Advanced Strategies in Anti-Financial Crime

Posted in Fraud Risk Management on February 21, 2024
Strategies In Anti-Financial Crime

Advanced strategies in anti-financial crime involve leveraging cutting-edge technology and sophisticated data analytics to proactively detect and prevent money laundering, fraud, and other illicit activities in the global financial system. The anti-Financial Crime framework is the set of rules and guidelines that enables the establishment and implementation of strong compliance culture, systems, processes, and controls to prevent the occurrence of financial crimes.

The financial institutions in the last decade have gone through significant changes in the regulatory dynamics in which they operate. These regulatory changes include major structural changes fostered by regulators leading to a more advanced, service-oriented, and technologically advanced industry. Such changes entirely reshaped the complexity, outreach, and nature of business activities. 

The regulators have strived to foster the requisite Governance, Risk, and Governance (GRC) practices in line with changing consumer behavior to safeguard depositors’ interests and bring domestic industry to par with international standards and best practices. 

To achieve these objectives institutions are required to adopt suitable Anti-Financial Crime frameworks and implement them at all levels in the organization. 

Strategies In Anti-Financial Crime

Advanced Strategies in Anti-Financial Crime

The purpose of the Anti-Financial Crime Framework is to: 

  • Establish the principles that must be adhered to by employees about the prevention of financial crime. 
  • Define the roles and responsibilities necessary for effective financial crime risk management.
  • Identify the financial crime compliance key processes and controls to be developed and implemented within the organization in compliance with the policies. 

A strong anti-financial crime culture requires performing appropriate planning for the on-site and off-site investigations for transactions identified as suspicious. Usually, planning the off-site investigation requires streamlining and identifying the need and scope to gather relevant data and pieces of evidence that may be available in the system. 

Prevention of financial crime requires strong planning to regularly monitor the onsite and offsite financial and delivery channels, to ensure that inherent financial crime risks are identified, assessed, and managed effectively. Development of anti-financial crime investigations should consider applicable anti-financial crime laws, and regulations such as AML/CFT, KYC, bribery and corruption, insider trading acts, rules, regulations, instructions, and end-to-end compliance program requirements, to determine the resources required to perform compliance investigations.

Prevention and management of financial crime requires Institutions to develop appropriate risk-based processes and systems, to counter the ever-increasing financial crime challenges.

Institutions to prevent financial crime risk and incidents adopt various strategies and techniques, including but not limited to:

  • Establishment of an anti-financial crime function and hiring team.
  • Development and implementation of a risk-based Anti-Financial Crime compliance program. 
  • Development and implementation of Anti-Financial Crime policies and procedures, such as anti-bribery and corruption policies, money laundering and terrorist financing prevention policies, anti-fraud policies, insider trading policies, etc.
  • Development of risk-based anti-financial crime plans.
  • Development and implementation of strong internal controls, such as controls related to customer due diligence and know your customer (CDD/KYC), vendors and third-party service providers onboarding, fraud detection and prevention, and performing regular risk assessments, including money laundering and terrorist financing (ML/TF) risk assessment, fraud risk assessment, operational risk assessment, bribery and corruption risk assessment, insider trading risk assessment, high-risk customer onboarding risk assessment, etc.
Strategies In Anti-Financial Crime
  • Defining parameters to identify the high-risk customers, and their relevant verification procedures before and after onboarding.
  • Planning periodic AML compliance reviews at head-office and branches level.
  • The setting of transaction thresholds and scenarios, monitoring the daily transactions.
  • Regular onsite and off-site AML compliance reviews, based on risk-based AML compliance review plan.
  • Development of process-wise anti-financial crime key risk indicators (KRIs) and their regular monitoring.

The anti-financial crime compliance team plans and performs offsite reviews based on the availability of required evidence or information. During the offsite review of transactions and system-based evidence, the compliance team may assess the need to perform the onsite investigation as well, and visit the particular location or meet with relevant employees, to gather more specific and relevant evidence. This would require the compliance team to perform an on-site investigation, where the compliance team shall discuss, observe and gather more evidence of the transaction under investigation. 

Onsite anti-financial crime compliance reviews would enable the compliance team to gather more relevant and specific transaction evidence, which shall be added to previously gathered system-based evidence. The onsite investigation also requires a review of files and documents, for which the compliance team shall have the necessary authority to obtain and review. Management must ensure that the compliance team is facilitated in the investigation process, and all required information is provided to the team for review.

The AML compliance team for the onsite investigation may contact the customer, through the relationship officers or branch manager. The relationship officers or branch manager must contact the relevant customer, on demand of the AML compliance team, to gather more relevant data, facts, or information, about the transaction or transactions under investigation.

The ML/TF case investigation is a process that involves the review of historical financial transactions and other related information, to identify the root causes of the ML/TF event that occurred in the entity. It involves the analysis of various conditions that highlight the breaches of internal controls and any possible management bias for the actual financial crime incident.

The identification process is also a forward-looking activity to assess the possibilities of the reoccurrence of financial crime incidents. To assess the reoccurrence of ML/TF activities in the future in any particular department or function of the company, the investigators analyze the historical as well as current financial crime trends and incidents, to establish the inter-connections between them. This connection assessment helps in the prediction of possible future fraud incidents.

Strategies In Anti-Financial Crime

Final Thoughts

Advanced strategies in anti-financial crime are essential in today’s rapidly evolving financial landscape. By leveraging cutting-edge technology and sophisticated data analytics, financial institutions can proactively detect and prevent money laundering, fraud, and other illicit activities. The implementation of a strong anti-financial crime framework, guided by robust policies and procedures, ensures that compliance culture is ingrained at all levels of the organization. Regulators play a crucial role in fostering the necessary governance, risk, and compliance practices to align the industry with international standards and best practices.

To effectively prevent financial crimes, institutions must adopt risk-based processes and systems, establish dedicated anti-financial crime functions, develop comprehensive compliance programs, and implement strong internal controls. Regular monitoring, onsite and offsite investigations, and ongoing risk assessments are key components of a proactive approach to combatting financial crime. By continuously analyzing historical and current trends, institutions can identify root causes and interconnections, allowing them to predict and prevent future fraud incidents. Overall, a multi-faceted and technology-driven approach is essential to stay ahead of the ever-increasing challenges posed by financial crime in today’s interconnected world.