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Real-Time Transaction Monitoring – How to Curb Money Laundering

by William Bill
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transaction monitoring

Businesses have faced the issue of money laundering for quite some time. The criminals have always been disrupting the normal functioning of businesses with their shady tactics. Be it a small or a high-end business, all have faced unfortunate events of money laundering. Financial organizations i.e. banks, credit unions, etc, have had higher rates of such crimes than any other business. Since they deal in huge Transaction Monitoring of funds, it becomes relatively easier for the criminals to intervene with their evil intentions. 


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Money Laundering – A Process of Critical Importance for Criminals 

With the ultimate goal of generating huge profits for themselves, criminals indulge in money laundering. The process assists them in disguising their fund’s original illicit source. Hence, very successfully, they fool the organizations into believing the legitimacy of their income, without jeopardizing the original osucr, therefore, money laundering is critical to their success.

However, the ratio of money laundered each year has reached heights in the last few years. This particularly happened because of the digitization that took place due to the pandemic. The processes became easier to exploit and the criminals experienced a fairly good time. 


KYC and AML Compliance 

Many global and local regulatory authorities have significantly addressed the issue and brought forth some excellent solutions to deter the criminal’s fraudulent attempts. Similarly, the Financial Action Task Force (FATF), developed the Know Your Customer (KYC)  and Anti Money Laundering (AML) regulations to combat fraud and prevent potential risks to the firm. KYC helps a firm develop in-depth knowledge about the customer’s information, his background, etc. Financial Institutions, especially banks, strictly focus on the implementation of KYC policies so they can authenticate the identity of customers. 


What is Know Your Transaction? 

Similar to KYC, Know Your Transaction (KYT) regulations also exist that help the banks keep track of their customer’s transaction details. The KYT regulations were developed by the 5th European anti-money laundering directives for better transparency of financial transactions.  Where KYC performs the function of authenticating the client’s identity, KYT is more about the bank’s keeping detailed information about the transactions processed by their customers. 


Know Your Transaction is actually a part of KYC and its function complements the KYC procedures. Its aim is to improve the customer monitoring procedure by identifying suspicious risky transactions. Hene, it will be safe to say that key is more of a risk-based approach. 

How does Transaction Monitoring help?

The transaction monitoring systems effectively help a financial institution combat money laundering and monitor customers’ transactions thoroughly. The AML transaction monitoring helps businesses to support compliance programs and almost instantly detect suspicious transactions. Millions of financial transactions take place every day and they demand appropriate security measures to prevent fraud. Banks can control these transactions, irrespective of the amount, in a matter of seconds through automated real-time transaction reporting systems. 


The transaction monitoring software works in a way that the companies using it, make rules based on their needs. Once the rules get triggered due to the monitoring process, the software generates an alarm and appropriate measures are adopted to deal with the situation. As the alarm triggers, the process suspends there and then and the matter is directed to the Compliance or Risk Department. If further analysis detects a crime, the transaction report is submitted to the AML or CFT regulators. Such a report is named the Suspicious Activity Report (SAR).


Why is a Currency Transaction Report important?

Moreover, banks keep a Currency Transaction Report (CTR) which is a part of the bank’s AML responsibility. Though the banks do not hold any obligation to issue the reports to the user. Banks, worldwide, have their own transaction limitations which need to be followed. The CTR report is generated automatically when a bank processes more than $1000. Although the banks are not obliged to inform the user about the $10000 reporting threshold, however, if he continues processing it after being informed, a SAR report is created. 


What generated the need for a KYT solution provider? 

It is true that the modern era’s technological advancements have eased the business processes to a considerable process but it is also true that technology has benefited the criminal as well. The financial crime rates have reached heights as compared to a few years back mainly because of the digitization processes. Considering that, just the KYC regulations were not sufficient to combat fraud and build protection bars against money laundering. The criminals easily detected gaps in the financial systems and exploited them. Hence, the need to develop a strong KYT verification that could monitor the transactional activities and prevent risk. 

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