Regulated entities, such as financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs), have reached an advanced level of customer service with the support of technology in onboarding processes. One of the types of customers served through this technology are non-face-to-face (NFTF) customers.
However, the Money Laundering and Terrorist Financing risks associated with these customers must be mitigated with the utmost care. Therefore, regulated entities need rigorous and well-defined anti-money launderingAML) measures for NFTF customers.
To avoid the possibility of ML/FT, regulated entities should take careful precautions during the process of verifying the identity of NFTF clients.
Onboarding a remote customer is a challenging task. This article seeks to provide information on the risks presented during the onboarding stage and in maintaining the business relationship with NFTF clients.
How can non-face-to-face customers pose a threat to your business?
Technology has advanced rapidly in the DNFBPs, virtual asset service providers (VASPs) and financial institutions (FIs) sector. Today, customers prefer to conduct remote and digital transactions to avoid the need for physical presence or visits to establishments. These digital transactions are conducted via mobile applications and the internet.
Identity verification and Know Your Customer (KYC) software such as Petroshore's AMLTool makes all this possible. Many regulated entities, especially banks and other financial institutions, have already adopted these digital methods of doing business.
Customers opt for digital transactions to avoid traveling to service providers' offices. The main factors discouraging face-to-face visits include the inconvenience of travel, the need to provide physical copies of documents and the time spent in lines.
AML risks presented for non-face-to-face customers
Digitally, regulated entities can manage various transactions in a convenient way, with online documentary evidence, which reduces manual effort and offers a more agile service.
However, in this context, Money Laundering and terrorist financing risks for regulated entities must be carefully analyzed and mitigated. Remote onboarding of non-face-to-face (NFTF) customers exposes DNFBPs and VASPs to the following risks:
- False Identities:
Customers may use false identities to open accounts at regulated entities and conduct transactions, making it difficult to associate illicit acts with a real person or identity. - Limited Visibility of Customer Behavior:
The lack of face-to-face interactions prevents direct observation of customer actions and behaviors, making it difficult to identify suspicious activities. - Speed of Transactions:
Fast digital transactions attract criminals interested in hiding illicit activities before they are detected. - Hidden Ownership Structures:
Anonymity makes it easier for criminals to conceal ownership of assets, commonly through shell companies. - Cross Border Transactions:
Identifying the source and destination of funds in different jurisdictions is complicated, especially with forged documents. - Risks Involving Third Parties:
Reliance on third parties for KYC and due diligence processes can expose companies to vulnerabilities if proper procedures are not adopted. - Data Security and Privacy:
Data breaches can allow criminals to use legitimate accounts for illegal activities.
Common ML/FT Typologies Used in NFTF Channels
- Structuring:
Split large transactions into several smaller ones to avoid detection. - Smurfing:
Split transactions into small amounts and use different people to deposit illicit funds into the banking system.
Risk Mitigation Assistance
PetroShore'sAMLTool can help mitigate the risks associated with NFTF clients by:
- Reduction of False Positives and Negatives:
Advanced technology to improve accuracy in risk detection. - Identity Verification with Facial Biometrics:
Guarantees greater security when confirming identities. - Real-Time Monitoring:
Coverage of more than 1,300 international databases to detect changes in risk profiles. - Consolidated Data Analytics:
Access to an integrated ecosystem of information, such as adverse news, sanctions lists and PEPs tracking. - Compliance with Global Regulations:
Compatible with international standards such as FATF and AMLD6. - Automated and Customizable Processes:
Integration with APIs and customization of risk profiles. - Reporting and Continuous Monitoring:
Generation of detailed reports to identify suspicious patterns such as structuring and smurfing.
The AMLTool provides a complete and integrated solution to address compliance challenges related to non-face-to-face customers, offering increased security, accuracy and compliance at all stages of the onboarding and monitoring process.
