Sep 17, 2021

How the integration of the qualified electronic signature helps combating money laundering

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How the integration of the qualified electronic signature helps combating money laundering

Identity verification technologies such as the qualified electronic signature does not only facilitate digital customer transactions and onboarding processes but are also part of the anti-crime measures for combating money laundering in the KYC processes of financial firms. 

With the entry into force of the EU’s 5AMLD directive, institutions must have these technologies implemented for detecting and combaring money laundering. 

Money laundering is a technique for pretending that money obtained through crime (drug trafficking, organised crime, corruption, terrorism, etc.) comes from legal activities. This criminal practice is by no means limited to the Internet, but the characteristics of the Internet (globalisation, immediacy and anonymity) have led to an evolution in money laundering techniques. Criminals are taking advantage of the growing development of perfectly legitimate digital business practices and the popularity of cryptocurrencies to “clean” dirty money. 

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The fight against money laundering in the EU

In its fight against money laundering in KYC practices, the EU has been developing regulations and mechanisms to harmonise the legislation and actions of the EU member countries such as: the Anti-Money Laundering Directives (AML), the Digital Identification Regulation (eIDAS) and the policies of the European Banking Authority. 

Although the fight against money laundering concerns all institutions, the EU gives banks a prominent role in detecting and combating money laundering operations. The monitoring mechanism for banks needs to be based on three factors: identity verification, the establishment of retention periods for large money transactions, and the use of transaction monitoring software. In this post, we will see how identity verification technology contributes to combating money laundering in KYC.   

UE directives on the fight against money laundering (5AML)

The AML5 directive regulates insititutions’ procedures and obligations to fight against money laundering. This directive, which member states are obliged to transpose into their legislation, has evolved over the years to adapt to technological advances and new developments such as cryptocurrencies. Its fifth version (5AMLD) has been in force since January 2020 and the sixth version (also known as 6AMLD or AML6) is already being prepared.

One of the key measures in money laundering in KYC established by the 5AMLD, is the obligation to identify the real holders of passbooks, current accounts, and other financial products that could previously be contracted anonymously. To perform this online, a highly authenticated digital certificate is required.  

Moreover, to prevent fraud and identity theft, the 5AMLD also establishes the need for guarantees in non-face-to-face transactions and prescribes the qualified electronic signature as the means of establishing remote business relationships or executing transactions remotely. In other words, when they operate by telephone or electronic means (mobile phone, computer, tablet, etc.), the qualified electronic signature is compuslory to complete the process. 

Failure to comply with the 5AML can lead to penalties of up to €5 million, the 10% of turnover, or the cessation of business activity. 

KYC processes for combating money laundering

Know Your Customer (KYC) processes are used to verify that the customer is who they say they. These processes need to be followed compulsory in the customer onboarding phase, whether in person or digitally. This requires the verification of data such as name, date of birth or address. 

In the direct contact between the customer and the institution, i.e., in the offline world, the verification usually consists of an employee manually checking the customer’s documentation (e.g., ID card) and verifying their identity.

The digital equivalent of face-to-face verification is the qualified electronic signature. This signature has the highest level of security of the three other signatures also recognised by the EU in the eIDAS regulation: simple electronic signature, advanced electronic signature and qualified electronic signature. With the same legal validity as the handwritten signature, the qualified signature requires the use of biometric identification systems such as facial recognition or a multi-factor authentication process for its creation and use. 

You can also be interested in: AML (Anti-Money Laundering): compliance guidelines and requirements

VideoID: the solution for combating money laundering

Video identification in streaming is the identity verification technology with the highest degree of reliability and similarity to the face-to-face identification process. In fact, it is the only process recognised by eIDAS to enable customer onboarding. And what’s more, and as many as 41 countries around the world have already approved regulations that include streaming video as a biometric identification system.

Our VideoID technology not only complies with all KYC and AML EU regulations, but it also goes even beyond that. It also works on all devices and can be used both synchronously (via live video conferencing with an agent) and asynchronously (via video enrolment and subsequent verification by the agent). Our artificial intelligence algorithm also reduces the process to less than 30 seconds, combating money laundering in real time

The Qualified Electronic Signature: the final eSignature

Identity verification is essential in the onboarding process, but also in all transactions that the customer carries out within the institution. The three levels of signature required by the eIDAS regulation mentioned earlier apply to different transactions, which means that many people have different electronic signature systems for different risk-level transactions. 

Our end-to-end solution of video identification + Qualified Electronic Signature in seconds is unique in the market as it adapts to all use cases, risk levels and legal requirements. It is an omni-channel technology, and therefore it can be used in all media and settings, such as digital handwritten signatures, facial biometrics, codes sent by telephone message, or PIN numbers.  The implementation of these identity verification systems is a secure, practical and seamless solution for customers, and it contributes to the fight against money laundering within the EU regulatory framework.

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