Introduction
Ramadan is a time of increased financial activity, including charitable donations, business transactions, and money transfers. While this period fosters generosity, it also poses money laundering and financial crime risks. Criminals may exploit the rise in transactions to launder illicit funds.
Financial institutions must strengthen Anti-Money Laundering (AML) compliance to detect and prevent suspicious activities. This article highlights key AML risks during Ramadan and outlines best practices for financial institutions to remain compliant.
Why AML Compliance is Crucial During Ramadan
During Ramadan, financial institutions process higher volumes of transactions. Charitable donations, remittances, and business payments increase significantly. Criminals may use this surge to hide illegal financial activities.
Key AML Risks During Ramadan:
- Charity and Zakat Abuse – Fraudulent charities may misuse donations for money laundering or terrorism financing.
- Increased Remittances – The rise in cross-border transfers can be exploited to move illicit funds.
- Fraudulent Promotions – Scammers may use fake Ramadan discounts or e-commerce schemes to launder money.
- Unusual Business Transactions – High-value cash deposits or transfers may signal illicit activities.
To counter these threats, financial institutions must enhance transaction monitoring, Know Your Customer (KYC) protocols, and Suspicious Activity Reporting (SAR).
Best Practices for AML Compliance During Ramadan
1. Strengthening Customer Due Diligence (CDD) and KYC
Robust Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures help identify and verify clients. During Ramadan, financial institutions should:
- Verify customer identities for all large transactions.
- Monitor new account openings linked to charities and non-profits.
- Apply Enhanced Due Diligence (EDD) for high-risk customers and entities.
2. Enhanced Transaction Monitoring
With increased transactions, financial institutions must monitor unusual activities in real time. Steps to strengthen monitoring include:
- Implementing AI-based transaction analysis to detect anomalies.
- Setting thresholds for large or irregular transactions.
- Tracking frequent high-value donations to verify legitimacy.
3. Scrutinizing Charity-Linked Transactions
Many people donate Zakat and Sadaqah during Ramadan. Fraudsters may set up fake charities to collect illicit funds. Financial institutions should:
- Verify registered charities before processing large donations.
- Monitor transactions flagged as high-risk for terrorism financing.
- Report suspicious charity donations that lack transparency.
4. Strengthening Employee Training on AML Risks
AML compliance requires well-trained employees to identify suspicious activities. Financial institutions should:
- Provide Ramadan-specific AML training to staff.
- Educate teams on new money laundering techniques used during high-transaction periods.
- Encourage employees to report unusual financial behaviors.
5. Conducting Real-Time Sanctions Screening
Financial institutions must ensure compliance with international AML regulations. This includes:
- Screening customer transactions against global sanctions lists.
- Using AI-driven compliance tools for faster fraud detection.
- Verifying business partners and vendors for potential AML risks.
6. Ensuring Compliance in Digital & Cryptocurrency Transactions
The rise of digital banking and cryptocurrency transactions requires strong AML controls. Financial institutions should:
- Monitor crypto transactions linked to suspicious charities.
- Require identity verification for high-value digital payments.
- Use blockchain analytics to track illicit financial flows.
Reporting Suspicious Transactions During Ramadan
If financial institutions detect unusual financial activity, they must:
- File Suspicious Activity Reports (SARs) with regulatory authorities.
- Flag high-risk entities and individuals.
- Cooperate with law enforcement agencies to prevent financial crimes.
Conclusion
AML compliance is crucial during Ramadan due to increased charitable donations, remittances, and business transactions. Financial institutions must implement strong KYC, transaction monitoring, and employee training to detect and prevent financial crimes.
By following best AML practices, banks and fintech companies can protect the financial system, prevent money laundering, and ensure a safe transaction environment during Ramadan.
