Digitalisation is increasing the business risk from money laundering

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This article was published in Global Banking and Finance April 2018

Ince Gordon Dadds, the legal and professional services firm, is urging businesses to get smarter in how they handle money laundering or face the wrath of HMRC with some hefty financial fines. It warns that the digitalisation of cash has led to increased risks to businesses from money laundering. Whilst the majority of businesses are good at acknowledging these risks, they need to do more to mitigate the risk of money laundering.

Money laundering is a serious crime which is undermining the financial well-being of many businesses and the wider economy. Vast amounts of money is laundered through banks and other regulated businesses, and this includes money from international criminal activity and corruption.

Whilst regulatory enforcement, both in the UK and Europe, is widely aligned, outside of Europe regulation is not joined-up leaving countries like the UK open to criminal activity, warns Ince Gordon Dadds. 

Alex Ktorides, Partner at Ince Gordon Dadds, says:

“Digitalisation has made it far easier for organised crime syndicates to withhold money from the financial system and to transfer assets from what appear to be legitimate businesses and individuals to criminals. 
“Whilst regulation can be seen as a burden and businesses would naturally prefer less red tape, it provides crucial protection. However, they should be mindful that by breaching these laws businesses can be ruined through significant financial penalties; one large fine could be enough to put a firm out of business.  Inevitably many executives have a tendency to do the bare minimum and see AML as a box ticking exercise.  But due diligence should be taken seriously and businesses should be going above and beyond the necessary requirements.” 

Alex Ktorides continues:

“The revolution in payments, transferring of money for holidays, business to business transfers or for sending money abroad has increased due to people wanting cheaper and faster payments. However, technology is always one step ahead of regulation, therefore businesses need to get smarter in how they treat this technology. 

“It is not enough to want to do the right thing, or have weak processes or under trained staff as these leave businesses vulnerable and exposed to criminal activity. We cannot urge business owners enough to take action now, before it’s too late. Once you engage you find there is much you can easily and painlessly do to make a big difference to your AML compliance.  Ironically, our view is that the blockchain and distributed ledger technology (if not the currencies in the short term) will provide much improved access to ‘know your client’ (KYC) information so there is nothing to be shy of provided you have access to expertise.”

Businesses should not shy away from asking customers questions as to the source of their funding as part of the AML process. They need to take a risk based approach and consider the characteristics of the customer, the product and its distribution, the jurisdictions involved in determining the lengths that they have to now go to in terms of conducting due diligence on their clients.

Click here to see the article in Global Banking and Finance.

Alex Ktorides

Alex Ktorides Partner

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