Private Lenders are mostly familiar with the Patriot Act, which was implemented after 9/11. However, this act has been amended by the US government over the years. As such, lenders might be unaware that the Anti Money Laundering Act is overlaid on the Traditional Know Your Borrower and Investor framework asides from the existing regulatory compliance frameworks. Private lenders get more exposed to money laundering risks with the digital revolution going on in the Industry. Here are a few compliance risks and challenges private lenders can face and how to overcome them.

  1. Identifying Borrower and Investor’s identities: With online applications, criminals are better at hiding their identities or using decoys to apply for loans, and with insufficient identity verification, criminals might be able to evade AML lending safeguards. Borrowers must accurately document and verify borrowers and investors involved in their business.
  2. Identifying the beneficial owner of the company taking the loan or investing: Private lenders must demonstrate, to a reasonable degree, that the individuals they are interacting with are the beneficial owners of the businesses applying for the loan or working with them on investment. To get around AML identity verification rules and government monitoring, money launderers can further try to take advantage of the anonymity of online applications.
  3. Compliance with AML Laws: Private lenders are subject to several AML-related laws and guidelines intended to help them identify suspicious conduct and notify the authorities as soon as possible. As a private lender, you are expected to adopt AML legislation and AML lending programs. Some of these laws include carrying out due diligence on your borrowers and investors and adopting digital prevention.

Private Lenders must be aware of these risks and develop processes to comply with the AML regulations. To read more, click here.

https://geracilawfirm.com/2022/08/11/do-you-know-your-borrower-investor-a-private-lenders-guide-to-aml-and-red-flags/

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