9SEPTEMBER - OCTOBER 2025In the era of digitalization, money launderers and fraudsters have become more professional, making it essential for organizations to implement strong governance, risk, and compliance programs to safeguard their customers and reputation· Significant reputational risks for affected countries· Economic instabilityUnderstanding Fraud and Its Connection to Money LaunderingFraud is a predicate money laundering offence, meaning that fraudulent activities generate illicit funds that criminals later launder. According to the Financial Action Task Force (FATF)--the global AML/CFT (Countering the Financing of Terrorism) watchdog--fraud is a major contributor to money laundering operations.The Cambridge Dictionary (2023) defines fraud as: "The crime of getting money by deceiving people."Deception is the core element of fraud, and fraudsters frequently use social engineering tactics to manipulate victims into disclosing confidential information. Common fraud schemes include:· Identity theft· Account takeovers· Unauthorized access to banking services and government benefitsFraudsters often study victims' personal information before exploiting their bank accounts, credit/debit cards, and online banking access. Stolen funds are typically laundered through electronic channels, including:· Multiple P2P transfers to different individuals· Use of crypto currency exchanges to obscure fund origins· Trade-based money laundering schemesRed flags that may indicate identity theft or fraud include:· Unusual transactions inconsistent with a customer's profile· Large fund transfers that do not align with past account activity· Rapid withdrawals of nearly all account funds· Multiple small P2P transactions to different recipients without clear economic rationaleFraud and money laundering expose organizations to reputational, legal, and financial risks, underscoring the need for proactive risk management strategies.How Organizations Can Protect Against Money Laundering and FraudAs financial criminals become more sophisticated, banks and businesses must strengthen their governance, risk, and compliance (GRC) frameworks to mitigate exposure. Effective AML and anti-fraud programs should include:1. Clear Policies, Procedures, and Controls· AML and fraud prevention policies should be board-approved to ensure strong leadership commitment ("Tone from the Top").2. Dedicated Financial Crime Units (FRAML)· Traditionally, AML and fraud teams operated separately. However, due to their interconnection, many organizations now integrate them into a Fraud + AML (FRAML) unit to improve efficiency and collaboration.3. Comprehensive Risk Assessments· Regular evaluations should cover customer profiles, product offerings, service channels, and geographic risks.4. Independent Audit Functions· Regular audits ensure compliance and identify potential weaknesses in AML/fraud controls.5. Advanced IT Solutions for AML and Fraud Prevention· Cutting-edge AI-powered transaction monitoring systems can help detect suspicious activities in real-time.6. Ongoing AML and Anti-Fraud Training· Employees must receive continuous education to recognize and respond to emerging financial crime threats.To effectively combat money laundering and fraud risks, organizations must implement robust GRC frameworks that foster a strong AML and anti-fraud culture. Building a workforce with a deep understanding of financial crime risks--and equipping them with the tools to prevent and detect these threats--is crucial in protecting customers and maintaining financial integrity. Dr. Artur Golban
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