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What is AML and compliance in fraud prevention?

BLOG POST AGO 4, 2023 | 5 MIN

AGO 4, 2023 | 5 MIN

WRITTEN BY MetaMap

For those in the corporate world, knowing what PLD/AML means and how to comply with its rules is a necessity.

WRITTEN BY MetaMap

In the last decade, we have witnessed the development of a true revolution in the financial system, with the arrival of cryptocurrencies. As a result, there has been a complete shift in the way we handle money.

Today, in a digital age with conversations dominated by topics such as the Metaverse, the rise of Web 3.0, and the urgency for online safety, it’s impossible to think about economics and business without considering policies to fight financial crimes.

What is PLD or Money Laundering Prevention?

For those in the corporate world, knowing what this acronym means and how to comply with its rules is a necessity.

PLD is the Brazilian version of the AML law in the US. The acronym stands for Prevenção à Lavagem de Dinheiro (Money Laundering Prevention), which is a set of mechanisms created to fight a problem that amounts to 2-5% of global GDP ($800 billion to $2 trillion) every year, according to UN data.

Money laundering can cause serious damage to both your business and economic growth as a whole. However, this vulnerability is not exclusive to fintechs and new companies.

Major market players, such as HSBC (Europe’s largest bank), have already paid huge fines for violations of this nature.

That’s because a failure in AML / PLD procedures is enough for your company to be exposed to illegal activities. This can lead to a drop in credibility, fines, and even a financial crisis, which could be avoided by ensuring compliance with rules, laws, and regulations established by the authorities.

Currently, the insertion of resources from illicit activities in the economy goes far beyond using financial institutions for making deposits and transfers. It also includes the use of cryptocurrencies, with a 31% increase in the use of decentralized finance (DeFi) for money laundering in 2021, according to a Chainalysis report.

Therefore, good PLD practices are essential for all companies in the economic and financial sectors in Brazil, such as – but not limited to – traditional banks, fintechs, and cryptocurrency exchanges in the search for growth, risk management, and, of course, compliance.

The PLD Law: Regulations to Fight Money Laundering Frauds

In each country, there are many government bodies involved in creating norms and laws to combat money laundering and the financing of terrorism. Despite the specifics of each one, the goal is the same for all of them: to protect the financial system.

In the United States, for example, anti-money laundering rules began to be defined in 1970, with the Bank Secrecy Act (BSA). In 1996, it was Mexico’s turn to make the practice illegal, by including it in the penal code.

In Brazil, the PLD law was added in 1998, with the creation of Law No. 9,613, which criminalized the practice and created a body dedicated to monitoring and enforcing penalties for offenders.‍

Law 12.683 in Brazil

The PLD norms faced changes in 2012, with Law No. 12,683, which classifies any resource with a hidden or illegal origin as a crime of money laundering. This law seeks to make the norms more efficient and allows for more severe punishments to be applied.

The general rule is that these laws and updates determine the mandatory activities that must be adopted by companies for good PLD / AML, including:

Proper customer & user identification;
Activity monitoring;
Constant information updates;
Report any financial crimes or suspicious transactions to regulators.

COAF: What is it?

The Council for Financial Activities Control (COAF) is a financial intelligence unit of the Brazilian federal government. This body’s mission is to discipline and apply administrative penalties to companies in alignment with the PLD norms, as well as to receive, examine, and identify suspected occurrences of illegal activities provided.

But, with so many rules, what are the procedures to operate in compliance with PLD? That’s what we’re going to talk about now.

How does a money-laundering prevention system work?

A money-laundering prevention system consists of a set of mechanisms and rules defined by the government. These norms must be followed by regulated institutions to prevent the entry of illicit resources into the financial system.

In the fight against fraud, good practices begin with the first contact with the user, at the time of registration.

It is through the KYC (Know Your Customer) and KYE (Know Your Employee) processes that your company will have access to essential information for the analysis of the user’s personal and professional profile, such as:

Signup data (name, ID number, profession, etc.);
Proof of residence;
Financial history;
Proof of income;
Criminal record.

After collecting this information, it’s time for data verification and document validation. Then, finally, it’s possible to trace the profile of the user, client, or potential collaborator.

That way, by identifying risks, you can block the user’s registration or segment and monitor them, preventing fraud and ensuring the institution’s safety.

However, as straightforward as it is, this process might not be so easy for a business to perform alone.

The challenges of complying with PLD / AML

The main challenge for institutions complying with PLD is setting up the necessary structure to carry out this data collection and verify people quickly, accurately, and efficiently, even on a base with thousands or millions of customers and registered users.

For this, it’s necessary to have a specialized team fully dedicated to compliance processes. However, this requires a lot of time and money – two limited and highly precious resources for any business.

For the fintech industry, it’s common for security and user experience to become compromised within the organization amid the challenges of the constant search for innovation in favor of accelerated growth.

After all, regardless of your company’s size, it’s not simple, fast, or cheap to create data verification and user monitoring mechanisms.

Regardless, you don’t have to walk this path alone. To ensure compliance with PLD rules and expand your business without the fear of possible scams or fraud, you can team up with experts in the field.

We got your back

At MetaMap, we value the significance of a relationship of trust between the company and its users. Therefore, since 2017 we have been offering solutions that guarantee security, speed, and accuracy in data verification, user registration, and fraud prevention.

We make it easy to operate in compliance with PLD & AML policies worldwide.

With MetaMap, you can check your users against more than 1,200 criminal, terrorist, anti-money laundering, and politically exposed persons (PEP) watch lists from national and international bodies such as the FBI, Interpol, and the United Nations.

In addition, you can even create custom watchlists based on your criteria. With this, you can filter users with whom you’ve had contact, but don’t appear in official lists.

With our fully customizable workflows, your business can automate onboarding and verification processes in minutes and analyze users on 25+ reputational merits, such as financial and professional history, credit analysis, background checks, identity authentication, and much more.

Want to know more? Get a free trial of our product now, you can join an ecosystem of 500+ businesses around the world that are unlocking borderless growth with us.