Money laundering is the process in which the money that comes from illicit activities (extortion, kidnapping, drug trafficking, contraband, corruption, etc.), known as “dirty money”, becomes “clean money”, it is infiltrated in the legal economy, in order that criminals can enjoy their economic benefits freely.

Criminal groups, such as drug traffickers and those that promote terrorist activities, are the most common in carrying out money laundering processes, infiltrating companies to use them as objects to launder their assets. That is why, it is important that companies receive guidance and training to avoid falling into criminal hands.

Existing methods to prevent money laundering

There are several processes in which companies must follow to verify if their assets are lawful or if that company is being used for money laundering. These methods serve to fulfill that objective:

  • Client registration: The customer registration is done to identify the level of risk of each client and facilitate them the process of recognition of their assets. This process is carried out from the identification of the type of person with the greatest risk of money laundering and financing of terrorism: politically exposed and suspicious persons, such as those linked to sectors such as tourism, air transport, games, companies of insurance, exchange houses, distributors, etc.
  • Know Your Customer (KYC): It is a process that consists of a series of steps to assemble the client’s profile and define their activities and funding sources. This process implies a double identification of the client: first, recognition is made through documents, such as the client’s identification card or passport; subsequently, the purpose with which the person or company wishes to formalize a relationship with the entity is established, which implies discovering what type of professional activity it exercises, where its funds come from and for what purpose that person or company requires some credit, savings or financing.
    • The KYC’s main purpose is to verify the customer’s behavior and detect possible suspicious transactions. The KYC is a due diligence, a process that investigates details about the personal and professional life of the client, which is done by the compliance area before opening the account or starting a business relationship. The compliance area members have to consider certain information from the client when generating a KYC form: identity, financial situation, financial activity, payment capacity, personal and professional references, financial entities with which he/she has had a link, etc. It must be considered that the financial situation of the client can change at any time, so the update of the KYC information must be done permanently.
  • Monitoring of unusual or suspicious transactions: Financial institutions must have an internal control system, a control of measures with which to keep tracks of the operation of their activities and their customers. The compliance area is the department in charge of detecting those operations that present suspicious signs of money laundering. When there’s a wide knowledge about the transactions of a client, it is better to establish if the movements in the client’s account coincide with the transactions history and, if not, that will help to take the appropriate and timely actions.

Optimal and effective money laundering prevention system can determine if the client is a politically exposed person (PEP), if there was some alteration in the account data or if that client or company has some commercial activity in border areas.

To identify unusual operations, the warning signs must be considered. Some of those warning signs of possible money laundering are:

  • Transactions that don’t match the customer’s occupation
  • Sudden movements of amounts of transactions
  • Low frequency operations
  • Transfers of smaller amounts to other accounts
  • Unjustified change in the pattern of transactions executed by the client

Similarly, there are certain indications that can alert the client’s financial behavior:

  • Refusing to provide information
  • Modify account information unjustifiably
  • Bribe officials
  • Have an account without validated data

Customer segmentation: This method is of great importance to prevent money laundering and terrorism financing, because with this, we can know the profile of a group of users with common characteristics and be able to compare them. The segmentation process is the first thing that must be done before monitoring and following up on unusual operations or analyzing the financial behavior of a client; through this process, similar trails are determined and common characteristics of each transaction are detected in order to establish certain patterns.

When carrying out this process, the following variables must be considered:

  • Customers
  • Products and services
  • Distribution channels
  • Nature and origin of transactions

Sources:  & Public records and information