The rising number of crimes requires solid solutions to combat them. The most fatal crimes these days are the financial ones. The crimes involving finance are known as financial crimes like money laundering. It is a major financial crime all around the world which is taking huge resources of the governments to block. It causes spice-economic disorders and street crimes and financial corruption rise because of it. Terror funding is related to ML because both of them are done in the same way and the controlling methods are also similar.
Financial frauds and online scams are also examples of financial crimes. From credit card scams to investment frauds, financial frauds are everywhere. So to fight all types and forms of financial crimes KYC and AML were introduced.
Know Your Customer (KYC)
It is the procedure of filtering fake and genuine identities. KYC is done to block the involvement of false and synthetic identities in businesses. Fraudsters try to register themselves as legitimate customers through fake credentials. If successful, they start scamming customers on those platforms without leaving a mark.
Fake identities are utilized in online channels for ghost account openings. From e-gamed to online marketplaces, nothing is safeguarded against identity fraud. The outcomes of identity fraud are identity theft and ATO.
Legitimate users’ information is stolen through phishing and other social engineering tactics. The information includes national id numbers and personal data. Then this data is used to create fake identities or identity theft.
In identity theft, a fraudster pretends to be someone else using his information. Opening a social media account by using a friend’s data is an example of identity theft. The second example of identity fraud is account takeover, in which online accounts are hacked or unauthorizedly accessed.
To curb all the above crimes, Know Your Customer verification is used. It is done in three steps:
Customer Identification
To identify a customer, his personal data is used, only name is not enough but address and dob are also required. The reason is two individuals can have the same name but the address and dob can’t be similar.
The customer inserts his bio-data on the website of the business. Normally there is a digital page on which data needs to be entered.
Upload Supporting Documents
As discussed earlier, id documents are required for identity verification. KYC also uses id documents data, a customer just have to upload a picture of an id document to the website
Extraction and Verification
The required details are extracted from the image through OCR. Then this information is matched with the customer-provided data. If matched, he is allowed to open the account and vice versa.
Anti-Money Laundering (AML)
Anti-money laundering is adopted by financial businesses that are at the hazard of money laundering. These are the steps taken to fight money laundering, not frauds or scams. The police and laws against money laundering help in making an anti-money laundering procedure.
It includes backtracking of the sources of funds, customer screening, and ongoing monitoring. Whenever a new customer joins a financial channel, his name is screened through AML watchlists containing the data of high-risk entities.
High-risk entities are those who have a criminal history or people associated with them. Politically Exposed Persons (PEPs) list is also a part of the AML watchlist but not regarded as a criminal list. The Names of high officials of governments and politicians having strong connections are put in the PEP list. Their names are added if they have any association with a money launderer.
Summing it Up
KYC and AML are related terminologies, both are intended to provide security to the system. AML is a wider process that includes KYC also but KYC alone is a separate concept that is used to fight identity frauds.
Social media platforms and online gaming sites are using KYC which has nothing to do with the funds. But the businesses that have daily financial transactions need to screen their customers through anti-money laundering lists. An AML compliance program helps make business channels crime-free. Also, it gives more appreciation to the online digital payment means.
It is the legal requirement of local and international authorities to safeguard customers’ data, which can be achieved by KYC while the AML laws can be implemented by AML solutions.
