Money Laundering and its far-stretching impact on the world

Due to the fragmented financial industry operating in silos, criminal activities such as money laundering find their ways through the system. Insufficient methods of tracking transactions, especially cross-border transfers, leave too much space for money laundering to still exist. ARYZE’s solution of offering an interoperable, high-tech payments system has the ability to track money more accurately and quickly pick up on illegal activities.

In our previous article, we discussed how the payments industry can greatly benefit from having traditional and new tech systems working together more efficiently. ARYZE is making sure that our integrated banking software allows for interoperating with legacy systems, modern day providers, and new technologies such as blockchain. This article focuses on how unifying the industry is also crucial for anti-money laundering processes. 

Consequences of money laundering activities

Today, money-laundering is estimated to take up 2-5 percent of the global GDP, accounting for around 1 to 2 trillion dollars on an annual basis. This is a huge amount of money being spent on illegal activities like human trafficking, drug trafficking and terrorism. The impact of these industries is distrastive as many lives become victimized. Currently, around 40 million people are victims of human trafficking, which is eight times the population of Denmark. Additionally, according to the Statista Research Department, in 2018 alone over 32,000 people were killed in terrorist attacks, a shocking increase of over 75 percent compared to 2017. It is clear that many lives could be saved if money flow would be tracked effectively and access to illegal monetary funds would be denied. 

Unfortunately, still too often this is not the case and money laundering is carried out with succes in order to make income from illicit activities seem legitimate. The three stages of laundering are placement, layering and integration. When money is layered, thus moved through different and often cross-border infrastructures, banks have a hard time catching illegal money flow.

Is it because of their legacy and silo systems working poorly with one another, that gaps still exist allowing money layering to happen. When a transaction is being made between bank X and bank Y, a third party must always get involved as the systems of both banks don’t speak with one another. It makes a transfer more costly and slow, but most of all, it makes fraudulent activities harder to track. If systems were to actually communicate and able to exchange data real-time – in the same (coding) language -, tracing money transfers would be a lot more efficient and easier to do.

In the current banking industry, different types of AML reporting are being used by different banks. Again, if bank X has their AML reporting set up in language A, and bank Y has it set up in language B, it is impossible for the two banks to share AML data. What happens when money laundering is detected in the system? If bank X finds money laundering taking place within their banking system, they will red flag the transaction. However, if bank Y is also involved in this transaction, they do not receive any useful data from bank X to quickly respond with AML procedures. Instead, bank Y has to pick up everything on their own and assess the situation from scratch again. With both banks using different policies, formats and documents, they are challenged to effectively manage AML activities.

Money Laundering

ARYZE’s AML strategy

Because ARYZE is streamlining the industry, as our previous article explained in-depth, we will make things very complex – essentially impossible, for parties looking to funnel black money into the system. Not only will a unified payments industry enhance the efficiency of tracing money transfers, this will also be enabled by state-of-the-art banking software, which ARYZE uses for it’s platform.

By working with the latest technologies that allow for integrations of highly efficient fraud detection systems, ARYZE will be able to use AI or algorithmic solutions to track each transaction accurately. Our system will notify us directly if any illicit transactions were to happen in our ecosystem. Anti-money laundering processes will be automated instead of having to be carried out manually, excluding the possibility of individuals making mistakes or missing important information.

For banks to carry out AML practices, they have teams of employees going through cases; one by one. It is extremely time consuming and costly. As this process leaves room for human errors, many money laundering cases do not get caught. By automating AML efforts, criminal activities loose their chance of slipping through the system.

It is crucial to have these anti-fraud measurements in place in order to create a safe financial platform for all to use. Already in our KYC processes, ARYZE makes sure to validate customers when onboarding them. We do our due dilligence and comply by the jurisdiction of each area we operate in. Later on in these series, we will discuss our KYC strategy more in detail, and explain how our tiered approach will make financial services both secure and accessible. Even more so by using new technologies like AI and/or algorithmic based detection to verify customers, this process becomes very efficient and reliable.

This helps us to solve of one our targeted SDGs; number 16, which addresses peace, justice, and strong institutions. ARYZE really believes that this can become available if new technologies are implemented the right way and systems start working together better. If the gaps in the industry are closed, illicit money flow will have a hard time finding its way through loopholes of the system and the individuals behind this will consequently lack opportunities to receive income from illegal activities. 

Especially as the world becomes more digitized, and ARYZE aims to make Digital Cash only, meaning no physical money that changes hands, cash management becomes harder. Physical money gained from industries like drug trafficking, humantrafficking, or terorism will therefore face increasing limitations, potentially up to a point of having no value at all anymore. We believe that a secure and efficient system supporting Digital Cash will be the way forward and will help to exclude black money from the platform once and for all.

Having these systems in place will greatly benefit payments, nationally and internationally. If you would like to learn more about how ARYZE is improving cross-border payments specifically, please read our next article which explains the costs of remittances and how our platform can remove these for all of our users.

To learn more about ARYZE, check out the other articles of these series on our blog, or visit our website.

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