How to Strengthen Due Diligence to Fight Financial Crimes

Financial Crimes
                       Financial Crimes

Financial crime has become a serious matter of concern for governments all around the globe. Considering the fact that such crimes often lead to devastating consequences that severely impact individuals, societies and economies, organizations need to work smarter to ensure that they are compliant with the laws and regulations and there are no loopholes in their procedures. Financial crimes can be broadly divided into two categories. The first category comprises activities that unethically generate money for those involved in financial crime, such as exploiting insider information or acquiring someone’s property by deceit for some kind of material benefit. The second category includes activities that do not directly intend to secure any benefit but are aimed at protecting or facilitating a benefit. For instance, laundering the procedures of an offense to place it beyond the reach of the law. Financial crimes not only harm the national exchequers, but the money acquired from financial crimes are also frequently used in anti-social actives with far-reaching consequences.

Organizations are fighting globally against this complicated issue, facing a number of monetary and other challenges. On the other hand, criminals are becoming more and more technologically efficient and are choosing sophisticated channels, in an attempt to stay one step ahead. As a result, new threats are emerging. Financial crime is widespread and employees from global organizations have revealed that they are working under increasing pressures to increase revenue and comply with regulations for eradicating financial crimes. Let’s take a look at some of the techniques to strengthen the due diligence to fight financial crimes:

  1. Optimize Due Diligence

Financial institutions should have a robust due diligence procedure. The initial screening and continuous monitoring with regard to AML and KYC requirements should be done stringently. Third-party networks are usually vast and complex and financial firms dealing with them need to be cautious and simplify the procedures for reducing cycle times and false positives. Tools built for these purposes should be optimized to offer intelligent searches so that the results can be filtered to get the most relevant information. Additional features in the tools like ‘case management’ can further improve operational efficiency by allowing managers to allot cases to specific teams or individuals.

  1. Focus on Quality Information

No matter how robust your due diligence procedures are, the risk of financial crime will always be there if the data isn’t reliable. The business environment is quite fact-paced these days, having vast global networks, and for comprehensive risk management, it’s important that the data is accurate and reliable. Research reveals that there is a dearth of good data intelligence in organizations which includes inadequate availability of risk data, unreliable data sources, and poorly connected data sources. For risk intelligence it is important to source data from reputable sources and follow stringent research criteria.

  1. Perform Enhanced Due Diligence

Whenevera potential risk is flagged, organizations should conduct enhanced due diligence (EDD) before onboarding the third party with high risk. EDD is critical to safeguard an organization when automated screening reveals risk or when the company is taking crucial decisions like initiating a joint venture, a merger or acquisition.

  1. Close Compliance Gaps

Many financial organizations have significant compliance gaps which make them an easy target for criminals and fraudsters. There is an urgent need to implement sound strategies for following the laws and regulations in a stricter way so that the operational efficiencies can be improved and compliance gaps, which allow the entry of criminals, can be closed.

Due to the complex nature of financial services, identifying and preventing financial crimes is often a difficult job. However, working smarter, using the right strategies, and staying compliant with the regulations is definitely the first step in safeguarding the organization.

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