Is Anti-Money Laundering Necessary for the Freelance Industry?
Anti-money laundering is the set of policies and laws that restrict the involvement of black money in the system. These policies are made under the guidance of global watchdogs like FATF and the EU. They regularly issue directives to oppose money laundering.
Money laundering the process in which illegally obtained funds are converted into white money. This is done to walk freely holding that funds. All the financial institutions are obliged to demand a source of money from the customers. Whenever a customer wants to deposit money in his account or invest in a business, he has to undergo AML screening. Money is laundered by hiding the illegitimate sources, breaking the link with it, giving it multiple layers, and making a new legitimate source for it.
Money launderers usually target those businesses that have daily transaction processing and secrecy of the owner. Financial institutions like banks and forex exchanges were mostly used by criminals for money laundering. But now they also look for other sectors to conceal their illegal funds. The freelance industry is the latest sector that is used for money laundering.
Money Laundering Freelance Industry
Freelancing is a rapidly growing profession mostly adopted by the new generation. This provides ease of working from home. A freelancer does not have to meet the client face-to-face or go to an office for the assignment. He can get his job, assignment description, and payment by a digital channel.
According to a report by Upwork, the freelance industry of America generates 1 Trillion US Dollars in 2019. The freelance industry attracts young professionals to choose this contract-based job instead of a full-time one. Most of the revenue of the freelance industry collects from the students who work and study at the same time. This gives students an early experience and a bright professional career. Freelancing is also known as gig economy or self-employment. The freelance platforms have made the world a global village by connecting professionals around the globe. Now it is possible that a person from the UK can assign a task to a freelancer in Japan if he wants. This provides a much greater international opportunity for developing countries. They can have a larger and pleasant working exposure of the world.
As discussed earlier, the freelance industry also possesses the risk of money laundering. Its global coverage charms money launderers because the primary step of money laundering is to transfer it offshores. It is easy for them to transfer funds from one state to another through freelance platforms.
How money laundering is done through freelance websites
A freelancer is accessed by a person from another state for some task. When the task is complete and delivered to the employer, he pays some extra amount to the freelancer. The amount is transferred to the native bank account of the freelancer. Then the employer tells the freelancer that it is done by mistake and requests him to transfer it to another account. The freelancer transfers the extra amount to the account number and unintentionally becomes a money mule.
The other case is when the freelancer and employer are both money launderers. They upload a fake task on the freelance website and transfer the money from one account to another. They do it multiple times with micro-transactions so that the ultimate amount can be large.
Anti-Money Laundering for Freelance Sector
The freelance industry can be cleared from money laundering by KYC verification and AML screening. By Know Your Customer verification will block the involvement of fraudulent actors in the freelance platforms. Every employer and worker on the website has to verify himself through KYC verification. KYC verifies the individuals’ identity through IDs, they have to upload the image of it while onboarding.
After KYC, they will be screened through AML watchlists and PEPs. AML watchlists contain data of high-risk entities or persons that have done some criminal activity before.
Summing it Up
The above discussion clarifies that the AML solution is inevitable for the freelance industry. Now the AML/KYC solutions are automated, powered by AI-assisted software that performs the verification in seconds. By doing so, freelance websites can have a secure professional environment and a better user experience.
