Financial Institutions and Crowd Funding: Exposure to Money Laundering and Terrorist Financing and What can be done to Mitigate it
Author: K.M. VELDHUIZEN-KOEMAN, CAMS-Audit
Crowdfunding often deals with small amounts over a longer period of time and runs the risk of not being picked up by the transaction monitoring tools that most financial institutions have in place. Where certain forms of crowdfunding are deemed to be low risk, financial institutions need to be more vigilant in preventing any wrongdoing. It is precisely on those areas that money launderers, individuals or organizations that are looking for channels to fund terrorist activities will concentrate. Social media poses an extra risk because anybody who uses it for crowdfunding operates under the regulatory radar.
To minimize the risk in crowdfunding involvement, financial institutions need to take additional measures. They need to know more about the customer who participates in crowdfunding and raise the awareness of those employees that are dealing with it.
They also need to develop more clever and sustainable ways of improving their transaction monitoring tools to pick up irregularities.