Learn More About Anti Money Laundering Software
What is Anti-Money Laundering Software?
Anti-money laundering (AML) software helps companies fight financial crime through transaction monitoring to identify any suspicious activity such as terrorist financing and money laundering activities. In addition, this type of software ensures that companies follow anti-money laundering compliance and legal requirements when working with customers and partners to avoid doing business with money laundering entities.
Anti-money laundering software identifies suspicious individuals such as a politically exposed person (PEP) or companies that may illegally try to clean fraudulently obtained or stolen funds. In addition, AML provides enhanced due diligence through transaction monitoring for financial services companies and corporations.
What Does AML Stand For?
AML stands for anti-money laundering, a subset of regulatory technology (regtech) focusing on money laundering.
What Types of Anti-Money Laundering Software Exist?
Depending on how they're sold and used, there are two major types of AML software:
Standalone
AML is usually a standalone product, which can be deployed and used separately from other software solutions such as enterprise risk management (also known as GRC platforms). Anti-money laundering platforms tend to have more detailed and advanced anti-money laundering features since they focus exclusively on this business need. Standalone AML may be more affordable than GRC platforms but require integration with the latter, which may increase the cost of ownership.
Part of a platform
AML can also be sold and used as a module of larger systems like GRC platforms. In addition, some anti money laundering software vendors offer GRC suites that combine multiple products like audit management, regulatory change management, and AML. While a company can buy each module and suite component separately, various options from the same vendors are preferable since they are tightly integrated and usually built on the same platform.
What are the Common Features of Anti-Money Laundering Software?
The following are some core features within anti-money laundering Software that can help companies avoid AML fraud:
Know your customer (KYC): AML is used during customer onboarding for due diligence, ensuring that customers aren't under suspicion of illegal activities. Customer due diligence is crucial to companies dealing with businesses and individuals from corrupt countries more likely to engage in money laundering activities.
AML compliance management: To determine who should be considered suspicious or compromised, companies must stay updated with the latest national and global regulations created to fight corruption, terrorism, and fraud. AML software should provide a detailed and current database of laws and regulations that companies must comply with to avoid dealing with suspicious individuals and companies.
Workflows: Identifying suspicious individuals and companies is only the first step in AML. The following steps are to decide how to deal with them. Ideally, a company should not do business with anyone who may be corrupt or fraudulent, but the reality is often more complicated. For this reason, companies need workflows to mitigate AML risks. For instance, identifying a suspicious activity may require multiple steps involving several users and requiring approval from managers.
Suspicious persons and companies database: Local and global institutions focusing on fighting crime create and maintain lists of corrupt individuals and fraudulent companies worldwide. These lists aren't always public and are updated regularly. AML software can provide this information to its users through integration with external databases or as a part of the system. An example of lists used for screening is one by the Office of Foreign Assets and Control (OFAC).
Risk scoring: AML users need to assign different risk ratings to any person or company deemed suspicious. While most AML solutions provide automated risk scoring features, users may need to manually adjust scores based on information that may not be available in the software's database. The recent war in Ukraine is an excellent example, as sanctions against Russia have been adopted by multiple countries relatively fast and may not be automatically updated on the software.
Watch lists: Watch lists are created when there is no clear proof that a person or company is corrupt or dishonest, but there are indications that they may be suspicious. For instance, governments publish sanctions lists that include PEPs, but each country has different AML standards, and these lists change constantly.
Case management: Companies with large numbers of transactions require case management functionality to track and address all incidents in a centralized manner. Each case can be assigned to different teams and escalated based on rules and workflows. For instance, some AML users may focus on currency transactions and others on investments, which requires that each team manages different types of cases.
Analytics and dashboards: Analytics features monitor money laundering activities, while dashboards provide real-time data and alerts such as false positives and high-risk transactions. AML includes features for suspicious transactions reports (STRs) and suspicious activity reports (SAR) and monitors a company's compliance with regulatory requirements such as the Bank Secrecy Act (BSA).
What are the Benefits of Anti-Money Laundering Software?
The following are some of the benefits of anti-money laundering software.
Prevent fraud: AML provides fraud detection features so companies can identify suspicious individuals and companies before dealing with them. This software also helps companies adopt rules and best practices such as Combating the Financing of Terrorism (CFT).
Ensure compliance: AML compliance is more than just a legal obligation. Companies must take a proactive approach to AML through due diligence and fraud detection. This ensures that they comply and prevent AML fraud before it happens, thus protecting the reputation and financial stability of the company.
Avoid monetary losses: Another risk related to corrupt or criminal individuals is that they may not pay for the products and services they buy. Moreover, in many cases, these individuals and companies are based in countries where international law cannot be enforced, which means that companies seldomly recover their money. It is, therefore, preferable to avoid doing business with this kind of person or business.
Ensure brand protection: Dealing with suspicious individuals and companies can negatively impact a company's reputation and employees. Even limited interactions and low-value transactions with corrupt persons can jeopardize the public's perception of a company.
Who Uses Anti-Money Laundering Software?
AML software can benefit all departments engaged in business transactions with customers or suppliers.
Risk and compliance officers: Anti-money laundering programs are usually a part of a more extensive governance, risk, and compliance strategy meant to protect the entire company from any threat such as privacy violations, data breaches, brand damage, and employee mistreatment, etc. While chief risk and compliance officers (CROs) use AML software to define company-wide policies to fight money laundering, compliance officers are responsible for implementing these policies and ensuring they are followed.
Finance professionals: Financial teams use AML to monitor currency transactions that may involve money laundering. While it's preferable to identify suspicious persons before working with them, this may not always happen, but it's essential to identify and block suspicious transactions.
Sales professionals: While sales teams focus on finding new customers and closing deals, they must also consider who they're dealing with. As mentioned above, doing business with corrupt individuals or companies accused of money laundering can harm the company. The sales team relies on AML software to avoid such a situation.
What are the Alternatives to Anti-Money Laundering Software?
Alternatives to anti-money laundering software can replace this type of software, either wholly or partially:
GRC platforms: AML software can only be replaced by GRC platforms that include anti-money laundering functionality.
Software Related to Anti-Money Laundering Software
Related solutions that can be used together with anti-money laundering software include:
GRC platforms: GRC platforms include functionality for most types of compliance, from privacy and security to employee safety and anti-money laundering. This type of fintech software ensures customer due diligence and provides features for fraud detection that help companies prevent money laundering.
Third party & supplier risk management software: This type of software manages the risks of working with suppliers and partners, while AML focuses on customers, which means that the two solutions are complementary. A customer of a company may also be a partner or supplier. For instance, a provider of logistics services may acquire equipment from a manufacturing company and help them with shipping and warehousing.
Sales software: AML can be critical for sales teams dealing with customers from countries with a high level of corruption, crime, and political instability, especially for transactions that involve significant amounts of money.
Challenges with Anti-Money Laundering Software
AML software solutions can come with their own set of challenges.
Up-to-date information: This challenge is twofold: first, companies need to maintain an updated database of AML regulations, and second, watch lists including corrupt persons or fraudulent businesses must also be up to date.
Services vs. software: AML vendors don't always have lists and databases of corrupt persons or criminals, so they have to work with services companies that create and maintain these lists. These services companies may only provide portals to access the data and sometimes dashboards for analytics. As a result, AML buyers need software and these services to efficiently avoid business with compromised companies and persons.
Pricing: The cost of an AML solution may include more than just software licenses. As mentioned above, the software may require additional to make the most of it. Integration with other software also requires additional spending.
Cryptocurrency: Since it's difficult to track, cryptocurrency can be used in transactions by corrupt institutions or terrorism financing. Also, cryptocurrency is relatively new, and legislation to regulate it is still in its early stages, posing a challenge to AML software.
Which Companies Should Buy Anti-Money Laundering Software?
Financial institutions: Banks and insurance companies are the most exposed to AML fraud since suspicious individuals and companies need their services to turn dirty money into legitimate funds.
Multinational companies: Global companies are also exposed to money laundering since they work with many customers and partners worldwide, and vetting them can be very difficult.
AML services providers: Instead of buying AML software, some companies may opt to work with AML services providers. These providers use AML software on behalf of their customers to monitor transactions and alert them when they engage in suspicious activities.
How to Buy Anti-Money Laundering Software
Requirements Gathering (RFI/RFP) for Anti-Money Laundering Software
A requirements list should include all the features mentioned earlier and be customized for the specific needs of each company. For instance, a global company will require advanced features for KYC and access to databases, including suspicious individuals worldwide.
Compare Anti-Money Laundering Software Products
Create a long list
The best way to create a long list is to eliminate all products that are not a good choice. For example, a buyer that only wants cloud solutions can eliminate all on-premises options from the list. Also, if the buyer already has GRC software and only needs AML, they can eliminate GRC platforms that include AML features.
Create a shortlist
A short list can be created by eliminating products from the long list based on advanced criteria. An example would be the type of AML regulations covered by the solution. Some focus on US or European regulations, while other solutions provide global coverage.
Conduct demos
Demos should be conducted live following a personalized script for each customer. The customer must ensure that the vendors show them what they need, not a generic presentation.
Selection of Anti-Money Laundering Software
Choose a selection team
The selection team should include compliance officers, members of the IT team, and one or more executives. In addition, the buyer's legal team may need to be involved to ensure that both parties clearly define and understand the terms and conditions.
Negotiation
Negotiations are based on the pricing of the software but also on what's included in the package. Services are critical to the buyer to ensure proper configuration and implementation.
Final decision
Compliance officers should make the final decision with the involvement of the IT department.
What Does Anti-Money Laundering Software Cost?
Besides the cost of software licenses, buyers may need to spend on integration with other software such as accounting and ERP or consulting services.
Large companies may need 24/7 global support, usually not included in standard pricing. Furthermore, buyers need to understand how they pay to access AML directories.
Furthermore, anti-money laundering training may be required to ensure that users are familiar with AML compliance, making them more efficient.
Return on Investment (ROI)
The ROI of AML can be difficult to calculate since it's not easy to quantify the benefits of using this software. For instance, avoiding a contract of $1 million with a suspicious business means that the company saved the amount but at the same time protected the business's reputation, which is difficult to convert into a monetary value.
Implementation of Anti-Money Laundering Software
How is Anti-Money Laundering Software Implemented?
AML software is implemented by the buyer, vendor, or one of their partners. It is recommended that both the seller and buyer assign a project manager to monitor the implementation process.
Who is Responsible for Anti-Money Laundering Software Implementation?
Compliance officers and IT teams share the primary responsibility, but anyone using the AML software is responsible for implementation. Compliance officers must define workflows and processes, user roles, and access rights implemented by IT. Users provide feedback so that their managers and IT can tweak the system to make it more user-friendly while maintaining a high level of security.
What Does the Implementation Process Look Like for Anti-Money Laundering Software?
AML implementation should start with migrating the data from legacy systems and other data sources to the new software. The next important step is configuring the solution based on the customer's needs. Finally, training and testing are required before they go live.
When Should You Implement Anti-Money Laundering Software?
There is no perfect timing for AML implementations, but it's preferable not to do it during peak activity hours where it can disrupt the company. For instance, shipping companies are usually busy during the holidays, and financial services may experience high activity volumes when customers need to close their books at the end of the year.
If the buyers also purchase other compliance solutions or regtech software, it is preferable to implement them simultaneously. This will allow the buyer to configure all solutions to seamlessly exchange information and train users that may need to use multiple solutions.
Anti-Money Laundering Software Trends
Artificial intelligence (AI)
AI and machine learning are used more in AML to identify suspicious persons or transactions using complex algorithms that enhance human analysis.
Application programming interface (API)
APIs are critical for connecting AML software with other tools and exchanging data with watch lists. However, in some cases, it is preferable to use APIs to connect with banking systems than it is to develop its functionality. For this reason, AML software developers are likely to use API more and more.
