Check fraud caused an alarming loss of $400,000 to customers in 2022 with the prediction of a dramatic increase in money laundering. Financial institutions rely on third-party experts to identify their weaknesses which is one of the major causes of their vulnerability. While criminals are coming up with sophisticated fraud techniques, deterring their attempts with inefficient Anti-Money Laundering (AML) controls can increase legal repercussions.
With an increase in financial crimes, check-cashing service providers are experiencing regulatory scrutiny and hefty penalties. Therefore, they need to strengthen their AML security controls to detect suspicious money reimbursement requests. With risk assessment, due diligence, and ongoing monitoring, check chasers can prevent exploitation of their services. This article further highlights how AML solutions lead the way to compliance and efficient fraud thwarting.
The Need for Establishing Adequate AML Security Controls
Financial institutions that run licensed money services such as check cashers are subject to certain legal obligations like Anti-Money Laundering Directives (AMLDs) and Bank Secrecy Act (BSA). Due to an increase in sophisticated criminal attempts, regulatory bodies including the EU, FATF, FinCEN, and FINTRAC amend existing frameworks. Considering this, check cashing companies also need to upgrade their AML compliance programs. Otherwise, they can face hefty penalties, complete closure, and severe penalties.
Inadequate AML/CFT defenses also lead to a downfall in the competitive market as financial institutions are less likely to onboard companies with a compromised worth. They also put customer data privacy and account security at stake. Hence, check cashers should integrate robust AML verification solutions to counter prevalent fraud schemes.
Pederson’s Check Fraud Scheme
Mackenzie Pederson, a 20-year-old girl, was held captive in September 2022 because she was a part of a swindling theft and performed two check fraud schemes. The absence of anti-money laundering controls left enough space for Pederson to flee with $4,675. She later made a $400 withdrawal through a check with details of some “GA”.
Second Incident
In April 2020, another incident took place where Fairview Clinic deposited money through check-in in the bank account of “NW”. Pederson then used the PIN and credit card to make several more transactions. As per the findings, NW went to the bank with her and two more colleagues to request a pullout of $4,275. Later, the check turned out to be fake and left the victim with a huge loss.
Overcoming Derisking Threat by Establishing Robust AML Systems
Financial institutions close down accounts of their affiliated check chasers upon finding loopholes in their AML systems. This process is known as derisking and brings adverse effects for the latter from ending up on sanctions to legal proceedings.
The FinCEN retracted a formal list in 2015 where it termed credit repair services, coin traders, lottery sales, and firearm dealers, as deemed risky for money laundering. Hence, check cashers should ramp up their anti-money laundering controls to stay put with the changing regulatory landscape. Further reasons that increase their liability to integrate robust AML solutions include the following:
Internal AML Requirements Crack Down
Regulatory bodies are abolishing the existing in-house AML monitoring mechanisms of check cashers. Mainly because they lack payment tracking, transaction monitoring, suspiciousness detection, and on-time reporting. Check cashers’ AML compliance programs are incapable of detecting increasing criminal risks and hence fail in submitting Suspicious Activity Reports (SARs).
Check cashers need to level up their fraud prevention controls since FinCEN appended a fifth pillar in the existing BSA. it requires these financial service providers to authenticate the reasons behind requests for a money transfer. As check cashers have POS technology-integrated systems in place, they should use AML solutions to collect and validate customer information.
Change of Requirements Within BSA
FinCEN and other regulatory watchdogs are making efforts to cope with increasing criminal threats in check cashing. While it sees existing AML screening controls as incapable, this legal body is continuously making changes within the obligation. As per the recent amendments, incorporating the following requirements in their AML compliance programs has become a liability for check cashiers:
- Aligning internal policies with AML verification laws
- Enhancing controls, operations, and working mechanisms to detect criminal activities
- Establishing efficient AML compliance programs for deterring and preventing money laundering
- Hiring a qualified BSA expert
- Continuous training of employees conducting AML screening and other workers
- Carrying out independent audits to check kosher’ activities
Key Takeaways
The increase in the vulnerability of check cashers is forcing them to strengthen their AML compliance programs. By adhering to legal obligations, they can place caution in criminals’ way and steer clear of regulatory scrutiny. Furthermore, check cashers can stay put with changing regulatory frameworks while leveraging more security in the digital onboarding processes. Hence, AML solutions safeguard their financial services from external threats.
