Financial Crime

Solutions

Financial Crime – At a Glance

Financial crime refers to any illegal act that exploits financial systems for illegitimate gain.
Regulators expect entities to understand their exposure to financial crime risks and apply effective controls.
Citadel365 helps Regulated Entities implement effective controls to identify and mitigate financial crime.

Financial Crime in AML Programs: Definition and Risk Context

Financial crime means illegal activities that abuse financial systems for personal or organisational gain. Criminals commit acts such as money laundering, terrorist financing, fraud, bribery, sanctions evasion, and market manipulation that pose risks to Regulated Entities and also to the global financial system.

Further, financial crime acts as an umbrella that covers all illegal activities such as drug trafficking, corruption, tax evasion or cybercrime. Criminals use money or financial systems to obtain illicit funds through these Anti-Money Laundering (AML) predicate offences.

Regulated Entities must understand financial crime risks to define their enterprise-wide risk. Also, FATF and regulators significantly focused on risk-based AML/CFT measures to combat financial misconduct.

Core Financial Crime Typologies Relevant to AML Programs

Criminals use different methods or typologies to hide dirty money or commit fraud, which often varies depending on the sector.

For sectors such as banks, they use typologies such as smurfing, money mules, or shell companies.
Key typologies used in payment services include fake identity scams and account takeover.
In the crypto industry, criminals use tumblers, chain hopping or gambling,
Whereas, in trade finance, they use under/over invoicing, fake goods shipments and circular fake transaction schemes.

Financial crime risk also varies based on factors such as customer risk, product risk, transaction risk and geographic risk.

Customers with complex legal structures or mule accounts are categorised under customer risk.
Product risk involves typologies such as structuring or hawala.
Geographic risk factors involve weak AML/CFT laws & sanctions evasion.
Transaction risk factors include TBML, use of virtual currency, etc.

Criminals often use a combination of different illegal methods to bypass detection and maximise profits through illicit funds. Some of these mingling include:

Trade-Based Money Laundering (TBML) with Sanctions Evasion,
Fraud with Money Laundering,
Identity Theft with Bank Fraud,
Cyberattack with Theft and Laundering, etc.

Financial Crime Red Flags and Suspicious Activity Indicators

Common red flags and indicators include:

Multiple cash deposits/withdrawals below thresholds,
Frequent transfer of funds with unclear purpose,
Inconsistent customer profiles,
Transfers made to high-risk jurisdictions,
Unexpected third-party involvement,
Rapid changes in customer details,
Sudden unexplained wealth or large deposits,
Customer’s reluctance to provide documents,
Use of intermediaries with no transparency,
Politically Exposed Persons (PEPs), or
Use of shell/front companies with unclear economic purpose.

Regulatory Expectations and Enforcement Trends for Financial Crime

Regulators expect Regulated Entities to apply a risk-based approach to define and implement mitigation controls. The authorities focus on the effective implementation of controls rather than just paperwork.

They review whether the entity performed an Enterprise-Wide Risk Assessment (EWRA) and drafted policies and procedures accordingly. Further, they assess the functioning CDD process and scrutinise how entities verify identities and whether they perform EDD for high-risk customers.

During audits, regulators also assess the system’s effectiveness in monitoring and generating real-time alerts, and the adequacy of staff training in identifying red flags and risks.

Regulators expect entities to have strong oversight, assess risk effectively and conduct health checks to make sure their systems, processes and controls are effective for AML/CFT compliance. For non-compliance, regulators impose hefty fines and mandate remediation, which can even lead to reputational damage.

Regulators expect senior management to be responsible for the in-house compliance department setup and take accountability to strengthen the firm’s AML and compliance frameworks.

Managing Financial Crime with Citadel365

Citadel365 is a centralised platform designed to identify, monitor and mitigate financial crime risk. The customer onboarding software automates the collection of customer details and checks their identities.

The name screening software screens customers against sanctions, PEP and adverse media in real time during onboarding and ongoing monitoring.

Further, the customer risk assessment software uses configurable risk scores to calculate the consolidated risk, a weighted average of onboarding and profile risk.

The effective transaction monitoring software identifies unusual patterns in customer activity to flag ML/TF risks. Additionally, the case management software helps create and track cases until resolution.

The platform connects every activity and documents each task performed on a customer through effective audit trails.

Furthermore, Citadel365 offers downloadable reports for each case and a list of cases for a specific period, supporting internal reviews and reporting and ensuring compliance with regulatory expectations and the combat of financial crime.

Integrating Financial Crime Controls Across the Organisation

Integrating financial crime controls helps identify and manage ML/TF risks across the organisation.

Customer Due Diligence: During onboarding, customer information is collected and checked. Further, enhanced due diligence is conducted for high-risk customers, helping reduce exposure to illegal activity.
Ongoing Monitoring: Reviewing customer activity & transactions continuously helps detect suspicious behaviour and rising threats.
Governance & Reporting: Gathering complete details into a single system and quickly escalating issues for further investigation ensures proper accountability, strong oversight, and builds trust with regulators.