AML Red Flags in the Digital Age: How to Spot Suspicious Activity in Online Transactions 

Evolution in advanced technology creates more opportunities for criminals to find new methods for money laundering and terrorist financing. in response, financial institutions need to change their red flags monitoring methods.

but the question is what should the compliance team do to spot the red flags in the online transactions? To manage the digital transactions red flags in money laundering, businesses first need to understand the nature of these flags. Knowing the red flags in digital transactions has become so crucial.

Are red flags in online transactions different from conventional ones? Do these alerts need different techniques to handle?

All these questions will be answered in this piece of writing. But before highlighting the digital money laundering red flags, we will differentiate between the conventional and online red flags and tools that could be beneficial in online transaction red flags.

 What is the Changing Landscape of Money Laundering?

If we look back into the early 2000s, there were very limited transactions made online. And if we evaluate the ratio of online transactions, it would be many times more than in the 20 years ago. 

As a result, criminals have also evolved the technique to commit financial crimes.  therefore, one can say, that the shift from physical to digital transactions has expanded how illicit funds can be moved, and that makes it harder to trace money laundering activities.

 Common Red Flags in Online Transactions

For any business fighting against money laundering and terrorist financing, it is essential to understand the nature of online transactions’ red flags in money laundering. here are a few.

1.      Unusual Transaction Patterns:   

If customer due diligence is implemented on every client while onboarding them, it will be easy to understand the normal behavior of every client automatically. In case, you see rapid spikes in one of the customer’s online transactions that don’t match his normal behavior. This is a sign of a money laundering red flag.  

2.  Frequent Use of Virtual Currencies:   

Cryptocurrencies, buying and selling virtual assets have become a favorite way of transporting money from one jurisdiction to another. If a high volume of transactions are being made to purchase or sell the cryptocurrencies through exchanges, it may indicate that money laundering is being done. Consider it a red flag.

3.  Multiple Accounts from the Same IP Address:   

At the placement stage of money laundering, criminals try to open multiple bank accounts to send and receive money by remaining under the threshold. 

When the compliance team sees multiple accounts being accessed with the same IP address in unusual access patterns, this isn’t something good. This could be the layering stage in money laundering to hide the origin of funds by moving them to different bank accounts.

4. Digital Identity Manipulation:   

Since technology has advanced tools available over the internet to create fake identities, criminals hire hackers to steal people’s identities and credentials to use them for money laundering activities. Whenever, you see signs of synthetic identities or stolen credentials, such as inconsistencies in identity verification details, this is a red flag.

5. Dark Web Activity:   

People making online transactions to website or platform that are suspicious to be connected with the dark web means there are higher chances of involvement of such transaction in illegal activities. Therefore, the compliance team must securitize such transactions and report if something is illegal.

 How Business can Identify Online Transactions Red Flags?  

The advanced threats and methods used by criminals need to be countered with technologically advanced solutions.

AI and Machine Learning Algorithms: Advanced technology can automatically identify the suspicious transactions that criminals try to make online. AI and ML technology have the leverage to identify patterns that are not possible with conventional methods that allow for real-time detection of suspicious activities.

Blockchain Analysis Tools:  Another major way to detect the red flags is to Utilize advanced tools like blockchain that are designed to trace cryptocurrency transactions quite easily. It can help identify high-risk addresses and provide detailed insights into digital asset flows.

Enhanced Customer Due Diligence (CDD) Tools: Financial institutions also need to use advanced customer due diligence that provides a comprehensive view of customer behavior and flags high-risk transactions.

Are There Tools to Detect Red Flags in Online Transactions?

Detecting and reporting online transactions at the initial stage is very important for businesses to combat money laundering activities. And when it comes to online transactions, knowing the suspicious activity in real-time becomes even more important. However, is there any tool that can do this for businesses?