Drug trafficking, trafficking, theft and the arms trade. These criminal activities create large sums of black money that needs to be laundered. Digital AML will make the process harder for those responsible by helping vulnerable companies comply with the money laundering legislation.

Members of the ruling class from Azerbaijan used Danske Bank to make black money white. Russians used Swedish Nordea and Handelsbanken to send Russian rubles out of the country. Norwegian DNB is also being criticised for their efforts to fight money laundering.

For good reason, financial institutions over the world have a focus on anti-money laundering efforts. According to the United Nations Office on Drugs and Crime, money laundering accounts for between two and five percent of Western countries’ gross domestic product.

This high figure could increase further, especially when considering the number of reports Danish banks have made to ‘Hvidvasksekretariatet’ a part of the Serious Economic and International Crime unit. In 2013, Danish banks made 5,166 reports, and in just three years it has more than tripled to 18,669 in 2016.

This is a trend the new Danish fintech startup Digital AML will be helping to break across industries. Their upcoming toolbox will help companies comply with money laundering legislation, including companies who were not previously aware that they were included in the law.

“We can see that there are types of business where there is no cultural understanding of this, and so very little happens. The industries are populated by decent people, and it’s not because people don’t want to follow the law, it’s just not a part of the everyday, “says Søren Stenderup, co-founder of Digital AML.

Not only banks should be secured against money laundering

The rise in money laundering has led to increased political pressure on businesses like law firms, banks, real estate agents and auditors, and new requirements have been introduced for these types of businesses.

Søren Stenderup experienced those requirements personally when he and his co-founder Søren Brinkmann had to ensure that their crowdfunding startup, Crowdinvest, lived up to money laundering legislation.

It was during this process he found that banks consist of only a small proportion of the companies subject to the laundering legislation. And if he and his co-founder, with a respective economic and legal background, felt overwhelmed by the anti-money laundering requirements, there would most likely be many others who did too.

“I conducted market research and found that although there are only 71 Danish banks, there are 15,000 companies in Denmark that are subject to the money laundering legislation. Such big business potential is not something you want to let pass, “says Søren Stenderup.

Assessing the risk

In line with hygiene rules in a kitchen or safe working environment on a construction site, the Money Laundering Act is about assessing risks and setting up processes that reduce or eliminate them. If a stockbroker sells a detached house to someone in regular employment, the risk is limited, but what steps should be taken if the buyer is a holding company from the Cayman Islands?

A digital tool to help the real estate agent take the necessary precautions is what Digital AML is developing. It is a tool that allows business customers assess the risks themselves, and decide which processes they need to implement in order to protect themselves. This also allows them to assess their own customers’ risk.

“Compliance with money laundering legislation is not something that gets more customers, but is something that must be done. It can be hard to follow the law exactly because it changes all the time. And as well as following the law, a large amount of data has to be collected about customers which must then be archived for a minimum of five years, as well as continuously monitoring the customer relationship. It is an inconceivable task if you do not have a digital solution, “says Søren Stenderup.

Tech must be built by the law

According to Søren Stenderup, Digital AML is the first of its kind on the market, and delivers a complete package that, along with digital tools, can serve the entire business’ needs to safeguard against money laundering. As well as being the first of its kind, their approach has been significantly different from any existing solutions.

“We have a legal approach that is based on legislative text. Others have primarily been based on technological solutions,” says Søren Stenderup.

He believes that the focus on technological capability, rather than legal need, implies certain pitfalls that Digital AML has not fallen into.

“If you have a technological hammer, then all problems will be solved with digital nails. Instead, we assumed that something should be gathered. Whether we need to use nails, screws, hammer or screwdriver is something we have been able to assess along the way. We have all the tools available for a solution.”

The new solution is currently in beta, but the two founders expect to have a product ready for the market in the second quarter of 2018. A year that in many ways looks to be the year that fintech startups focus on financial fraud, something that was one of the top prioritie during the recent Nordic Fraud Summit.