ID Verification a Key Step in Anti Money Laundering

It is perhaps a sign of the times when the annual convention of anti-money laundering professionals draws a record attendance. This year, the Association of Certified Anti-Money Laundering Specialists (ACAMS) met for the 10th year straight, covering financial fraud from both a global and a organization-focused perspective, and celebrating both a record turnout for the convention and a new high in membership.

This is the nature of money laundering these days - it can simultaneously take place between countries and continents, while staying confined to within a single business sector or a single business. It concerns just about everyone in the financial sector to some extent; and is, by many accounts, a growing problem.

We have been extensively covering the problem of money laundering from all angles - its history, common practices, the connection to terrorism and the legislative action meant to subdue it - but to break up the drumbeat of alarming news, we decided to devote some space in this post to workable solutions. These are steps any organization at any level -- from a small mom & pop operation to a billion-dollar enterprise can take to immediately effect the exposure to money laundering.

By way of a foreword, we want to emphasize that these solutions do not -- cannot -- exist in a vaccum. A sprawling legislative infrastructure has grown around anti-money laundering, and every new method, every approach must fit within that framework. In essence, every good AML program must first start with understanding the laws applicable to it.

It would of course be impractical to cover every minute requirement of every business sector. More useful would be an in-depth exploration of one law that applies to nearly every business within or proximate to the financial sector - the USA PATRIOT Act. We have mentioned before the act’s setting of new, stringent transaction recording and reporting requirements, and its “forfeiture” clause that allows the confiscation of any moneys of properties found connected to money laundering, and its emphasis on “beneficial owners”.

There is another provision in this act that explicitly calls for verifying accountholders’ and correspondents’ identities. It comes within Title III: “International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001”, and right there in the title makes the explicit connection between money laundering and terrorist financing.

Of particular importance in the act is section 326 - “verification of identification” worth quoting here at length.  

(1) IN GENERAL- Subject to the requirements of this subsection, the Secretary of the Treasury shall prescribe regulations setting forth the minimum standards for financial institutions and their customers regarding the identity of the customer that shall apply in connection with the opening of an account at a financial institution.

(2) MINIMUM REQUIREMENTS- The regulations shall, at a minimum, require financial institutions to implement, and customers (after being given adequate notice) to comply with, reasonable procedures for--

(A) verifying the identity of any person seeking to open an account to the extent reasonable and practicable;

(B) maintaining records of the information used to verify a person's identity, including name, address, and other identifying information; and

(C) consulting lists of known or suspected terrorists or terrorist organizations provided to the financial institution by any government agency to determine whether a person seeking to open an account appears on any such list.
 

What are some potentially workable solutions to these? To start, an ID verification machine would help with detecting fraudulent identity documents. Avoid the older technologies for document verification - they may not work as well for the newer types of forgeries - and instead make sure your scanner has a UV-light counterfeit detection feature.

And when mere ID verification is not enough, as would be the case when complying with points B and C in the section above, a full-feature scanner that will not only verify the ID but also store the data and match it against appropriate government databases is needed.

Although terrorist financing through money laundering represents a growing problem, it is not an unsolvable one. Money laundering can be detected and deterred with a well-founded ID verification program. This not only reduces losses to money laundering fraud, but puts the organization in full compliance with many national and international laws.