Combating Fraud in The Field Of Finance

Combating Fraud in The Field Of Finance

The problems of ensuring the economic security of any state are increasingly attracting the attention of the authorities, the public, and the scientific community. Economic security is a complex category reflecting all levels of public life. A high level of financial safety can be achieved only if effective methods of struggle are used, such as Anti-money laundering (AML), Know Your Customer (KYC), and others. It is also very important to verify payment methods, sources of funds, credit cards, and funds transfer to avoid the risks of fraudulent use of other people’s funds. To understand this issue in detail and build your own policy in the company, you will need the help of agencies that specialize in online legal services and payment fraud prevention. One of these companies is KYCAID, which provides a full range of services.

World Situation With Money Laundering

The history of money laundering goes back almost 100 years. The methods are diverse. The overwhelming number of legalization schemes are connected in one way or another with banking activities. Banks, as organizations engaged in transactions with monetary funds and other property, occupy a central place in the global financial system. They are legally participants in the system of countering the legalization of proceeds from crime and the financing of terrorism, playing a crucial role in preventing and detecting money laundering and transmitting information to the relevant authorities.

In the second half of the 1980s, the main sources of illegal income were drug trafficking and the following financial crimes:

  • bank fraud;
  • forgery;
  • swindle in the field of investments in securities;
  • malicious bankruptcy, etc.

Organized crime operations remain one of the significant sources of “dirty” funds. Criminal groups around the world take part in various types of wrongful activity. In addition to drug trafficking, they earn income by providing loans on bonded terms, gambling, securities fraud, prostitution, arms and human trafficking, car theft, and many other ways.

Significant amounts of capital in cash or other forms are transferred to the banks of European countries from the states of the former USSR and Eastern Europe. Certain regions have both common and distinctive features in the activities of criminal groups and capital laundering processes. Consequently, they have developed their methods of countering the legalization of funds obtained by illegal means.

In the USA, earlier than in other countries, the authorities faced the problem of shadow capital turnover and realized the need to develop measures to counteract its legalization. Europe is also at the forefront of the fight against this phenomenon. Administrations of many EU countries have created the regulatory framework for countering the legalization of criminal proceeds, in which the main emphasis was placed on the development and consolidation of special techniques.

Methods Of Combating The Legalization Of Criminal Proceeds

AML (Anti-Money Laundering) is the recognition of money laundering schemes based on the analysis of aggregated data. Suspicious transactions are detected through the analysis of all available data. The problem is created by so-called “false positives”, which are transactions that are not part of a criminal scheme, but from the point of view of algorithms look exactly like this. Therefore, AML cannot yet do without human participation. Specialists check all operations that the algorithm considered fraudulent, and correct errors if necessary.

KYC (Know Your Customer) is a mandatory procedure for financial institutions (banks, exchanges, bookmakers, etc.) to identify counterparties. It includes selection procedures (criteria for who can become a client) and identification (passport data, biometric data), as well as transaction tracking and analysis.

Analytical systems do not rely on historical data for all transactions, but on the actions of a particular client in isolation from the rest, determining its typical features and actions. If the client makes a transaction that does not fit into the pattern of their behavior, the system sends a signal about the need for verification. This solves the problem of clustering, dividing all client transactions into normal and suspicious ones.

In 2021, the Commission in Europe launched its version of a 6th Directive on money laundering аnd tеrrorist finаncing. It should replace the present Directive 2015/849. Together with other regulative documents, it should form the EU set of rules on AML/CFT.

As a result of the entry into force of the 6th Directive, the following steps are being taken:

  • An EU Office specializing in AML/CFT has been created.
  • Practices on direct impact have been adopted to verify beneficiaries as well as customers (AML/CFT Regulation).
  • All European countries have to introduce new rules into their national legislation – create supervisory authorities and streamline the forces of financial intelligence.
  • Regulation 2015/847EU has been amended to introduce mechanisms for tracking crypto assets.

It is difficult to independently understand the legal nuances of the issue of the legality of operations. Therefore, you can always contact KYCAID. Experienced specialists will actively take up the solution to your tasks and problems and find the optimal option for a reasonable reward.

Every year, between $800 billion and $2 trillion are laundered in the world. Until recently, money laundering has been fought manually, by checking each transaction. There were startups with innovative systems for recognizing fraudulent transactions. Now the most promising direction in AML in Europe is machine learning and big data analysis. Keep up with the times – use automated solutions that can not only make life easier but also ensure top-level security.

This article was originally published in The Euro Business Review journal: