Anti-money Laundering (AML) Trends For 2023

The world has entered a new era of technological development, with huge impacts on business and society. At the same time, we have also witnessed widespread anti-money laundering (AML) violations. While regulatory authorities work to improve these issues, many corporations find it difficult to comply with the regulations in an efficient manner.

While crypto, which has become a concern since the collapse of FTX, remains at the center of fraud in 2022, the increasing risks in real estate associated with them indicate that new regulations are on the way. Artificial intelligence, which is constantly evolving, has an impact on RegTechs; it also emphasizes the importance of regulators cooperating with RegTech.

Find out AML trends in 2023

What is anti-money laundering (AML)?

Anti-money laundering (AML) is a highly regulated area of economic crime that seeks to identify and prevent the money laundering of illicit funds through the financial system. The global nature of the Internet has increased the level of sophistication in anti-money laundering schemes. As such, an increasing number of organizations are required to comply with AML regulations, as well as satisfy their own internal compliance obligations.

In 2018, the U.S. Department of the Treasury published “National Money Laundering Risk Assessment” identifying the money laundering threats, vulnerabilities, and risks that the United States had faced. These practices are further developed by reports published by the Financial Action Task Force (FATF) and the Center for Strategic and International Studies (CSIS).

In a time where social media has become the focal point for illegal activities just like never before, the question of how to mitigate the risks associated with illegal activity continues to persist. While money laundering practices have been around for centuries, technological advancements have made it easier than ever for criminals to launder large sums of money through electronic platforms.

Anti-Money Laundering Trends for 2023

According to One IBC^® Research, here is an overview of the current developments in the banking industry related to AML trends for 2023.

1. Enhanced Crypto Regulations

Scammers can transfer large sums of money without being detected more efficiently than ever before by taking advantage of cryptocurrency’s anonymity. In 2022, hackers stole $4.3 billion in cryptocurrency, a 37% increase over the previous year. In the last two years, the majority of crypto scams have been perpetrated via social media platforms.

Participants in the cryptocurrency money markets, which had an unbalanced year, believe that legal regulations in 2023 will restore confidence in the sector. The United States, the European Union, and a number of other countries have stated their intent to create a more robust regulatory framework for cryptocurrency by 2023. Following the demise of FTX, while questions about the future of crypto and what regulators will do next dominate the agenda, it is becoming clear that improving crypto rules is one of the AML trends to consider in 2023.

The following are some common methods to enhance crypto regulations for AML:

• Customer due diligence: Financial institutions are required to conduct enhanced customer due diligence on cryptocurrency customers, including identity verification and risk assessment.

• Reporting of suspicious activity: Financial institutions are required to report suspicious cryptocurrency transactions to regulatory authorities.

• Record-keeping: Financial institutions must maintain records of cryptocurrency transactions and customer information to assist in AML investigations.

• Licensing and registration: Cryptocurrency exchanges, wallet providers, and other virtual asset service providers are often required to obtain a license or register with regulatory authorities.

• Compliance programs: Financial institutions must implement AML compliance programs that include policies, procedures, and controls to detect and prevent money laundering through cryptocurrency transactions.

These enhanced regulations are designed to increase transparency and accountability in the cryptocurrency industry, and to help prevent the abuse of cryptocurrencies for illegal activities. Financial institutions must remain compliant with these regulations to reduce the risk of AML violations and the associated financial and reputational consequences.

Crypto regulations are to be enhanced in 2023

2. Artificial Intelligence Technology

Although Artificial Intelligence (AI) and AML are very different fields, they interact extensively. While AI helps the AML process, AML helps AI systems improve their accuracy and efficiency. Simultaneously, AI and AML have features that can be alternatives to each other, and these features allow them to complement each other.

AI is a very powerful tool for AML purposes. It can aid human analysts by providing answers to questions that are not well understood or simple enough to be answered by humans alone. An example of this type of application is when data is required to analyze complex relationships between customers in order to identify potential crimes.

As a part of the anti money laundering efforts, AI-based automated tools are used to detect identity and transaction related information. These are either built by the government completely or with third party support. A few of them include IBM Watson, LexisNexis, Sensis, KPMG’s Compliance360, Emisys, etc. All these help in detecting abnormal transactions easily and report them to the concerned authorities in a very less amount of time.

Given that financial institution security transcends geographical boundaries, AI can assist in dealing with a variety of issues that arise as a result of digitalization. While we understand that artificial intelligence cannot completely replace humans, it will be necessary to reduce the need for human empowerment while also accelerating various aspects of AML.

3. Real Estate Regulations

Because of the high value of properties and the ability to transact in cash, real estate remains an appealing money laundering tool. Transparency International revealed in February 2022 that Russians accused of corruption had invested £1.5 billion in the UK real estate market. Over the last five years, more than $2.3 billion has been laundered in the US real estate sector, according to a Global Financial Integrity (GFI) report. According to Transparency International, at least £4.4 billion in UK real estate investment comes from politically exposed persons (PEPs) in high-risk corruption jurisdictions. Europol also discovered that 68% of criminal organizations in the EU use the real estate market to launder money.

The United States has taken several steps to change the way it handles AML compliance and strengthen AML practices and regulations:

• The KLEPTO Act, introduced in the Senate, aims to assist law enforcement agencies in tracking down Russian oligarchs’ luxury assets.

• FinCEN’s Geotargeting Orders have been renewed and expanded.

• Real estate is listed as a significant security vulnerability in the Treasury Department’s national strategy to combat terrorist and other Illegal financing.

4. Cooperation Between Regulators And RegTech Companies

RegTech companies are companies that provide technology-based solutions to regulatory compliance challenges in the financial services industry. Many RegTech companies focus on Anti-Money Laundering compliance, and offer a range of solutions to help financial institutions meet their AML obligations.

Regulators and Reg-Tech serve very different functions for the companies. Regulators are responsible for enforcing regulations in financial systems, while Reg-Tech companies provide services to make this easier. Both seek to improve the efficiency with which regulations are implemented in financial systems.

In 2023, more collaboration between regulators and RegTech companies is expected to be seen. Cooperation between regulatory agencies and RegTech companies will help companies detect anomalies in a short period of time as fraudsters modify and develop their strategies to carry out illegal crimes.

More collaboration between regulators and RegTech companies in 2023

Some updated AML Regulations in 2023

1. The Corporate Transparency Act of the United States of America

The Corporate Transparency Act (CTA), which went into effect in January 2021, protects the country’s financial system from being used for money laundering or other illegal activities. Individuals and foreign organizations must report their true beneficiary information (BOI) to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) bureau in September 2022, with the release of the bureau’s “Final Rule,” or Requirements for Reporting Right to Benefits Information. This will provide a more stringent means of combating illegal financial activities. The Final Rule will be implemented on January 1, 2024. Companies formed prior to the effective date and subject to the rule, on the other hand, must submit their BOI by January 1, 2025.

2. Amendments to the Anti-Money Laundering Law in Switzerland

The following changes to Anti-Money Laundering Act (AMLA) in Switzerland became effective on January 1, 2023:

• Financial intermediaries must now only verify the information and identities of their actual beneficiaries before creating the necessary information.

• Financial intermediaries must check and update customer data on a regular basis.

• If there is reasonable suspicion or concrete evidence of money laundering, a suspicious activity report (SAR) will be filed with the Money Laundering Reporting Office (MROS).

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