How Online Remittance Platforms Protect Their Platforms From Being Used For Money Laundering Practices

Joachim Adeponle

15 May 2024 • 6 min read

Criminals are always looking for new ways to get their illegally gotten money into the financial system; giving continuous credence to money laundering. One of the various ways they can get to do that is by sending some of these illegal monies through remittance platforms to their associates in other countries.

For those who do not understand what money laundering really is, it is the process of concealing the illegal origin of money, making it appear legitimate. This can involve activities like converting cash from criminal activities into bank deposits or investments.

Unfortunately, the financial system has a lot to lose from giving money launderers a field day. They include:

Causing financial instability as these huge sums of laundered money can distort markets and create economic bubbles.
It also erodes the trust people have in these financial institutions when they are infiltrated by money launderers. People will believe that their monies are not safe since they share the same space with criminals; and believe that the financial institutions are in on it.
It is also a problem as laundered money can be used to finance terrorism, drug trafficking, and other criminal activities.

With all these highlighted points; where do remittance companies come in?

As online remittance platforms have joined the financial system, providing easy and fast remittances; they are vulnerable to these troubles since they allow for easy and quick transfer of funds across borders, often without the need for traditional banking methods.

Also, these platforms offer anonymity and convenience, making them attractive to criminals for laundering money; and if these criminal activities persist; they will be shut down or penalised by regulatory organisations.

In light of these, let us check out the…

Common Money Laundering Techniques Used In Online Remittances

While trying to pass on their illegally gained monies into the legal, financial system using online remittance platforms, criminals may employ two common ways including:

Smurfing

This practice involves splitting large sums of money into smaller, more easily concealable amounts of illegally obtained funds to avoid detection by authorities. Then they can give these monies to various people referred to as "deposit experts" or "smurfs," and have them send these monies across borders to one or multiple accounts using online remittance platforms.

It is more difficult to create a clear connection between the smurfs, the deposits, and the accounts when the deposits are dispersed throughout several accounts and maybe made under false presences, which makes it more challenging for law enforcement to find evidence of illegal behaviour.

Structuring

This is similar to smurfing as it involves deliberately depositing cash in smaller amounts to avoid reporting requirements as well as the criteria for reporting on anti-money laundering and counterterrorism financing (AML/CTF).

This "placement" technique is frequently used by money launderers to make several deposits without being subject to cash reporting laws. This strategy, nevertheless, might backfire if a watchful financial institution notices a pattern of deposits that are marginally below the reportable level. In such case, they might be prompted to alert local regulators about the suspicious conduct.

What Makes Smurfing Different From Structuring?

The main distinction between these two strategies is that, whereas structuring may or may not entail hiding the funds' unlawful origins, smurfing seeks to hide the real nature and source of the money being laundered. On the other hand, structuring is largely employed to circumvent reporting obligations.

Smurfing is a more complex type of money laundering since it includes several people and accounts. On the other side, structuring can include a single person carefully controlling deposits. Smurfing is typically thought to be harder to detect than the other since it involves numerous accounts and is more complex.

Overall, financial institutions and law enforcement need to be aware of these tactics and take action to stop them.

Now that we have seen these methods, let us now find out

How Online Remittance Platforms Effectively Combat Money Laundering

For online remittance platforms to ensure that they are protected from having money launderers use their system, they have a few tricks up their sleeves including:

Customer Due Diligence (CDD) procedures

Online remittance platforms conduct Customer Due Diligence (CDD) to understand their customers. This includes collecting and verifying their customers through identity documents like international passports, birth certificates, government-issued identity cards and driver’s licenses; checking their sources of income, and verifying the purpose of their transactions.

Identity verification and Know Your Customer (KYC) protocols

Strong Know Your Customer (KYC) protocols are also essential for online remittance companies to combat money laundering in their system. These involve verifying a customer's identity through government-issued Identity cards, address proofs, utility bills and other means; thus building a customer profile that helps identify potential risks.

Transaction monitoring and flagging suspicious activity

These also come in quite handy in combating money laundering as transaction monitoring systems are used to scrutinize transactions for suspicious patterns. These systems can identify red flags like large, sudden transfers, frequent transactions to high-risk countries, or activity inconsistent with customer profiles. When flagged, the platform can investigate further or report it to authorities.

Implementation of sanctions screening to identify high-risk individuals and entities

Another tool are sanctions screening tools integrated by online remittance platforms into their system. These tools compare customer information against government-issued sanctions lists to identify individuals or entities associated with terrorism financing or other criminal activities, preventing them from using the platform.

Collaboration with law enforcement agencies and regulatory bodies

Nothing beats effective communication and collaboration with law enforcement and regulatory. It not only shows cooperation, but sells the idea that the platform is lawful and has nothing to hide. Platforms can report suspicious activity and work with authorities to investigate and prosecute money laundering schemes.

Technological advancements

Now-to-next generation technologies like Artificial Intelligence and machine learning are being used by online remittance platforms to analyze vast amounts of transaction data and identify anomalies that might indicate money laundering. These technologies continuously learn and adapt, improving the detection of suspicious activity.Also Blockchain technology is being incorporated by online remittance platforms to create a secure and transparent record of transactions, making it more difficult for criminals to tamper with data or obscure the flow of funds.

By implementing a combination of these methods, online remittance platforms are making significant strides in combating money laundering. This creates a safer environment for legitimate money transfers and helps protect the financial system from criminal activity.

Challenges And Considerations Online Remittance Companies Face while Using These Anti-Money Laundering Methods

As good as implementing these measures sound; it is never a walk in the park as they cope with their own set of challenges and considerations. They include

Balancing Security Measures with Customer Experience and Ease of Use

One headache of stringent CDD/KYC procedures is that it can create friction for users, leading to drop-offs. Collecting excessive amounts of personal information or implementing complex verification processes can deter customers from using the platform altogether. To remedy this, online remittance platforms have had to balance security checks with a smooth onboarding process. They also have had to find ways to effectively verify user identities and assess risks without creating an overly burdensome experience.

Regulatory Landscape and Compliance Requirements in Different Countries

The fact that regulations vary significantly across countries is also a problem as online remittance platforms operating in multiple jurisdictions must comply with a patchwork of AML regulations, which can be complex and ever-changing.

They have has to constantly monitor regulatory changes and update their procedures accordingly; ensuring that there is ongoing investment in compliance resources and expertise.

Importance of International Cooperation to Combat Cross-Border Money Laundering

It is quite important for every stakeholder in the remittance and financial system to understand that money laundering is a global issue; and that criminals can easily exploit loopholes or weak regulations in one country to launder funds internationally.

To tackle this, remittance platforms have had to effectively share information and collaborate with regulatory organisations and affiliate olrganisations across countries. They have also befriended law enforcement agencies and financial institutions demanding that they work together to track cross-border transactions and identify suspicious activity.

To make this easier, there has to be the standardization of AML regulations across different countries to further strengthen the fight against money laundering.

Conclusion

We know that Online remittance platforms serve as vital components in the global financial system, enabling swift and user-friendly money transfers while also confronting the risk of potential money laundering. These platforms are actively engaged in combatting financial crime through the rigorous measures mentioned above.

By adeptly addressing challenges and maintaining compliance, these platforms can continue to facilitate legitimate transfers while serving as formidable adversaries against money laundering, thereby fostering a more secure and transparent financial landscape.

In case you are wondering what online remittance platform can give these much security and compliance measures; you need not look any further than SanaTransfer. We are a lasting testimony to all the anti-money laundering methods mentioned above; while guaranteeing you fast, low cost and secure remittances from Canada to over 70 countries worldwide.

Join us today by signing up or logging in to our platform. You can also download our mobile apps for Android and Apple devices and enjoy the best remittance services money can buy.