With all the concerns about the lack of an effective AML/CFT compliance program, on the part of sponsor bank fintech clients, we need to go back one critical step, when we create a program designed to reduce the risk that their new fintech is unwittingly allowing money launderers to feed the proceeds of crime into the deposits it is moving through accounts at your bank. That is the satisfactory completion of a thorough enhanced due diligence program on fintech ownership and control, prior to allowing it to open operating accounts.
Fintechs must rely upon the injection of sufficient capital to both commence operation, as well as to sustain themselves while seeking to become profitable, and their owners are often literally desperate to raise funds to prevent abrupt shutdown. Do their owners do a deep dive own the background, Source of Funds and Source of Wealth of their funding? Does a drowning man question the bona finder of his rescuer? As a reformed money launderer, owning a fintech, and using it to clean dirty money, sounds like something that laundrymen would love to engage in.
We are concerned about not only the initial funders, and the short-term funding that a fintech reaches out for when it is ongoing, but still not yet profitable, as those sources could influence its owners to accept clients who are, in truth and in fact front for money laundering, but sponsor banks must also understand that criminal elements themselves might also be the beneficial owners. Only if you rule out such events through enhanced due diligence, up front, can such nightmares be avoided. True anti-money laundering starts with the identity of your fintech client's owners and funding sources. Do not take shortcuts on this risk reduction measure, or you might find yourself later regretting that you ever took on a fintech who subsequently got your sponsor bank into serious hot water with regulators or law enforcement; watch yourselves on this issue.
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