The Financial Action Task Force (FATF) has pinpointed money laundering vulnerabilities in the remittance and foreign exchange industries – the volume of vendors and worldwide accessibility to customers add to the risk. These factors allow drug dealers, human traffickers and organised crime syndicates to buck the system to launder money. Here are some of the main factors that make remittance service and foreign exchange providers such as easy target if they don’t know what to look for:

Anonymity: Cash transfers often allow the sender to transfer money under relative anonymity and avoid due diligence checks designed to check identities. The originators will also often send the funds to other low regulation countries and use money mules to act on their behalf with forged documents to avoid identity detection.

Online presence: Many remittance and foreign exchange firms operate solely online. This makes them harder to police and gives money launderers that added level of anonymity.

Structuring: Different countries operate different rules for money transfer, which gives money launderers a range of loopholes through which to slip, given the added complexity. This gives money launderers the ability to practise structuring – the disguise of the source of illegal funds once in the legitimate financial system, which makes it harder for authorities to track the trail. The laundered funds get returned to the originators after passing through the legitimate financial system a few times. This disparity in regulations between countries makes it easy for money launderers to exploit.

Ownership: With the ease of setting up a remittance service, the criminals themselves are able to easily gain ownership of such a business and launder their own money through it. Once the business is acquired, it is difficult for authorities to detect money laundering activities, since the “owners” can easily avoid or manipulate the required compliance checks.

Following FATF recommendations, Anti Money Laundering (AML) compliance for remittance and foreign exchange firms requires the implementation of suitable CDD mechanisms to establish customer identities, and apply screening measures to identify high-risk customers and red flag activities. Such red flag behaviour can include:

• Customers not able to give details of the transaction or payee because they are mules acting for the remitter.
• Customers on sanctions lists or have other adverse media attention.
• Customers with a criminal history.
• High frequency or large volumes of money transfers by one originator.
• Preference for transmitting funds over the Internet rather than face to face.
• False documents being produced for identity checks
• Multiple transactions in different currencies in and out of different countries.
• Transfers to high-risk countries or online gambling sites.
• Transactions through charities that are not subject to the same monitoring regulations as other financial services firms.

AML procedures require the analysis of large amounts of data, so employing specially designed AML/CFT software to manage the analysis goes some way to helping remittance and foreign exchange providers manage regulatory compliance.