For the past decades, the integration effects of globalization with the financial payments systems have brought financial crimes such as fraud, tax evasion and money laundering to the international context. Lack of advanced measures for AML/CTF in undeveloped parts of the world are more vulnerable to such financial crimes.

Currently, high majority of financial crimes like fraud and money laundering are carried out through financial institutions besides trade-based money laundering. To prevent financial crimes, banks and other financial institutions apply regulations and strict control processes, yet there are many improvements still ahead with the help of AI and Machine Learning. The latest technology development to combat financial crimes is Know Your Customer (KYC) procedure. KYC is an initial process of control during customer onboarding, including elements of due diligence such as identity verification, name screening, adverse media search, PEP & Sanction list checks and enhanced due diligence. The measures taken within the framework of the Know Your Customer (KYC) process, which reveals the compatibility of risk management and fight against crimes, are as follows:

Customer identification process to prevent financial crimes

• To verify identity, using documents or information that are reliable and known to be valid.
• In the case of a legal entity or partnership, learn the property owner and determine who controls the property in question.
• To conduct researches on the type of financial transaction and for what purpose it is carried out.
• It is necessary to look at the compatibility of the transaction and the person who is the receiver of the transaction. Within the scope of the existing requirement, the risk profile and class of the receiver should be checked. In addition, the follow-up of the person in question should continue throughout the transaction period in accordance with the fight against financial crimes.

Considering the principles given above, it will be seen that the Know Your Customer process is a crucial step in risk management. On the other hand, the processes related to risk management, are carried out within the framework of the four steps given below.

Importance of risk management at the fight against financial crimes

The steps of the risk management activity carried out within the scope of the fight against money laundering are as follows:

1. Determination of the Risk

The risk score is determined as the first step of risk management. The risk score that is determined within this framework ensures that the costumer subject to the transaction is clearly identified and analyzed. 

2. Control and On-going monitoring

In the second step, the existing controls are made. On-going monitoring of risky profiles and transactions are crucial to be compliant. In addition, various policies are also taken into consideration.

3. Risk-Based Compliance Program

In the third step, the financial institution should conduct a Risk-Based Compliance program to detect and inspect suspicious account activity with an effective AML Compliance technology that includes integrated risk management approach.

4. Risk Assessment

Finally, a risk assessment is made with the data obtained and continues transaction monitoring. This assessment helps to keep track of risky profiles and transactions to prevent financial crimes.