Anti-Money Laundering in the Covid-era
Introduction on Covid-related crimes
The Covid-19 pandemic is creating unprecedented challenges on a global scale in a number of sectors, not least on matters relating to money laundering (hereinafter referred to as “ML”) and terrorist financing (hereinafter referred to as the “CTF”).
As a response to the health-risks posed by Covid-19, governments worldwide have introduced various measures ranging from physical distancing, travel restrictions tax relief initiatives and many other measures. Social confinement and distancing measures introduced to limit the spread of COVID-19 virus have impacted the government and private sectors’ abilities to implement the provisions outlined in the Law on Prevention and Suppression of Money Laundering and terrorist financing (188(I)/2007) as subsequently amended (the “AML Law”).
In accordance, with The Financial Action Task Force (hereinafter referred to as “FATF”) some of the concerns with regards to money laundering as well as terrorist financing during the Covid-19 era include, inter alia, the following:
This article shall examine and comment on the potential ways forward and responses in relation to the challenges sparked by Covid-19.
Potential Anti-money laundering (AML) responses as a way forward
It is vital for all key parties to coordinate domestically to assess the impact of COVID-19 on AML/CFT risks and systems, to develop responses. The authorities would need to work together to identify, monitor and communicate the changing risk landscape and provide guidance to the private sector
Engaging with the private sector and enhancing communication between the authorities, the regulators and the private sector by proactively engaging them on the application of their AML/CFT measures and working constructively with them to minimise the potential impact.
In order to overcome these considerable challenges, it is essential that entities leverage new-age smart technology solutions. Indeed, in light of the challenges faced by the Covid-19 pandemic a more digital and flexible ‘Know-Your-Client’ procedure may need to be used by private entities. The COVID-19 pandemic has forced many reporting entities, including financial institutions, and online service providers to amend their anti-money laundering and counter-terrorism financing (AML/CTF) procedures by implementing alternative processes to verify customers’ identity.
One important example is the importance of artificial intelligence (AI) – enabled systems and application programming interfaces (APIs) during the onboarding process.
Effective implementation of technical solutions fosters greater transparency in private entities and the overall economy securing integrity and security of the AML system on a national and international level during and after the pandemic.
Going forward, the role of regulators and authorities on both an international and national level is crucial in encouraging digital approaches to be implemented by private and public sector entities.
FAFT has recommended the development of clear guidelines allowing the appropriate, risk-based use of reliable, independent digital ID systems by private and public entities regulated for the purpose of combating ML and CFT. Pursuant to the FAFT guidance Digital ID systems “use electronic means to assert and prove a person’s official identity online (digital) and/or in-person environments at various assurance levels.”
In a nutshell, the guidance of the FAFT highlights the fact that not all elements of a digital ID system are in fact digital. The procedure may include physical documentation or a combination of both physical and digital documentation. However, the “credentialing” and “authentication”. non-face-to-face onboarding and transactions conducted through the use of robust and trustworthy IT infrastructure shall not necessarily be classified as high risk.
In addition to the above, it is essential that businesses invest not only in the IT infrastructure but also in their human capital by training their employees to effectively identify and manage ML as well as CTF risks in discharging their day-to-day duties by utilising the available technology and resources efficiently. Online seminars and e-learning are vital in enhancing the knowledge of the members of staff of any business in relation to Covid-related ML and CTF threats.
The role of professional advisors and experts will evolve and their participation in developing AML compliance programmes, reviewing, auditing and assessing the effectiveness will be crucial.
On a domestic and international level, it is important to understand and monitor the evolving risk environment and access forums such as the FAFT and EUROPOL to obtain the latest information available.
Failure by companies to keep their compliance programmes up to date, could result in them not being competitive in the new business landscape and subject them to increased regulatory focus, along with reputational and financial risk.
Many companies are now using or plan to use the unprecedented situation we are experiencing to explore changes to their overall operating models, looking for greater efficiency, lower cost and increased productivity. This has also led to an increasing use of alternative operating models, including the use of managed services and incorporating transformative and innovative ideas into their programmes.
We expect an increase in investment in technology and data-based solutions, such as ML and analytics, to modernise compliance functions and allocate resources efficiently.
Authors: Iacovos Kouppas, Georgia Tymviou