Sanctions and AML Insights

The Anti-Money Laundering Act of 2020 (AMLA) forms part of the National Defense Authorization Act (NDAA) and has greatly widened the scope of enforcement and reporting requirements. Some have called it the biggest overhaul of the bank’s secrecy and AML regime since the Patriot Act.

While President Putin boldly declared that sanctions against Russia have failed, the full impact of Western sanctions has been keenly felt. Severe sanctions cut off Russia’s access to foreign reserves, limited their ability to import key dual-use technology and froze the assets of major banks. The Kremlin responded by hiking interest rates to 20% and forcing Russian businesses to convert their profits to rubles in order to recover. However, this may not suffice in the long run.

In the most simple terms, reverse money laundering is the opposite of typical money laundering schemes where criminals spread illegal gains to lower the odds of being found. With reverse money laundering, legal funds are removed from circulation and used to fund criminal activity, terrorism and tax evasion or bribery. Legitimate funds are used, which means that monitoring, identifying and prohibiting reverse money laundering becomes extremely complex.

The terms smurfing and structuring both refer to money laundering techniques deployed by financial criminals. The two terms are often used interchangeably, but there are subtle differences. Smurfing is highly illegal, goes even further than structuring, and can be even harder to detect. Financial institutions have a duty to familiarize themselves with the inner workings of a smurf to protect their reputation and their clientele.

The convenience and speed of digital banks continue to lure new customers to their businesses, with statisticians predicting that the total number of digital banking users will soon reach new records. Unfortunately, these inherently beneficial qualities make them lucrative and easy targets for money launderers. Leaner teams and the speed of onboarding may cut costs and accelerate service delivery, but it also leaves a gap for financial criminals. Customers are often onboarded in hours, not days, as with traditional banks.  However, as fintech startups and digital banks become fully regulated financial institutions, governments insist on tough compliance standards, and regulators demand that accurate customer data be collected and built into risk assessment processes.

Money laundering conceals crimes that range from tax evasion to drug trafficking and even terrorist funding. According to a panel formed by the United Nations, money laundering schemes amount to flows of as much as $1.6 trillion (or 2.7% of the global GDP) every year. Anti-money laundering (often referred to as AML) is the nexus of laws, regulations and processes that aim to curb money laundering across the globe, including Know Your Customer checks and filing and reporting requirements. Financial institutions around the globe, including fintech organizations and crypto platforms, need to familiarize themselves with the regulations applicable to their businesses and regions in order to avoid harsh penalties and reputational damage.

Criminals will often use expensive assets, including cars, boats and even luxury planes, to disguise illegal funds and later convert them into cash. Automotive companies should take note: anyone involved in vehicle sales (including car dealerships, banks and law firms) who fails to identify a money-laundering scheme may risk considerable penalties (and even criminal charges) under stringent AML regulations. Understanding the red flags of money laundering and how dealerships, middlemen and service providers may be implicated is the first step to avoiding becoming an unwilling participant in financial crime.

Anti-Money Laundering broadly refers to the activities that financial institutions perform to ensure they remain compliant with legal requirements to actively monitor and report suspicious activities during the course of their normal business operations. In the last two years, many changes to the UK’s anti-money laundering regulations have come into force, including the incorporation of international standards as set by the Financial Action Task Force as the transposition of the EU’s 5th Money Laundering Directive. Companies have to remain aware of legislative changes in order to avoid hefty fines and penalties from regulators.