Anti-money laundering (AML) compliance is vital for protecting the financial system. Transaction monitoring, guided by effective AML rules, is a cornerstone of this effort. I am sharing five crucial AML rules that every transaction monitoring team should consider:
- What it is: Structuring involves breaking down large transactions into smaller ones, aiming to stay below reporting thresholds and avoid scrutiny.
- AML Rule: Implement rules to identify numerous transactions just under the reporting limit within a set period.
- Example: A customer deposits multiple cash amounts slightly below $10,000 over several days to avoid triggering a reporting requirement.
- Key Takeaway: Structuring is a common money laundering tactic; monitoring for this pattern is essential.
2. Customer Data Changes Before Large Transactions
- What it is: Sudden changes to personal information (like address or phone number) right before a large transaction can indicate account takeover or layering (obscuring the source of funds).
- AML Rule: Monitor for significant changes to customer data, especially when coupled with large or unusual transactions.
- Example: An account holder updates their contact details and then immediately initiates a large international wire transfer.
- Key Takeaway: Changes to personal information before unusual transactions are a red flag.
3. Unusual Spending Patterns
- What it is: Transactions that deviate significantly from a customer's typical behaviour, considering their income, social status, and occupation.
- AML Rule: Track transactions that don't align with a customer's established profile.
- Example: A teacher with a modest income suddenly starts making high-end purchases and large cash withdrawals.
- Key Takeaway: Sudden changes in spending habits can indicate account takeover or money laundering.
- What it is: For businesses like marketplaces, this flags instances where a seller receives most of their revenue from just a few buyers, suggesting potential collusion or money laundering.
- AML Rule: Monitor for low buyer diversity, particularly for new merchants.
- Example: An online seller receives almost all their payments from the same two or three buyers.
- Key Takeaway: Low buyer diversity can be a sign of illicit activity.
5. Disproportionate Flow-Through
- What it is: For businesses like marketplaces, this flags accounts where the total credits (money in) and debits (money out) are nearly equal over a short time, suggesting the account is used merely to pass money through.
- AML Rule: Monitor for accounts with a near-perfect balance between incoming and outgoing funds in a short period.
- Example: A marketplace seller's account shows incoming payments almost exactly matching outgoing withdrawals over two weeks.
- Key Takeaway: A near-perfect balance between inflows and outflows can indicate money laundering.
- These rules are a foundation. Customise them based on your institution's risk profile and regulations.
- Stay updated on emerging threats and refine your rules accordingly.
- Use technology and data analytics to automate monitoring and boost efficiency.
By actively implementing and adapting these AML rules, transaction monitoring teams can significantly strengthen their ability to identify and prevent money laundering, contributing to a more secure financial system.
