The impact of COVID-19 can be witnessed in almost every industry. However, with global banks having provisioned a whopping $1.15 trillion for losses through the third quarter of 2020, it is quite visible for banks and financial institutions (FIs).¹

Risks associated with terrorist financing and money laundering are particularly increasing during recent times as organized criminals have exploited this volatile economic situation. Some of the examples of such fraudulent activities include the following:

• Email and SMS phishing attacks
• Impersonating officials
• Counterfeiting and fraudulent investment scams
• Ransomware attacks
• Fundraising for fake charities

These trends will significantly impact the ways financial transactions and related activities will be performed in the post-COVID world. Resultantly, compliance officers across the board will have to restrategize their approach and work on anti-money laundering (AML) regulations to navigate the shifts in customer behavior effectively.

This article will explore seven such changes expected in AML compliance in a post-COVID era.

1. Enhanced Adoption of Technological Solutions

Reduced workforce capabilities owing to work-from-home mandates during the pandemic and major changes to digital infrastructure have made FIs more vulnerable to cyber-attacks.

With an estimated amount of money laundered globally in the range of US$800 billion to US$2 trillion, AML compliance is a significant area aimed toward protecting customer interest.² Thus, firms in the post-COVID world will actively seek out technological solutions to make their screening and transaction monitoring (TM) stronger.

For instance, the importance of artificial intelligence (AI)-enabled systems and application programming interfaces (APIs) during the customer onboarding process has increased.

To overcome conventional rule-based know your customer (KYC) technology that requires high dependence on manual efforts, especially during the alert investigation stage, it has become imperative for FIs to leverage new-age smart technology solutions.

These smart automation solutions³ would allow firms to collect and analyze large data relevant to their compliance obligations, thus quickly identifying suspicious transactions and expediting the activity reports to financial authorities.

Combined with human expertise, such technology frameworks not only offer far greater efficiency and accuracy to firms but also help them deliver ongoing compliance during instances of regulatory upheaval.

2. The Role of Certified Public Accountants (CPAs) Will Evolve

Before the pandemic, change was evolving in CPA firms in terms of an increase in remote work, moving away from time-based billing, compliance-focused accounting and more advisory work. However, COVID-19 has accelerated such changes, compelling many accounting firms to make dramatic shifts in a short period of time.

The fight against corruption, money laundering, and tax evasion, in particular, will require the active participation of several stakeholders, including CPAs who rely on strong legal frameworks and accurate information.⁴

The future is likely to see CPAs eagerly advancing important policy conversations and working in close collaboration with law enforcement, government, and others to combat financial crime in all its forms.

From developing AML compliance programs that identify and report suspicious activity to provide independent effectiveness reviews of those programs, accounting firms and CPAs will play a key role in this area.

3. Reduction in Cash-Related Activity

To mitigate AML risks, deposit-taking entities are expected to experience a significant reduction in cash-related activity in the short to medium-term. In addition to this, most money services businesses are expected to make changes to their operational set-up in a way that favors online or virtual interaction as they ramp their operations up.

Further, risk assessment procedures at both institution and sector levels will be updated, and risk-based mitigating measures⁵ will be applied actively. These corrective measures could include strict measures to prevent oversight and enhanced due diligence for unusual transactions with COVID-19-related reasonings.

4. Compliance Adjustment

With the pandemic's effects visible across world economies, banks and FIs will redesign their strategies to adapt and adjust to the new compliance climate. This will require them to work on measures that accommodate legitimate behavior from genuine customers while identifying criminal behavior from fraudsters and money launderers.

Further, this will also translate to incorporating robust screening and TM capabilities into AML compliance programs. Accountants and CPAs⁶ must go over the rules again to ensure that these programs can adequately capture emerging typologies such as manipulating the books and losses during financial crises or using money mules.

With the average cyber breach costing companies $3.86 million and taking a long time to identify and contain,⁷ FIs ought to strengthen their communication and work together to identify and monitor strategies related to AML during the changing COVID-19 landscape.

5. Greater Focus on Cyber-Hygiene and Transaction Laundering

As the AML market is projected to reach US$ 5,866.51 million by 2027 and expected to grow at a CAGR of 16.2% from 2020 to 2027,⁸ organizations in the financial sector will focus more on their cyber hygiene, educate employees, and level up their cyber defenses to effectively navigate the emerging risks.

AML professionals will be expected to be more vigilant regarding AML compliance. They must remain cautious of customers whose banking activity remained unchanged during the COVID-19 crisis with unchanged transaction patterns.

6. Focus on the Consolidated View of Customer Transactions

Keeping in line with the expectations of regulators, FIs will develop a consolidated view of customer transactions across businesses and jurisdictions. This perspective will help them identify any unusual transactions and behaviors or various potential sanctions violations.

For example, the future will see FIs using AI⁹ to analyze API dataflows. AI will allow IT systems to imitate various cognitive capabilities of the human brain, such as learning, reasoning, and problem-solving for robust AML checks.

However, the current technology frameworks may pose a challenge to the banks to enable that and would require them to take a strategic and long-term view of technology investments.

7. Reorientation of Budgets

Financial institutions will also take targeted steps to reorient their budgets and accelerate technology initiatives and other business risk attributes to both scales and automate rote/manual processes.

Leveraging proper AML compliance technologies can help FIs at multiple levels, including reduced compliance labor costs, improved workforce morale, and better decision-making to make processes much simpler for employees and staff.

Conclusion

One of the far-reaching effects of a pandemic is the opportunity that it presents for criminals to commit a range of financial crimes¹⁰ and increase the risk of money laundering. FIs are already witnessing increased levels of coronavirus-related crime, which will increase money laundering as criminals try to wash their funds.

FIs need to adapt their processes, policies, and responses to consumer behavior that is constantly changing in the wake of COVID-19. If they fail to do this, these firms may have to face a range of hurdles to identify and track illicit activity once the pandemic subsides.

Effectively navigating the expected AML risks as listed above coupled with measures such as integrating the correct multi-layered technology and AML measures will allow FIs to position themselves for future success and build a sophisticated approach to fight cybercriminals.

Bryan Kesler, CPA, CE, CPA exam guide, Charlotte, NC, USA

1. “McKinsey’s Global Banking Annual Review,” McKinsey & Company, December 9, 2020, https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review
2. “Anti-Money Laundering Preparedness Survey Report 2020,” Deloitte, 2020, https://www2.deloitte.com/content/dam/Deloitte/in/Documents/finance/Forensic/in-forensic-AML-Survey-report-2020-noexp.pdf
3. Kirill Meleshevich, “Intelligent Automation—Challenging What is Possible in Sanctions Compliance,” ACAMS Today, December 19, 2020, https://www.acamstoday.org/intelligent-automation-challenging-what-is-possible-in-sanctions-compliance/
4. Sarah Beckett et. al, “The indirect impacts of COVID-19 on CPA firms,” Journal of Accountancy, April 21, 2020, https://www.journalofaccountancy.com/news/2020/apr/indirect-impacts-of-coronavirus-on-cpa-firms.html
5. Brookton Behm, John Epperson and Arjun Kalra, “Effective AML model risk management for financial institutions: The six critical components,” ACAMS Today, March 4, 2013, https://www.acamstoday.org/effective-aml-model-risk-management-for-financial-institutions/
6. “Ultimate CPA Exam Guide,” https://www.ultimatecpaexamguide.com/
7. “How much would a data breach cost your business?” IBM, https://www.ibm.com/security/data-breach
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9. Beth Herron and Robert Goldfinger, “Artificial Intelligence and Machine Learning: What do we know?” ACAMS Today , September 18, 2018, https://www.acamstoday.org/artificial-intelligence-and-machine-learning-what-do-we-know/
10. Guðmundur Kristjánsson, “Financial Crime During COVID-19: AML Fines on the Rise,” Corporate Compliance Insights, November 10, 2020 https://www.corporatecomplianceinsights.com/financial-crime-covid-19-aml-fines/