https://www.au10tix.com/blog/customer-due-diligence-cdd-2/
No sector escapes from some degree of fraud and loss. We live in an age where digital systems and security protocols can never be 100% effective. Every day, we see reports of companies losing millions of dollars as a result of cybercrime. Hackers and malicious agents follow the money, and financial institutions like banks are often where it’s at.
In the context of financial crimes, money laundering, corruption, and bribery stand out as dominant sources of fraud. Just last month, in July, The U.S. Federal Reserve had to fine Deutsche Bank $186 million for failing to address money laundering issues.
When even big names are unable to handle financial crime effectively, it raises a lot of eyebrows.
How can institutions deal with fraud and financial crimes effectively? Well, there isn’t a single answer to that. Institutions are coming up with improved protocols all the time, and the situation keeps evolving. Let’s look at three of the most effective approaches that currently exist.
1. Prioritizing Customer Due Diligence
In the case of money laundering, a lack of due diligence is one of the most common contributing factors. As you may be aware, money laundering involves placement, layering, and integration. Without due diligence in verifying the source of funds, the identities behind suspicious accounts and transaction patterns remain vague.
According to AU10TIX, it is the responsibility of financial institutions to ensure that their customers aren’t involved in anything illegal. This often involves gathering specific information about their customers and clients and acting on suspicious behavior.
AU10TIX goes on to state that larger companies often use a more advanced form of CDD. This refers to enhanced due diligence. EDD attempts to investigate and vet customers with greater requirements of customer analysis and other forms of evidence.
Any financial institution that is serious about preventing financial crimes will constantly assess the effectiveness of its due diligence efforts
2. Addressing The Human Element in Errors
Addressing the human element is crucial in preventing financial crimes. This is because many financial crimes involve manipulation, deception, and exploitation of people’s vulnerabilities.
You need to ensure that your prevention strategies are not limited to technological solutions. Financial crime can be prevented by comprehensive anti-financial crime training programs.
You could present real or hypothetical case studies on common financial crimes and have your employees analyze and provide solutions. Similarly, ensure that training is specific to job roles within the institution.
At the same time, don’t forget about educating your customers. Even they need to learn how to detect common financial scams and protect their financial information.
This can be achieved with the help of online resources, or even pamphlets for older customers. You can host live or recorded webinars on topics like phishing prevention, identity theft awareness, and safe online shopping. Email newsletters are also a great option.
3. Hiring Third Party Risk Management Companies
We need to remember that not all institutions are alike. Some have more resources and are able to invest heavily in in-house anti-fraud programs. Alternatively, big institutions may sometimes have reason to involve agents outside the company.
In all such situations, third-party risk management firms have become extremely popular. Often, an external perspective can help identify blindspots and areas where internal biases or assumptions may affect risk management.
They are also known to provide services like continuous monitoring, which are useful in detecting and addressing real-time risks. As a result, the market for this industry is expected to hit $23.25 billion by 2030.
That said, a lot of companies still prefer to invest in their own risk management systems. This is mainly due to concerns about how effectively third-party services can integrate well with the organization.
Conclusion
As long as financial institutions exist, we will keep seeing some level of financial crime. It seems to be an inevitable part of our society. However, that doesn’t mean that we give it free rein. The anti-money laundering efforts that most organizations take today are massive and worthy of note. Billions of dollars are saved every year as a result of these efforts.
We are also constantly seeing new techniques and approaches that help reduce fraud or help in holding criminals responsible.
Whistleblower programs are a good example. Given the insider nature of many financial crimes, it becomes crucial that employees have an avenue to report unethical behavior. This could be from colleagues, superiors, customers, and external agents.
The fact that anti-money laundering fines are massive has also helped keep financial crimes lower than they could be.
With a solid foundation in technology, backed by a BIT degree, Lucas Noah has carved a niche for himself in the world of content creation and digital storytelling. Currently lending his expertise to Creative Outrank LLC and Oceana Express LLC, Lucas has become a... Read more