Every single person is familiar with the concept of money laundering as it has increasingly been the talk of the town for quite a while now. From local trading organizations to international financial institutions, the criminals have disrupted every business sector. The changing trends and technological advancements have assisted majorly in laundering money. The conventional ways have been replaced by advanced attack tactics and it has become difficult to fight them. However, with the integration of appropriate Transaction Monitoring Software (TMS) in the security networks, financial crimes could be hindered. Since technology has majorly transformed business practice, financial crime compliance has become mandatory for businesses.
How are Transaction Laundering and Money Laundering Related?
Transaction and money laundering are two very closely related terms but there is a fine line between them that sets them apart. The only aspect that differentiates both is that transaction laundering takes place online via a shell website. It is one disguised to be working as an authentic normal website where legal goods are being listed but in reality, it engages in prohibited business activities. The fraudulent transactions conducted via the shell websites are routed through the authentic websites with the purpose of deceiving banks, card networks, payment service providers, etc.
Why did Criminals Move Towards Transaction Laundering?
With the rise in digitization, many online platforms paved way for criminals to engage in illicit activities and derive incomes from prohibited e-commerce websites. Along with money laundering, the criminals started exploiting online businesses to derive illicit income from them. Hence, they needed a way to disguise the income derived from such websites as illegal online gambling, etc, integrate it into authentic financial systems, and pose it to be legitimate.
While doing so, they come across difficulties as the card’s network rules are programmed to reject any activity from such illicit websites. Since these activities tend to violate the card’s network rules, they face unfavorable situations where not only are their accounts rejected but they could be permanently terminated if the website displays prohibited business activities. Hence, to save themselves from the hassle, the criminals indulged in the process of exploiting shell websites to continue pursuing their fraudulent activities, without being caught. This gave birth to transaction laundering.
Was KYC Sufficient to Deal with Transaction Laundering?
Considering the surge in money laundering reports, the local and global regulatory authorities made it mandatory for the businesses to strictly comply with the Know Your Customer (KYC) and Anti Money Laundering (AML) regulations. These policies, despite being an excellent source of ID verification and fraud prevention, could not adequately deal with the transaction laundering cases. Although KYC and AML are excellent practices against fraud and are crucial for due diligence, they alone cannot perform effective long-term risk management services. Hence, this generated the need for a transaction monitoring system.
The emergence of KYT:
Similar to the KYC regulations, the Know Your Transaction (KYT) solution provider, helps a financial institution to diligently monitor the merchant’s financial activities via thorough analysis of the transaction data. The vigilant examination of the transaction data allows accurate conclusions to be drawn. No suspicious transaction activity goes unnoticed by the KYT verification. The advantage that makes KYT compliance stand out from the rest, is that it monitors real-time data i.e. the transactions, that cannot be manipulated. Hence, it detects any fraudulent transactional activity almost instantly.
Know Your Transaction – Beneficial To the Financial Institutions:
The know your customer transaction solution is programmed to connect the transaction data obtained, to specific websites. By doing so, it exposes the concealed websites, allowing the firm to conduct further investigation into the suspicious matter and revealing any hidden information including the identities of other stakeholders as well. Hence, any such information that could have remained undiscovered otherwise, gets known by the company via adequate implementation of the KYT verification solution.
Any financial institution i.e banks, credit unions, payment companies, etc keenly focuses on obtaining all the transaction data of the customers, especially in situations where a third party is involved. Upon acquiring the details, they develop insights into the nature and purpose of the transactions. Hence, the transaction monitoring software, helps them detect suspicious behavior via the transaction data analysis and drill down the fraudulent activities. Since real-time evidence is generated through KYT verification, the banks and other financial institutions can protect themselves from any fraud and other regulatory penalties.
