What Is Financial Crime – How We Can Detect and Prevent It

In a world where it seems we have no privacy, we often question why we have to give so many details to so many people. 

If the world was full of people who could be trusted, we wouldn’t need to divulge our lives to anyone we didn’t want to.

Since a financial criminal could be anyone, we have to protect ourselves by doing due diligence.

The basis of due diligence is to know your business and know your customer.

What is financial crime?

Financial crime is one of the biggest threats the world faces every day. 

The definition of financial crime is the process of being dishonest for the purpose of financial gain. 

It can include tax evasion, identity theft, using or making counterfeit money, embezzlement, terrorism financing and drug trafficking. 

Financial crimes threaten the financial systems and economy of the whole world. 

Criminals have proven their smartness by concocting plausible stories to get away with their crime. 

Many financial crimes, including money laundering, can be carried out by pretending to be a business. 

What is KYB and KYC?

In an effort to protect the safety and integrity of economies around the world, the Financial Action Task Force (FATF) is an inter-governmental group who formulated a series of checks and standards to detect and prevent financial crimes, specifically money laundering and terrorism financing.

These standards include know your business (KYB) and know your customer (KYC).

The two are very similar and are mandatory for all banks and financial institutions to do as part of their due diligence obligations. 

KYB involves finding as much information as possible about a business — its entity, main players, record of actions, the actions of the people who have control of it, and the way or reason money flows through it to the financial institutions.

KYC consists of getting to know an individual customer — their name, their history, the way they earn money, and the amount they normally earn.

How does it help?

Following KYB and KYC protocols can help the government and financial institution detect financial crimes and the red flags that a person or business may commit a financial crime. 

Some of the main red flags that point out financial crime are unexplained deposits or withdrawals, false documents or names being provided, or a customer who is avoiding answering questions.

By gathering information and monitoring financial clients, we can catch red flags like  

financial crime includes embezzlement, tax evasion, terrorist financing, or the creation and use of counterfeit money.

It also refers to crimes where someone takes money or property that doesn’t belong to them to give themselves a financial or professional gain.

By doing due diligence, banks and financial institutions can detect the risks of a person committing a financial crime through a business front or through their own name. 

The process of doing due diligence involves getting to know your business and know your customer.

This is very important to prevent a financial attack that can bring the economy to its knees.

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