Fans of the hit TV series Ozark have some idea about money laundering – where ill-gotten gains are ‘cleaned’ and returned to the financial system for the benefit of criminal organizations. It’s fascinating entertainment that points to a much more serious reality. If you believe you’re a target of laundering, you have a responsibility to report it. For financial institutions in particular, but business in general, transaction monitoring is not just an ethical requirement, it’s a legal one as well. So what exactly is transaction monitoring?
Put simply, it’s a system whereby you are alerted whenever unusual, large, or complex financial transactions have been enacted within your business. In the banking sector this could be any of the following:
- A customer makes unusually large, or unusually frequent, transactions
- A transaction is sent to, or comes from, a high-risk country
- Payments involve a person or organization on a sanctions list
- A customer depositing large amounts of cash
This is not an exhaustive list by any means. What it highlights are the kinds of irregular activity that should sound alarms. The activity may be perfectly innocent, it may also indicate your business is being exploited by money launderers, terrorist ,organizations or other serious criminals – and the authorities need to know.
Transaction monitoring could be as simple as ensuring your employees are aware and vigilant to the dangers posed by those seeking to exploit your business. Perhaps you have a procedure in place for them to do that. In reality, such a system is only effective for small organizations where financial activity is transparent to all staff. For larger companies with complex, automated systems, you’ll need complex, automated Anti-Money Laundering (AML) transaction monitoring.
Effective compliance systems sift through thousands if not millions of transactions and match them against a large variety of risk profiles. The tighter the settings, the more matches you’ll get. The result is a heavily focused examination of activity that will enable you to locate, identify and report on suspicious transactions.
- Cull transactions
- Flag suspicious activity
- Sort against customer risk profiles
- Match against sanction and blacklists
- Produce suspicious activity lists for further investigation
Since AML software has learning capabilities, monitoring becomes more precise over time, effectively minimizing false alerts so AML teams can focus on legitimate concerns. Measuring how investigation units resolve and report their casework by procedural guidelines is another key component of the monitoring and reporting process.
Proper transaction monitoring procedures – whether that’s using a manual or fully automated system – will help ensure you meet your obligations in the fight against money laundering and the financing of terrorist activity.