If you work in the financial technology (fintech) industry, you probably know better than anyone the risks of doing business. From volatile investments in the stock market to cybercriminals and other bad actors, the fintech world is full of dangers lurking around every corner.
One of these dangers is money laundering – the process of using banking transfers and commercial transactions to make money someone gained illegally appear “clean.” Money laundering is illegal, but that doesn’t stop it from happening every day around the globe. In fact, it’s estimated that between $800 billion and $2 trillion (as much as 5% of the global economy) is laundered around the world annually!
Lawmakers and other governing bodies have taken steps to prevent money laundering with AML (anti-money laundering) sanctions lists. These lists can help you keep your business safe from illegal activities – but they’re only useful if you conduct regular sanction screenings.
What is a Sanction and a Sanctions List?
Before we can discuss why AML sanctions lists are so important to FinTech companies, we must first understand what a sanctions list is. A sanction is an official condemnation a regulatory body levies against organizations or individuals known to engage in illegal behavior. A government may sanction a known arms dealer, drug trafficker, or other fugitive if they believe the individual is a danger to society.
Money launderers often earn sanctions for one of two reasons: either they’ve obtained their money through illegal activity (thereby making them a danger to society) or they’re trying to evade taxes (making them a danger to the government). Whatever the motive, people or companies who engage in money laundering can be real trouble for FinTech businesses – which is why it’s wise to screen them out before entering into any business with them.
How do you know which customers or clients are potential money launderers? You can check an AML sanctions list. This is a comprehensive list of any individuals or groups who have been the subject of a sanction. There are many different sanctions lists available: the U.S. Office of Foreign Assets Control (OFAC) has its own list, the EU has a list of sanctions specifically related to EU financial institutions, and many countries have their own lists of sanctions issued by their governments.
Any of these sanction lists might help you avoid working with potential money launderers in your business – but the best way to protect your company is to screen as many lists as possible.
Why Should Your FinTech Company Perform an AML Sanction Check?
We will admit that performing AML sanction screenings is not an easy process. There are many lists to examine, each containing hundreds (maybe even thousands) of names. Additionally, these sanctions lists are updated daily, so an individual or organization may not appear at the time you conduct your screening!
But even with these obstacles in mind, FinTech companies should make AML sanction checks a mandatory part of their business operations. Here are a few reasons why this extra step is so important:
Risk Assessment
AML sanction screening should be a part of your company’s customer due diligence (CDD) procedure. If you discover that a person or organization you might have worked with has been censured for money laundering (or any other criminal activity), you will likely avoid working with them.
Pre-screening your customers with AML sanctions lists can help you avoid becoming the victim of a financial crime.
Avoid Your Own Sanctions
Money laundering (as we’ve said a few times here) is illegal. Individuals who commit this crime can be subject to a wide range of repercussions, from hefty fines to jail time. But do you know what else can result in penalties? Working with money launderers – even if you don’t know it.
If you fail to do your due diligence and screen your customers, you might be accountable for large regulatory fees! Don’t do this to your business. Make sure you screen your customers!
One way to make sure your business is safe (without losing precious time conducting screenings) is to use a third-party service for your AML sanction screening needs. They will continually review sanction lists and report to you any individuals or groups that may be bad for business. These companies can help you avoid money laundering in your business and reduce the risks associated with working with bad actors.
Author Bio:
Giovanni Gallo is the Co-CEO of ComplianceLine, where his team strives to make the world a better workplace with compliance hotline services, sanction and license monitoring, and workforce eLearning software and services.
Growing up as the son of a Cuban refugee in an entrepreneurial family taught Gio how servanthood and deep care for employees can make a thriving business a platform for positive change in the world. He built on that through experience with startups and multinational organizations so ComplianceLine’s solutions can empower caring leaders to build strong cultures for the betterment of every employee and their community.
When he’s not working, Gio’s wrangling his two young kids, riding his motorcycle, and supporting education, families, and the homeless in the Charlotte community.
