows.” ― Chris Mat...

It’s Our Fourth Founding Day; Taking a Pause to Cherish Our Simple but Awesome Journey

Today, as we step into our 4th year of foundation, I feel proud and honored to be leading Tookitaki that has been successful in creating added value to all its stakeholders. I was never a CEO and Took...

Tookitaki Expands into the US with New Office in Charlotte

SINGAPORE, Sept. 24, 2018: Tookitaki Holding Pte Ltd, a leading regulatory technology company, is pleased to announce the official opening of its North American office in Charlotte, NC, in the Unite...

We Tame Machines but We Unleash Human Spirits

We are well aware of the fact that our progress as an organization is in the hands of our employees. The more energy, time and attention we invest in them, the more yield we receive. So, we always mak...

5 Methods That Modern Money Launderers Use To Beat Detection

Society prepares the crime, the criminal commits it. DID YOU KNOW? Every year, an estimated amount in the range of US$800 billion-US$2 trillion (2-5% of global GDP) is being laundered globally Regulat...

Risk Management Conference: Positive Vibes from All Corners

The Risk Management Association’s (RMA) premier annual event, the Risk Management Conference, came to an end on 6 November, and Tookitaki had the privilege to attend the event which we believe was ...

Singapore Fintech Festival: Tookitaki to showcase advanced machine learning solutions in financial services

Singapore is assured of the Fintech world’s unwavering attention next week, as the city state, is hosting this year’s Fintech Festival during 12-16 November. Touted as the world’s largest platfo...

The RMA Clarion Call to Address Risks and the Tookitaki Way

Risk officers, doing your best today is good while preparing hard for tomorrow is extraordinary. Risk management at banks has become difficult due to operational and regulatory changes. The Risk Manag...