In the world of B2B cross-border remittance, as well as within digital economies, there is greater risk of money laundering. Fraudsters and money launderers use remittance services as a means to mask illegal trade. These bad apples can include individuals, groups, and entities, such as terrorists, cybercriminals, and narcotics traffickers that are not country-specific.
The Patriot Act requires all persons and businesses doing business in the US must comply with Office of Foreign Assets Control (OFAC) regulations. In addition, there are severe fines and legal action that the US Department of Treasury can take against organizations that knowingly or inadvertently neglect checking with AML blacklists before make payments to individuals (such as those on the OFAC lists). Because of the changing nature of global sanctions and intelligence activities, a fully digital process for AML is vital to reducing the illegal payment risk.
OFAC Compliance Software
OFAC is a part of the US Treasury Department. OFAC publishes a database on Specially Designated Nationals (SDNs) which includes individuals and countries (e.g. Syria, Iran, etc.) that are sanctioned from participating in US commerce. There are cases where the entities are in the US or in non-sanctioned countries, but are known money launderers. In the United Kingdom, the Consolidated List of Financial Sanctions Targets is an SDN-equivalent list. Because the US SDN list incorporates the United Nations list and the UK’s Consolidated List includes the EU list, the use of both provide nearly global coverage.
Reducing AML Risk
While some banks provide AML protections, the visibility of these actions are often not available to the payor company. It may be necessary to step up internal controls or, at the very least, understand how your bank employs their AML policies.
- Connect supplier payments directly to databases – Because it adds significant workflow to query the OFAC databases directly, a cleaner approach is to connect the payment system directly to these databases.
- Perform heuristic screening – Identity matching can be problematic because of varied names, spellings, similar names, etc. It’s important to attempt matches on a variety of fields and carefully screen accordingly.
- Conservative means are the best – It’s better to identify a false positive hit and hold payments until the identity issues are resolved than to miss a potential violator. You can always reestablish a payment, but you cannot get money back from a bad entity.
- Continue to screen beyond onboarding and before payment – It seems obvious that screening happens during onboarding as part of the procurement process. But because the SDN lists are updated regularly, screening should actually happen prior to payment.
- Request tax documentation – By requiring tax identities in addition to backend AML screenings, it gives fraudsters pause when attempting to game the system.