U.S. Government Accountability Office (GAO) research has revealed that the rate at which illicit funds are being moved into the system through legitimate trade and transactions is becoming alarming, this is becoming so because of the AML regulations being enforced in other areas of the financial sector, hence organized criminal groups who now use traditional means- misinvoicing to launder are turning to trade as a means to conceal payments. In a bid to enact laws of Anti-Money Laundering, the United States Congress in 1970 passed the Currency and Foreign Transactions Reporting Act, commonly known as the Bank Secrecy Act (BSA). The BSA established specific requirements for record-keeping and reporting by private individuals, banks and other financial institutions. Since the passage of the BSA, other laws have enhanced and amended the BSA to provide additional tools to combat money laundering. Multiple layers like Customer Identification Process (CIP), Customer Due Diligence (CDD) and Enhance Due Diligence (EDD) in the Know Your Customer process are established for AML transactional monitoring.
Most B2B payment companies when conducting KYC and AML will rely on automation through connecting with the various government lists from the State Department, Treasury, Commerce, FinCEN, etc.), including the Specialty Designated Individuals, FinCEN money laundering lists, etc.
GAO report expressed much concern on the vulnerability of cross-border transactions that do not pass through documentary collections processing. About 80% of international trade around the world is believed to be open-account trade as cross-border payment transactions accounted for $23.7 trillion globally in 2018, with the bulk consisting of B2B payment options through platforms like PayPal, Stripe, Hyperwallet, AmazonPayments, Veem among a host of others.
B2B companies can use machine learning and algorithms to monitor transaction flow and establish different thresholds for checking transactions based on low-, medium- or high-risk country designations. But with higher Government scrutiny potentially coming on these transactions, it pays to show regulators that you have the process, people and technology to continue to get smarter to capture fewer false positives and identify potential money laundering transactions.
