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DALL·E 2024-05-24 12.40.52 - An image depicting the convergence of anti-fraud and anti-mon

Transaction Monitoring. Source of funds. Expected activity. Know Your Client (KYC). 


These are terms that are often associated with Anti-Money Laundering (AML) requirements, however, they are equally essential to consider in the context of fraud. The impacts and importance of the two types of financial crimes on economic stability can certainly be debated, though they are more interconnected than we may think. 


AML is often associated with Counter-Terrorist Financing (CTF). In the case of AML (see our post here for definitions), the concern is typically with the source of funds; the compliance world wants to understand if the funds were gathered from a legitimate source or not. In contrast, CTF is concerned with the destination of the funds in an attempt to prevent them from reaching terrorist organizations. Both definitions inherently imply that funds have already been gathered (in the former case, through illicit means, while in the latter, funds may be legitimately obtained). The main difference with fraud, especially at the onset of a fraud instance, is that funds have not yet been obtained; rather, by definition, the intention of bad actors is to obtain funds from a party deceitfully. Therefore, fraud is a predicate offense to money laundering: the funds originate from a legitimate source, though they become illicit, and, in turn, need to be laundered when in the hands of a bad actor that successfully perpetrated an instance of fraud. Thus, in fraud’s equation, the source and destination of funds can both be critical considerations when developing fraud controls, conducting investigations, or undertaking recovery efforts. For these reasons, opportunities exist to better integrate AML/ATF with fraud in the broader conversation of financial crime compliance. This could be as simple as signal/suspicious activity sharing across teams. 


Consider this example: Bob’s identity was stolen after his computer was compromised, and fraudsters were able to obtain enough information to create a fraudulent piece of ID while also learning more about Bob’s online credentials (including security questions). The fraudsters then illegally used Bob’s information to apply for a credit card under Bob’s name. Finally, once the credit card was received, a cash advance of $10,000 was completed. Now that the fraud event has succeeded, the illicitly obtained funds must be integrated into the financial system through money laundering methods. 


As the global economies and business landscapes continue to evolve (think: internet, digital marketplaces, non-fiat currencies, and the next new disruptor that the future holds), so do regulations and compliance programs. Part of the challenge in this evolution is to not only develop controls that appropriately reflect the inherent risks of the respective business environment (e.g., a traditional bank’s risk environment, and in turn, controls will differ from, say, a crypto business) and align with regulatory requirements, but that these controls also need to consider the potential new avenues that bad actors may attempt to exploit. As fraud is one of the catalysts to money laundering, being able to better monitor fraud signals in conjunction with ML/TF typologies can be critical for financial crime mitigation measures. For good reason: it takes governments, policymakers, and compliance departments time to evaluate, assess, and implement necessary compliance program changes as business environments and laws evolve. In contrast, bad actors are constantly developing new methods and attempting new exploits at will, often faster than controls are developed. This inherent challenge will likely continue, but our agility, adaptability, and increased focus on better synchronizing our compliance programs’ focus on financial crimes can evolve to mitigate associated risks better. Conversations in the context of financial crimes compliance typically center around AML or fraud compliance. Let’s begin to have conversations about AML and fraud. 


If you have any questions or would like to chat more about the topics covered in this article, feel free to reach out to our team at or drop us a message. 

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