The estimated proceeds from human trafficking in 2018 amounts to a staggering $150.2 billion. This value equates to 12 times the Maltese Gross Domestic Product for the whole of 2017.

This has been recently stated by the Financial Action Task Force (FATF) and excludes other criminal activities such as trafficking of illegal substances, illegal pornography, whose proceeds are then laundered and pushed into the financial system.

This illegal source of revenue will obviously result in money laundering and funding of terrorism (ML/FT) which has proven to be a global problem with devastating effects on the soundness of the international financial system and the fight against corruption and criminal activity.

With criminals always one step ahead in finding new ways to launder money, terrorism becoming more pervasive in our societies and the rise in the use of virtual currencies, the support of the entire business community is critical. All players in the financial ecosystem including small players such as accountancy and notarial firms, large financial institutions as well as the number of cryptocurrency and gambling operators that are being set up locally need to ensure that their gates are watertight.

How easy is it to get access to tools and assistance to combat money laundering and the funding of terrorism?

Extensive anti-money laundering guidelines explaining how customer due diligence (CDD) or know your customers (KYC) procedures have to be performed by all entities or professionals offering relevant services, are issued online by local authorities such as the Financial Intelligence Analysis Unit (FIAU) and the Malta Gaming Authority (MGA). Nonetheless, complying with such guidelines may prove to be complicated, labour-intensive and costly for companies or professionals providing financial services or advice.

Once companies or professionals would have finally figured out what their responsibilities towards the AML regulations are, an endless amount of procedures and systems need to be put in place.  When forming a business relationship, a list of documents need to be requested to be able to identify and verify clients and ensure KYC compliance.

The support of the entire business community is critical

Furthermore, subject persons need to get access to tools to be able to determine whether their clients are politically exposed persons (PEPs) or sanctioned individuals or entities. Certain information is available online – however ensuring the information being obtained is reliable and up-to-date can prove to be a nightmare, apart from time consuming.

Organisations that are constantly seeking to lower their cost base are not too keen on having some of their key employees consuming their time on such research.

A number of companies provide online subscription services that allow subject persons to search databases of politically exposed persons or sanctioned persons in a structured fashion. These databases allow subject persons to perform the required PEP checks and Sanction checks. Effective systems will enable users to automatically monitor their existing client base for any changes to their risk profile. Documentation can then be shown to authorities when the companies are lucky enough to be picked by the relevant authorities to perform the infamous feared on-site audits.

Unfortunately access to such services may prove to be prohibitive for smaller companies or professionals. Companies or professionals offering relevant services are usually required to pay hefty set-up fees and purchase a minimum number of searches that would be way above their actual needs. This will substantially increase the cost of accepting or even considering an opportunity that has not even become a client as yet. As a result such companies may be reluctant to introduce these services and be fully compliant with regulations requiring PEP and Sanction Screening.

Initiatives to assist smaller players should be encouraged to strengthen the fight against money laundering and funding of terrorism. Companies providing KYC or CDD services such as PEP and sanction screening services and ID document verification services should ideally provide services with a lower barrier to entry.

Authorities should assist smaller subject persons to understand what needs to be performed by them to comply with local regulations and direct them to services which will help them implement the necessary measures in an effective and cost-effective way. Small companies should be given clear direction to strengthen their KYC and CDD services to join the fight against crime. All this, among other efforts, will strengthen the fight against money laundering and funding of terrorism and increase the level of difficulty for proceeds of crime to be injected in the financial system.

This article was issued by Jacqueline Harvey, business development executive at StartKYC Limited. The information, views and opinions in this article are being provided solely for educational and informational purposes and should not be construed as advice. StartKYC Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions included in this article.


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