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The Battle Between Transaction Laundering And KYT Verification

by Marketgit Team

Know your transaction KYT verification is a method used by financial institutions to keep track of merchants’ operations by analyzing transaction data. Examining transaction data helps for accurate and data-driven judgments, as it provides the necessary proof when suspicions of fraudulent merchant behavior arise.The fundamental distinction between transaction laundering and money laundering is that transaction laundering takes place online. The transaction laundering technique is extremely clever: it involves creating a ‘regular’ website (the shell website), which advertises legal goods or services, while simultaneously maintaining a ‘fraudulent’ site that is unknown to banks and card networks and engages in unlawful commercial activity. The transactions from the ‘fraudulent’ website are then routed through the ‘normal’ site to appear real, fooling banks, payment platforms, and card networks into thinking they are all legal transactions and profits from the ‘usual’ website.

Why is Transaction Laundering used?

Criminals require a technique to conceal income from unlawful e-commerce operations, such as illegal online gambling or child pornography, and incorporate it into the normal financial system, similar to money laundering. Because these activities are against card network regulations, applicants will not only be denied merchant accounts when they apply but their accounts will also be canceled and reported if their connected website reveals banned business activity. Outsmarting the system, criminals began to use shell websites to hide their illicit e-commerce operations, paving the way for transaction laundering to emerge.

The dependence on KYC and web crawling has flaws.

Employing Know Your Customer KYC compliance and web crawling have a number of limitations when it comes to risk management, merchant monitoring, and detecting transaction laundering activities. Open data and/or information supplied by the individual or company are frequently used in KYC checks and web crawling. This creates a number of concerns in and of itself: publicly accessible data may be out of the current, and information gave by the applicant may have been modified or faked. Because KYC and web crawling provide a basic history of registrants and their company types, they are crucial for due diligence and onboarding new traders. Both KYC and web crawling, on the other hand, are ineffective for long-term risk management and monitoring.

While these approaches can be sufficient in the early phases of onboarding new merchants, they lack the supply of tangible proof needed to validate any suspected unlawful or transaction laundering activity. Relying only on KYC and web crawling for risk management might lead to a new problem: false positives, which occur when potential merchants are incorrectly flagged as a financial risk.

Insights derived from KYT

The benefit of KYT verification is that it focuses on transaction data, which is available in real-time and is difficult to manipulate or alter. Transaction data may be analyzed quantitatively and qualitatively to discover a merchant’s genuine business activity. With real facts in hand, the KYT solution provider can assist in the generation of extremely accurate insights and the drawing of data-driven conclusions.

Simply said, because KYT verification may link transaction data to specific websites, it reveals hidden websites (used to conduct criminal operations) – allowing for further investigation and the gathering of further information based on data collected from the no longer-hidden website. Information that would have been overlooked otherwise, such as secret enterprises and commercial operations, as well as the identities of other linked parties, can be uncovered using this approach, bolstering the effectiveness of KYT verification. Raw transaction data can be analyzed to identify transaction patterns and trends (e.g., transaction monitoring velocity, frequency, time, and location), as well as whether any abnormal changes are worth noticing or examining. For instance, if a site’s transactions are confined to or mostly come from purchasers in a high-risk area or nation, these are red flags to be aware of in order to reduce financial risks. When examining the time and velocity of transactions, ‘regular’ sites should accrue transactions at any time of day, however, suspicious sites may have few to no transactions for most of the day, followed by a burst of a thousand transactions over two hours.

Last but not least

Know Your Transaction may provide you with a lot of details about your transaction. To execute KYT compliance efficiently, however, the correct tools, resources, and technology are required. Advanced technology and expert data analytic knowledge are required to successfully extract data and track transaction information back to its origins. Using third-party vendors, particularly MMSP-approved service providers, is a wonderful approach to get started with KYT verification.

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