Ill-gotten money often gets circulated in ways that obscure its true source. The effort that goes into ensuring this is referred to as “money laundering.” There are measures in place that aim to prevent such spurious activities, risk-based anti-money laundering software being one of them. However, its efficacy and that of other internal bank processes and regulations in preventing frauds is worth scrutinizing.
Before the advent of sophisticated banking technology, banks had simplistic processes and protocols. An introduction of a prospective customer by an existing one usually sufficed for opening a new bank account. Alternatively, the prospective customer had to furnish the requisite documents for identification and address proof, as also any other specific details pertaining to the nature of the account to be opened. The RBI’s KYC (Know Your Customer) guidelines are an extension of this very concept, albeit digitized and more streamlined. Despite the stringent norms, audits and regulations, there remain instances of fraud and forging of documents.
The various channels such as ATMs, mobile and internet banking have facilitated faster and simpler transactions. At the same time, they have also created more opportunities for systems and processes to be misused. It would be wrong to blame technology for these shortcomings. Instead, a concerted effort in the right direction can incapacitate any attempts at misusing the system for wrongful gains.
New regulations mandate that cash receipts above a certain value be reported to regulatory authorities. Swindlers circumvent this by simply opening multiple bank accounts to make smaller-value deposits.
The ideal AML system should impede opening of fraudulent accounts which can lead to counterfeit transactions. By preventing infusion of black money into the system, a host of unlawful and detrimental activities such as arms trade, terrorism, drug trafficking etc. can be checked. It should also ensure that all high-value transactions are kept transparent and traceable to the extent possible. Proceeds of matured fixed deposits exceeding the predetermined amount must be paid through cheques or credited to the customer’s operative account, thus minimizing cash transactions.
Existing AML systems have incorporated processes for customer due diligence, monitoring suspicious transaction patterns and so on. Possible scenarios based on past frauds are also assimilated into the system to prevent future occurrences. While some of the AML software monitor the transactions post occurrence in the core banking system (offline transactions), some others issue real-time online alerts that allow precautionary measures to be taken immediately.