AUSTRAC has released a risk assessment of the Non-Bank Lending and Financing sector (NBLFs).

This insightful report has confirmed AUSTRAC’s overall assessment of the money laundering and terrorism funding risk for NBLFs as medium, however specific risks that need to be considered are identified.

The main threat faced by NBLFs is fraud, particularly loan application fraud, identity fraud and welfare fraud. The second significant threat is money laundering, predominantly through unexpected early loan payouts.

Highlighting a low number of Suspicious Matter Reports (SMRs) – with four entities accounting for over half of all SMRs submitted – AUSTRAC expects the NBFL actors to improve their systems to identify and report suspicious matters.

The key question on the table for directors or executives in the non-Bank Lending and Financing sector is whether your organisation is managing its risks appropriately.

Top tips to manage AML risks

illion can help you to answer these questions with many identified risk vectors. Here are our top tips for your consideration:

1) Watch out for fraud

It might sound obvious, but AUSTRAC assesses that the key criminal threat faced by NBLFs is fraud, with 1,632 SMRs (72 per cent). Thirty-nine per cent of SMRs (890) included indicators of loan application fraud, the majority of which was conducted online.

Perpetrators often attempt to use other’s identities to apply for loans, or use their own identity but provide fraudulent documentation.

Buy now pay later and small amount loans or small amount credit contracts (also known as payday loans) are singled out as having a strong online presence and moving to more automated processes which can make them more vulnerable to loan and identity fraud.

Like other loans, credit card accounts are open to exploitation when they are established with stolen identity information or paid off with criminal proceeds, including cash.

illion income and expenditure (I&E) checks help avoid fraud. Several NBLFs have reported to AUSTRAC that the use of proprietary software that directly accessed the applicant’s bank account as part of the loan approval process had eliminated many unsophisticated attempts at loan application fraud.

In addition to I&E checks, illion provides the market-leading individual verification product ‘greenID’ which confirms identity.

We also offer an advanced facial biometrics product which is a next-level check that matches the actual individual to the identity.

2) Detect irrational or suspicious behaviour

Forty-six percent of SMRs included indicators of money laundering, with over half of the SMRs related to transactions being inconsistent with the customer’s profile and/or unexplained wealth.

Loans are typically well-established vehicles for money-laundering, and early loan payout is a key indicator for illicitly-generated funds being used to pay back the loan.

A number a suspicious scenarios were found in the SMRs, from excessive or unexpected use of cash repayments options, to splitting cash transactions into multiple transactions to avoid being reported in a threshold transaction report, or the purchase of unexpectedly large numbers of gifts cards with the proceeds of crime.

Maintaining robust and consistent due diligence and transaction monitoring practices is paramount in order to understand the source of funds and identify movements that are inconsistent with a customer’s recorded profile.

illion partners with the best to provide cutting edge AI and machine learning solution allowing you to onboard and proactively monitor your customers.

3) Understand the risk posed by non-individual customers

Although the majority of NBFL customers are individuals, 70% of them reported having customers such as companies, trustees, partnerships and associations.

Non-individual customers present higher risks than individuals because they provide opportunities for perpetrators to obscure beneficial ownership and co-mingle criminal proceeds with legitimate funds, complicating detection efforts by authorities.

illion can help you identify beneficial ownership easily and efficiently and develop strategies to deal with any aberrations.

illion can also help you to monitor for any changes in your clients’ organisations or structure.

4) Identify high-risk customers

Consultations demonstrated that many entities in the sector have Politically Exposed People (PEPs) as customers. As a result, AUSTRAC has restated that systems to identify PEPs are required under the AML/CTF Act and Rules.

While PEP and Sanctions checks are performed during on-boarding, we are aware that some NBLFs may not keep their customer profiles up to date.

Adverse news checks are typically not performed in the NBLF sector. This is critical in identifying risk in your customer base, for example customers linked to criminal activity or terrorism. In a number of cases, NBLFs became aware of links to criminal networks when the customer appeared in media reports or on sanctions lists.

illion has a class-leading PEP & Sanctions solution in Australia, which is monitored daily, can be hosted locally, and provides low false positive rates.

Keeping false positive rates low is key to ensuring your staff costs are controlled and time is not wasted investigating spurious alerts.

In summary

As the business environment changes constantly, it’s important that you keep ahead of your risks and have appropriate mitigation strategies in place.

For more information, read our Guide or contact illion’s AML expert Richard Atkinson to hear how you can manage all of your AML risks.

illion Guide to Money Laundering and Terrorism Financing Risks in the Non-Bank Lending and Financing Sector

This insightful report has confirmed AUSTRAC’s overall assessment of the money laundering and terrorism funding risk for NBLFs as medium. However specific risks that need to be considered are identified, and AUSTRAC stresses the need for each entity to review and ensure their AML compliance program is adequate.