In recent years, crowding funding has become the new trend to help remove startups and small businesses from scratch. It is not a new concept as musicians and artists have been collecting funds since the 18th century. However, digital crowdfunding is emerging as an innovation. With this, the chances of financial crimes are also skyrocketing. A lack of dedicated anti money laundering legal obligations is further paving the way for criminals.
To mitigate the chances of mingling income from both illegal/legit sources, transferring criminal proceeds to agents, and converting ill-gotten funds into clean money, platforms need to integrate efficient programs. This blog entails a detailed guide to how digital AML compliance solutions help these crowdfunding platforms enhance, secure, and upgrade their operations.
AML Screening – Highlighting Different Types of Crowdfunding
With digitization, helping small businesses looking for investments has become easier. Local communities, venture capitalists, Non-Governmental Organizations (NGOs), and other such firms can pitch to a larger audience. Furthermore, crowdfunding platforms are further streamlining the fundraising process.
However, crowdfunding is also becoming riskier due to inadequate AML solutions, lax regulatory checks, and the absence of ongoing monitoring. The loopholes are making room for criminals and they are taking advantage of flexibility and simplicity of crowdfunding platforms to launder their ill-gotten funds.
Moving on, crowdfunding aids in support for various activities such as support of artists, regional development, disaster relief, economical growth, and political campaigns. Despite these benefits, there is a dramatic increase in criminal activities.
To combat fraudsters’ malicious intentions and provide a secure experience to both investors as well as firms, crowdfunding platforms need to integrate AML solutions. This way they can ensure active screening and risk assessment of entities prior to their digital onboarding. More details regarding the type of crowdfunding are in the next section;
This type of crowdfunding involves individuals making donations to businesses for receiving a non-financial reward in return. In order to ensure that the firms hold a legal status and prize money includes legit funds, platforms need to employ efficient anti money laundering checks.
Moving further, reward-based crowdfunding helps businesses to launch orders that already exist in their books while ensuring a secure cash flow. In this process, investors also aid in gathering audiences prior to the launch of services or products.
Crowdfunding Through Lending
As the name indicates, lending crowdfunding refers to investments that businesses re-pay within a definite time. To ensure secure transactions valdiate investors by cross-matching them against global watchlists, platforms need to employ effective AML screening checks.
Crowdfunding Through Donations
Donation-based crowdfunding involves several investors investing small sums of money. Criminals often target this type to escape AML compliance checks and regulatory radar.
Investors looking for long-term profits put their money in businesses that are not a part of Stock Exchange. This helps individuals acquire equal shares in the company. However, crowdfunding platforms should incorporate AML solutions to make sure the investors are not using ill-gotten funds and firms hold a clean status.
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Peer-To-Peer (P2P) Crowdfunding
P2P or debt-based crowdfunding involves entrepreneurs or small businesses borrowing money from investors. They then re-pay the individuals once the project completes. Hence, for facilitating secure P2P crowdfunding, platforms should perform efficient AML verification of both parties.
AML Security Solutions – Combating Risks Faced by Crowdfunding Platforms
With around $114 billion of funds raised in 2020, crowdfunding is becoming massively popular all over the world. Small businesses, startups, and entrepreneurs are making their way to these platforms for uplifting their status and mastering economic growth. However, with these benefits come several criminal risks such as money laundering, fraudulent investments, and chances of affiliating with firms falling on sanction lists. This increases the need for crowdfunding platforms to integrate efficient AML solutions and combat the following risks;
Criminals often target crowdfunding to launder their ill-gotten funds and escape AML security checks. Due to flexibility and a lack of regulatory checks, fraudsters easily exploit platforms and convert their black money into white.
However, with efficient anti-money laundering mechanisms in place, crowdfunding platforms can better fight money launderers. Similarly, they can keep track of investors as well as firms to ensure a safe investment environment. Hence, in the fight against money launderers, efficient AML systems are crowdfunding platforms’ reliable solutions.
To ensure AML compliance and address prevailing criminal risks, crowdfunding platforms require efficient mechanisms. They should screen investors as well as firms with KYC, AML, and CDD procedures. This way platforms can place safety guards at the stage of digital onboarding while preventing chances of financial crimes. Furthermore, AI-powered services are capable of analyzing suspicious activities in time. With cross-matching of both funders and businesses against global watchlists, online AML solutions uphold the integrity of crowdfunding platforms.
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