What is Transaction Monitoring?

What is Transaction Monitoring?

Transaction monitoring is the technology and continuous process of detecting any abnormal activities in real-time. The activities being monitored can include transfers, deposits, and withdrawals. Transactions flagged during the monitoring process need to be further investigated to determine the appropriate next steps and avoid false positives. Currently, transaction monitoring has become a regulatory mandate across the world in many jurisdictions under the anti money laundering (AML) movement.

What are 10 common illegal activities to detect?

  1. Money Laundering

  2. Fraud

  3. Terrorist Financing

  4. Child Abuse

  5. Sanctioned Jurisdiction and Individual

  6. Scam

  7. Stolen Funds

  8. Darknet Market

  9. Ransomware

  10. Malaware

What is Transaction Monitoring in AML?

Anti-money laundering (AML) transaction monitoring has become a mandated procedure by AML laws in Customer Due Diligence (CDD) rules. This requirement applies to all fiat transactions (USD, EUR, ARS, COP, etc.), and in certain jurisdictions, to crypto transactions (USDC, USDT, etc.) as well. Transaction monitoring allows businesses of all sizes to ensure the recipient destination or the source of funds has no connection to the funds associated with money laundering.

What are common AML rules to follow?

  1. Monitor over period of time: Individuals and entities breaking transactions into smaller amounts over time can avoid detection near reporting thresholds. Therefore, monitor transactions close to the threshold over period of time can effective detect these individuals or entities.

  2. Flag changes in customer info before significant transactions: This may indicate account takeover or fund obfuscation.

  3. Spot unusual spending patterns: Deviations from typical behavior, and financial anomalies can be signal to identify account takeovers or external influence.

  4. Highlight parties with abnormally high transaction volumes or increased values: This rule can exclude new or low-balance parties.

  5. Monitor self-transfers between accounts and suspicious IP address sharing

  6. Identify parties with similar credit and debit totals over a short period: This rule is especially useful in non-comparable spend activities.

  7. Alert on merchants with few buyers to detect collusion or fund circulation: This rule especially focuses on aged accounts.

  8. Watch for merchants with high earnings but minimal communication: This might indicate potential collusion or money laundering.

  9. Monitor high-risk regions: These high-risk regions are prone to money laundering activities based on geographic risk indicators, which need to be updated regularly.

  10. Identify fund anonymization: Fund anonymization is commonly achieved through decentralized exchanges or conversion into gaming tokens, raising money laundering risks.