Discover the four global trends driving increased money laundering risk in 2023 in our new White Paper

Identifying and mitigating money laundering risks is among the most important compliance tasks for any financial services company. Yet, in 2023, four trends are making this task harder than ever before, while ever-strengthening legislation across the world increases the cost of an AML failure. Our new White Paper looks at the main trends in relation to money laundering risk; summarises the key legislative developments for firms to be aware of; and explains how Nexis^® Solutions can help firms to leverage data and technology to transform their financial crime risk management.

The main changes to companies’ AML approaches

The landscape of money laundering is rapidly changing, and regulators across the world are introducing stronger AML legislation. Our White Paper covers the main developments in Europe, Asia Pacific, South America and the Middle East. Recent initiatives to note include:

• Europe: A package of AML and Counter-Terrorist Financing (CTF) legislation was approved by the European Parliament in March 2023. This would require companies operating in the EU to carry out customer due diligence and increase transparency around beneficial ownership.
• South America: Brazil carried out its first National Risk Assessment for money laundering and terrorist financing in 2021, which led to the introduction of stronger AML policies for the higher-risk precious metals sector.
• Asia Pacific: Singapore’s Parliament approved a new digital platform in May 2023 which will allow banks to securely share information on transactions and customers which appear to carry a risk of money laundering.
• Middle East: The UAE developed its first strategic plan for AML and CTF in 2020, while Saudi Arabia’s 2021 amendment to its Anti-Bribery Law makes requirements of private companies.

Further regulation is now expected, driven in part by several key emerging trends. Companies should be aware of these trends:

• Crypto-currency changes: Crypto provides an increasingly difficult environment for governments and regulators to track money, which raises the risk of it money being laundered through crypto services. Regulation of the sector is started to emerge ­– for example, in 2023 the European Council adopted new rules to regulate markets in crypto-assets (MiCA).
• Increasing complexity of money laundering: One reason for the rapid development of AML legislation and enforcement is that money launderers are devising new and increasingly sophisticated methods of facilitating illicit financial flows. Prompted by this development of money launderers’ tactics, more than two-thirds of respondents to Kroll’s latest survey said their companies are now prioritizing investments in technology to detect financial crime.
• New technologies: AI and Machine Learning are now regularly used to detect suspicious patterns of transactions, and McKinsey reported in 2022 that most major US banks are using or expecting to adopt Machine Learning in their AML approach.
• Sanctions and the conflict in Ukraine: Following the onset of the conflict in Ukraine, the EU and many countries imposed economic sanctions against individuals and entities in Russia, while Russia issued retaliatory sanctions against international third parties. Banks that receive funds but cannot establish beneficial ownership or source of wealth are exposed to a heightened risk of breaching these sanctions.

Unsurprisingly, the result of stronger AML legislation and greater complexity of AML risk is a recent growth in regulators taking enforcement action against apparent AML breaches by companies. Banks and other financial institutions were fined nearly USD$5 billion for alleged AML and other financial crime failures in 2022, according to Fenergo – a 50% increase on the previous year. The White Paper focuses in on eight countries to pull out recent examples of AML fines in each.

The future of AML compliance

The White Paper concludes with a warning: Legislation will only become more demanding, and regulators will become more active in putting that legislation to work against suspected AML and CTF breaches. Little wonder then that, combined with a significant demand for qualified personnel in the region, the cost of compliance is increasing. Financial institutions cannot afford to take a regional approach to compliance. They need to ensure that the nuances of every individual country’s legislation are understood and implemented. The financial, legal, reputational and strategic costs of not doing so are far more expensive than a compliance budget.

Financial institutions can address some of these issues directly. Training and development can help deliver a new generation of compliance professionals, but this will take time and investment in continual career development so that AML experts remain up to date as new legislation is published.

The deployment of technology tools that can automate elements of due diligence and surface insights from large datasets which would not be possible from manual searches. These tools, alongside highly qualified people, probably provide organisations with the most effective way to slow the increasing cost of remaining compliant. But developing and delivering robust AML compliance programmes will remain the biggest challenge faced by financial services companies for the foreseeable future.

Upgrade your approach to AML risk management with help from Nexis Solutions

In response to growing regulatory interventions, companies must make it a priority to mitigate the financial, legal, reputational and strategic risks of a compliance failure around money laundering or terrorist financing. The best way to do that is to leverage data and technology to strengthen your due diligence process. This will help you to better detect suspected AML transactions or activities within your business or by a customer, supplier or other third party.

Nexis Solutions helps firms to implement a more efficient and effective due diligence process to identify and mitigate AML risk by providing companies with authoritative data from the most relevant sources, including:

• News data to identify reputational risk of third parties.
• PEPs and sanctions data to identify third parties which may require enhanced due diligence.
• Company data to help to build a picture of a company’s structure, directors and beneficial owners.
• ESG data to assess third parties’ compliance with growing expectations from regulators and the public around human rights and environmental due diligence.

We support firms to deploy technology across these sources to improve their approach to due diligence and risk management. For example:

• Nexis Diligence supports an effective due diligence process with our extensive archives and news searches going back more than 40 years.
• Nexis® Data as a Service delivers an unrivalled collection of licensed and web content, deep archives and data, through our flexible data APIs.