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Top trends of AML in 2024

As we step into the year 2024, allow me to recall a saying of German Philosopher Friedrich Nietzsche that “Evaluation is creation: hear it, you creators! Evaluating itself is the most valuable treasure of all that we value. It is only through evaluation that value exists: and without evaluation the nut of existence would be hollow. Hear it, you creators!”. This quote is motivating enough to make us briefly evaluate the kaleidoscope of anti-money laundering (AML) and the financial fraud in the year 2023 while being bold enough to foresee the top trends of AML in 2024.

Under the influence of geopolitical motivations and tech-laced criminals, the year 2023 witnessed a 3% increase in filed enforcement actions (784) and around $5 billion financial remedies obtained by the US Securities and Exchange Commission (SEC), which makes it the second largest amount of obtained orders in SEC history.

Encouraging the institutions and businesses to re-evaluate their risk appetite amid the emerging threats of AML in 2024, in this blog we will explore a brisk walkthrough of the AML compliance and regulations in the recent year 2023 and hope for a tech and regulatory aligned landscape for the year 2024.

AML Compliance: A Quick Recap

In response to the financial crimes and economic instability, the power holders tend to tighten the rope of bad guys through the fear of several penalties and severe business outcomes imposed on the institutions which can be abused by the fraudulent activities. The flow of illicit money gained from and for unethical and restricted means termed as money laundering, was present in the past and the future does not seem to be free from it. Consequently, the global authorities in cooperation with major economic powers set forth the regulations and guidelines to stem the disease and enforced the businesses to comply with it. Failure to comply with the regulations has cost big organizations hefty fines and reputational damage in the global market. Let’s take a quick look at the biggest monetary penalties imposed on organizations in the year 2023.

A brief overview of AML non-compliance fines imposed on organizations in the year 2023.

Regulatory Advancements Witnessed by the Year 2023

With a motivation to enhance financial transparency and curb the flow of illicit proceeds of fraudulent actors, oligarchs, drug traffickers, terror financiers, and those using shell companies as a mean to launder their black money, the US Treasury Financial Crimes Enforcement Network (FinCEN) introduced a final rule on the beneficial owner information while reinforcing the bipartisan Corporate Transparency Act (CTA). To be active from 01 Jan 2024,

“This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities. The final rule will also play an important role in protecting American taxpayers and businesses who play by the rules, but are repeatedly hurt by criminals that use companies for illegal reasons.” commented by the Acting Director of FinCEN, Himamauli Das.

Alarming the businesses in the UK, the money laundering regulations (MLRs) of 2017 was amended in 2022 and to be effective from April 2023, the Money Laundering and Terrorist Financing Amendment (No.2) enforces the businesses to conduct a thorough check of the ROE (Register of Overseas Entities) and TRS (Trust Registration Services). Aimed to put some roadblocks for money launderers and fraudulent actors, such amendments are the pathways in maintaining the micro management of institutions to keep a transparent and crime free environment.

European Union and Regulatory Revolutions Happening in 2024

AML Game Changer: AMLA

Advocated by the Regulation of the European Parliament and of the Council, strategising the financial security for the year 2020-2025, the formation of Authority for Anti-Money Laundering and Financing of Terrorism has been claimed to be a promising regulatory revolution by the European Union. In close coordination with the Financial Intelligence Units (FIUs), the AMLA will be designed to reinforce existing AML/CFT framework, develop a uniform rule book on AML/CFT, and to improve the provision of information exchange. It will be made effective from the beginning of 2024.

Regulations for the Crypto Risks: MiCA

With the regulatory reforms for virtual and crypto assets, the EU regulatory body introduced detailed guidelines on markets in crypto-assets known as MiCA. Providing legislation for ART (asset-referenced tokens) and EMT (electronic money tokens), MiCA is an alteration to already imposed Regulations (EU) 1093/2010 and (EU) 1095/2010 while facilitating the assets with no regulations in place. The regulation will ensure the following,

  • The availability of enough budget and a solid plan to pay back the loans.
  • Effective planning to communicate with investors about the environmental impacts of crypto-assets.

With the evolution of these regulations and updated ways of conducting financial crimes, the need for evaluating the solutions to curb the challenges is more crucial than ever.

Whether we like it or not, a well aligned compliance culture is the most challenging aspect of the AML framework. Struck with loads of regulations and structured tactics of fraud actors, businesses and regulators are relying on the technology to detect and filter the illegal predicate activities by influential people. Navigating through AML risks, several compliance solutions have been widely adopted by the market in combination with compliance policies in place. These solutions allow your business to cater customized screening needs including, politically exposed persons (PEP) screening, sanctions screening, watchlist screening, corruption monitoring, and the most trending adverse media screening. Enabling these solutions to cater diverse regulatory requirements and hidden criminal networks, the integration of automated technology presents a brighter outlook for AML in 2024. Let’s take a look at the top trends of AML in 2024 with a context of tech evolution because it’s difficult to change a culture but getting help from technology is inevitable.

Artificial Intelligence/Machine Learning: A Deciding Factor of AML

Looking out for a dirty fish in an ocean can be overwhelming but AI with its ability to improve over the time through systematic algorithms dubbed as machine learning has been seen changing the course of AML compliance for financial institutions and law enforcers. Designed to analyze patterns and expose hidden ties within the variables, AI/ML automated solutions process through the changing regulations and market trends. Estimated to reach $8.49 billion by the year 2033, the AI based AML solutions with its techniques including NLP (natural language processing) and network and predictive analytics seems to be the final frontier amidst the cat and mouse play between regulators and crime actors. Below is the brief map of facets on how AI catalyzes the AML compliance for your business.

a brief overview of AI/ML use in AML compliance which brings enhanced scrutiny and streamlined compliance. The section also includes other key benefits such as automated monitoring, adaptive learning, predictive and advanced analytics.

Wonders of Blockchain Technology in AML

Reducing the human errors, blockchain with its embedded security features allows businesses to keep track of their transactions in a structured manner, ensuring transparency and AML compliance. Manipulation of the financial systems becomes difficult with its smart contract features when the terms of a business contract are enforced automatically upon meeting the set conditions. Due to complexity of business nature, an estimated $4 billion is spent annually by a financial business to meet the compliance requirements, giving rise to the adoption of more transparent and reliable solutions to stay compliant with MLRs in the year 2024.

Emerging AML Threats to Financial Ecosystem

With the evolution of the regulatory landscape as witnessed in previous years, the AML risks have seen an escalation too. While stepping into the year 2024, the institutions need to embrace themselves for these risks as the regulations are expected to be more stringent in the coming years, says the trend. Let’s have a surface level overview of these risks and how you can protect your business from falling prey to them.

Crypto & Virtual Assets: The dispersed nature of crypto and virtual currencies have brought an emerging challenge for the businesses to keep a robust compliance check. Highlighting the concern over increasing money laundering risks through blockchains, around $7 billion was laundered in the form of crypto assets.

Decentralized Finance (DeFi): Being the most underexplored risks of AML, DeFi has been widely adopted by the launderers to launder their black money through ransomware payments. In 2021, more than $10.5 billion was lost to virtual frauds abusing the DeFi applications.

CaaS (Crime as a Service): Another emerging threat to financial systems is CaaS where financial crimes are executed as a service by a third party making it troublesome for the law enforcers to detect and curb the crime. Empowering the less skilled cyber criminals, these enablers facilitate the digital and financial system breaching. Lesser known but more concerning risk of AML, CaaS needs to be addressed by the strict regulations and AML practices within the system.

Trade Based Money Laundering: Compromising the global financial stability, trade based money laundering facilitated the flow of illicit money amounting to $60 billion in the tenure of 2011 to 2021, creating an alarm for the institutions to address the risk and protect the global economy.

Key Takeaways: Clinging to the Hope

The evolution of AML risks and accelerated regulations are scary indeed but finding our ways around the problems is what humans are designed for. Where the AML trends in 2024 have highlighted the magnitude of risks in keeping global development intact, the combination of human and artificial intelligence brings hope to see a future where institutions are aligned with the regulations. To achieve this goal in 2024, AML Watcher with its handpicked regulatory databases perfectly aligned with regulations and state of the art technology offers you easy and reliable AML compliance solutions to bridge the gap between tech and regulations. Contact us to learn more about our simple yet diversified AML solutions.

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