Ultimate Guide to Setting Up a Comprehensive Anti-Fraud System for Risk Management & AML Compliance

For online businesses operating in Africa, where innovation drives growth and competition is fierce, safeguarding the integrity of operations is very crucial. While regulatory compliance is the foundation for fraud prevention, treating it merely as a box to check overlooks the broader need to safeguard the business ecosystem.

To truly fortify against the threats posed by fraudulent activities, businesses must adopt a proactive stance, going above and beyond regulatory mandates. This includes establishing a comprehensive anti-fraud system— designed to detect, deter, and mitigate fraudulent behaviour across all facets of their operations. 

To set up an anti-fraud system it is important to have a deep understanding of the risk points within every process and transaction. This article discusses key points businesses need to note and how to set up an effective anti-fraud system.

What To Know About Fraud When Expanding Across Africa

For businesses looking to expand across Africa, it is crucial to recognise the unique characteristics of identity fraud within this region. Unlike other parts of the world, the trends and methodologies of identity fraud in Africa are distinct and complex, shaped by a combination of socioeconomic factors, regional variances, and technological disparities. 

Understanding these nuances is a matter of safeguarding against risks and an opportunity to tailor approaches in fraud prevention and customer verification processes that resonate with the local context.

Setting up an Anti-Fraud System for AML Compliance

Setting up a comprehensive anti-fraud system involves several critical steps:

1. Identify Risk Points: Understand where the potential fraud risks lie within your business processes and transactions.
2. Choose the Right Tools: Implement robust verification tools such as biometric authentication, document verification, and AML checks.
3. Layered Security: Use a multi-layered security approach to enhance protection.
4. Regular Monitoring: Continuously monitor for suspicious activities and high-risk events.
5. Compliance: Ensure all systems and processes comply with regulatory requirements.

How To Set Up A Comprehensive Anti-Fraud System

Let’s walk you through the stages involved in setting up a comprehensive anti-fraud system for effective risk management and AML compliance and the key processes to put in place in each stage:

1. Onboarding 

Stolen and fake identity attacks are most common in this stage, so we encourage businesses to implement a layered approach using the following measures:

a. Document Verification

Businesses need to verify an individual’s identity during onboarding. Use a document verification solution like Smile ID, which includes biometrics and allows you to authenticate documents submitted and verify personhood/true ownership with a selfie or liveness test. Additionally, 

b. Government KYC Check 

Government KYC check proceeds to verify the information on the ID provided by the individual against Government databases as an extra measure to ensure the individual is truly the owner of the document. Smile ID can verify documents against government databases in key African markets, adding an extra layer of security in the onboarding stage.

Also, when onboarding a business, organisations need to verify key ownership information about the entity as well as its legal status. Information like the business name, address, registration number and more needs to be verified, as well as stakeholder details and ultimate beneficial ownership. 

Smile ID offers comprehensive business verification across Africa, allowing organisations to verify businesses and the identities of their Ultimate Beneficial Owners.

2. Duplicate Checks

Duplicate account fraud occurs when an individual creates multiple accounts within the same system, often using false or slightly varied identities. This type of fraud can manifest in various forms, such as creating multiple accounts to take advantage of promotional offers, evading detection for fraudulent activities, or perpetrating more sophisticated financial crimes like money laundering.

Having effective duplicate checks in place after customer verification is key to having a robust anti-fraud system as this helps prevent duplicate account fraud. It can be achieved through:

a. Biometric Deduplication Check

Check for duplicate accounts using a biometric deduplication engine like Smile Secure. This advanced engine detects rogue users trying to access your system with multiple IDs. By deduplicating facial biometrics and integrating side-channel data, our models can alert you if the same user has been previously verified, even if they present a different name or government ID for KYC.

Recommended: See how Paga, a leading mobile money company in Africa, was able to detect a rogue user with 150 different Bank Verification Numbers (a typical ID number used by banks in Nigeria), all with the same face. Watch the Case study here.

3. AML Checks and Ongoing Monitoring

After ID verification and duplicate checks, AML checks should be run on the customer information for extra anti-fraud measures. For businesses, AML checks should be run on key stakeholders and the ultimate beneficial owners to properly assess the risk they pose and make effective decisions.

Use AML checks to verify that customers are not on any watchlists or sanctions lists. Smile ID’s AML Check screens both new and existing users against more than 1100 global and African sanctions, PEP, and adverse media watchlists. This process helps identify potential red flags in customer profiles, indicating a high risk of money laundering and other financial crimes.

After AML checks, low-risk individuals can be moved to step (c) below to be consistently monitored for suspicious activity reporting. On the other hand, extra verification needs to be carried out for high-risk individuals [they should proceed to step (a)].

High-risk events differ significantly depending on the industry. These could include high-volume transactions, increased velocity frequent transactions, or high-risk actions like password reset or new device initiation. During these events, businesses should implement the following measures:

a. Enhanced Due Diligence

For high-risk individuals, businesses conduct enhanced due diligence to gather more information about the customer and the transaction. This includes running government KYC checks on their IDs to verify them against government databases as well as assessing their financial history and source of funds.

b. Transaction Monitoring

Continuously monitor transactions for unusual patterns or behaviours that could indicate fraud.

c. Suspicious Account Monitoring

Both low-risk and high-risk customers need to be monitored for suspicious activities. Keep an eye on accounts that exhibit suspicious behaviour, such as multiple failed login attempts or requests for unusual transactions.

4. Ongoing Biometric Authentication and AML Checks

Perform ongoing biometric authentication on users during high-risk transactions or events to ensure that the person conducting the transaction is the legitimate account holder.

Additionally, you should regularly screen customers against updated AML lists to detect any new risks or changes in their risk profiles and status. By implementing these measures, businesses can effectively mitigate risks associated with high-risk events.

Setting up a Comprehensive Anti-Fraud System with Smile ID

Due to the legal and operational impact of KYC operations, selecting the right identity verification partner is vital for businesses. 

A good partner facilitates scalable growth while ensuring regulatory compliance across jurisdictions. Also, choosing the wrong partner can lead to compliance issues, customer dissatisfaction, and legal consequences.  Ineffective KYC processes result in delayed onboarding, inaccurate verification, and heightened fraud risks. Evaluating potential partners based on track record, reputation, compliance capabilities, and solution flexibility is essential. Making an informed decision ensures a secure, compliant, and efficient customer onboarding process. 

We created a step-by-step guide to help you determine your unique business requirements and find a KYC provider that best meets those needs. Download it here.

To learn more about the state of Fraud in Africa and how to mitigate potential risks associated with individual fraud attempts, download Smile ID’s Digital Identity Fraud in Africa Report here. 

Book a free demo to learn more about our solutions today.