Some estimates claim that dirty money comprises up to 5 percent of the world’s economic output. Whatever the real proportion may be, we can be sure that the collective effect of money laundering is such that it creates all kinds of destabilizing effects throughout the world.
Whenever money goes to places where it could be hidden, rather than to where it could give a decent ROI, a slew of negative outcomes occur at the expense of everyone else. These effects include front businesses undercutting legitimate ones as well as the creation of serious economic distortion. Additionally, the continued operation of these criminal enterprises inevitably results in human tragedy that is almost unethical to calculate in mere numbers.
Unfortunately, some policymakers at financial institutions still have a habit of treating anti-money laundering (AML) measures like investment in AML software as mere legality to be complied with. However, when it comes to AML, the failure to go beyond mere compliance can have fatal consequences for banks, investment companies, and other financial institutions.
If you’re thinking of choosing AML solutions purely for cost rather than for their effectiveness, it’s time to reconsider. Below are 6 serious repercussions of selecting a sub-par AML solution or not using any at all. Thankfully, these are the same issues that you can avoid with the right anti-money laundering solution.
1.) Damage to Reputation
Even hints that your financial institution is not doing its best to prevent money laundering can destroy its public perception. This could have direct implications on outside investment, share prices, and customer trust. This consequence alone may cost the business more than the savings from investment in a subpar AML system.
2.) Legal Risks
The perception that a financial institution failed to enforce “know your customer” and customer due to diligence standards can open it up to legal challenges from both stakeholders and the government. If found liable, your organization may be subject to serious fines and other regulatory measures. Choosing your AML software wisely can prevent this repercussion by allowing you to better meet and exceed current AML standards.
3.) Relationship Problems with Other Institutions
As a rule, reputable financial institutions do not want to deal with organizations that may be compromised by money laundering activity. This is because transacting with a potentially compromised business can expose them to the risks and liabilities mentioned here.
4.) Concentration Risks
As we mentioned earlier, criminal elements will tend to choose institutions that make it easy for them to hide their money, rather than the ones that give a better ROI.
What this means is that, if you downplay AML practices, financial criminals may quickly put significant sums of dirty money in your organization. If you’re unable to prevent this from happening, your financial institution may make decisions that are reliant on these funds. When the money launderers find a better place to hide their cash or if they are discovered, this could leave your organization in a precarious situation.
5.) Compromised Leadership
When significant patterns of money laundering are uncovered at an institution, stakeholders and regulators will understandably direct their attention to the policymakers and system implementers. A cloud of suspicion may fall over the leadership of the business, regardless of their innocence or intentions. This type of situation has already proved fatal for some financial institutions.
6.) Loss of Revenue
Any temporary gain one might have by saving money on AML software is always going to be undone severalfold when criminal elements begin to exploit your AML system. The loss of reputation, potential fines, and relationships as well as the creation of unsustainable risks will almost certainly result in a financial loss for the business in the long term.
By investing beyond the minimum in your AML system, you can improve your chances of preventing and detecting criminal activity that may compromise your bottom line.
It’s Time to Update Your AML Systems
Unfortunately, the risks associated with money laundering are borne mostly by institutions that do not take AML processes seriously. Criminals and terrorists, often working with insiders, always know which institutions are not doing their part to hinder illicit transactions. Going with the lowest bidders when it comes to AML systems is practically an invitation to these unsavory elements.
Better AML software, training, and implementation will not only ensure that a financial institution enjoys more sustainable revenue, but it will also lay the groundwork for a better world to do business in.
It’s worth remembering that money laundering causes severe negative effects, not just on the world’s financial institutions, but on global stability as well. Drug cartels, terrorists, human traffickers, and other criminals rely on money laundering to enable their organizations to thrive. Improving AML capabilities is not only good for financial institutions but the whole world as well.