Biometrics Is Driving Big Changes in Anti-Money Laundering Activities

Anti-money laundering (AML) remains a significant challenge for banks and financial institutions globally. As biometric technology becomes more reliable, affordable and innovative, it is driving remarkable changes on how regulators and institutions are combating with money laundering and terrorism financing (CTF).

Iris scan money launder

According to United Nations Office on Drugs and Crime (UNODC), the estimated amount of money laundered globally in one year is 2 – 5% of global GDP, or $800 billion – $2 trillion in US dollars. Today, most banks and financial institutions have to comply with AML regulations which include many steps that needed to follow. Perhaps the most important of which is to have a procedure that allows them to verify and identify their customers quickly and efficiently. However, the current procedure is costly, time-consuming and difficult to implement. With continued regulatory change and rapid implementation requirements, it is estimated by Accenture that AML costs have risen more than 50% in the last three years. In recent news, HSBC tripled its compliance staff headcount from 2014 to 2017 to 8,600 employees, and spent $3 billion on compliance in 2017. Not to mention that AML activities are making financial services excluded in some developing economies which should not be.

Globally, there are roughly 2 billion adults unbanked and “lack of necessary documentation papers” is one of the main reasons, in accordance to World Bank’s UFA2020 Overview in 2017. With primary advantage in proving one’s unique identity, biometrics can help building an efficient and effective AML compliance strategy. It will remove literacy, geographic and financial barriers when one wishes to open a bank account, hence, providing more inclusive financial services.

Biometric scan can be used in registration of new customers in order to carry out “customer due diligence” and verification of transactions to check that customers are who they say they are. A biometric identification and verification scheme has the potential to block some of the traditional tricks of the international money laundering trade, for example, individuals trying to avoid detection by using multiple passports. In addition to cutting down on identity fraud, biometrics can also monitor and track potential cases of money laundering at the point of transactions. Especially in a digital world where individuals can make online transactions anonymously with almost no trace, biometrics can build a strong link between an anonymous digital identity and a real person.

A growing number of countries are adopting innovative biometric system to verify customer identity such as fingerprints and iris scans. Some countries have set up country-wide biometric national ID program that financial institutions can use to verify the identity of their clients. For example in India, a customer can present his/her Aadhaar number at any banking location that is equipped with biometric reader. The customer has to provide the bank with permission to obtain e-KYC details from the UIDAI database and get his/her biometric captured. The bank then sends the customer’s Aadhaar number and biometric data to the UIDAI server. If the information matches, a bank can instantly open an account for the customer. This is called an e-KYC process that being applied in the country.

In recent guidance document, Financial Action Task Force (FATF) emphasized the importance of preventing money laundering and other suspicious transactions, while promoting financial inclusion. Use of biometrics can address both of these concerns by performing identification and verification activities even without identity documents. At the same time, adopting biometrics also improves customer experience and differentiates banks with their competitors.