AML (Anti-Money Laundering) and KYC (Know Your Customer) risk management have long been at the core of banking. In fact, financial institutions risk liability and missing business opportunities if they do not have clear controls, accurate and clean data, and robustly defensible decisions.
In this guide, we provide a comprehensive yet practical roadmap of what AML and KYC mean for financial institutions, including regulatory expectations, the differences in regulation by jurisdiction, and the core components of a working program, from Customer Identification Programs (CIP) and Customer Due Diligence (CDD) to transaction monitoring, screening, and Enhanced Due Diligence (EDD).
We also provide an end-to-end view of the process, highlighting common pain points and opportunities, as well as where tools like open-source intelligence (OSINT) help reduce false positives, accelerate investigations, and make it more difficult for cybercriminals to operate. In addition, we share concrete best practices, highlight the high costs of non-compliance, and offer a glimpse into the future of AML and KYC compliance.
What is AML?
AML, or Anti-Money Laundering, refers to laws, rules, and regulations that aim to prevent criminals from using banks and other financial institutions to launder the proceeds of crime and to conceal their identity or location.
The term refers to regulations and controls designed to prevent money laundering, terrorist financing, and other financial crimes. AML programs are based on transaction monitoring, suspicious activity reporting, and controls to prevent and detect abuse.
What is KYC?
KYC, or Know Your Customer, is a key component of AML. It’s all about verifying customer identities, determining who they are, and assessing the risks they pose.
Banks must verify that a customer is who they claim to be, screen them against watchlists and sanctions lists, and assign a corresponding risk profile. This allows them to decide how much supervision or monitoring an account needs.
How Are AML and KYC Related?
AML and KYC are directly related. KYC is one of the first lines of defense, and it’s a foundational component of any AML program.
KYC verifies customers at onboarding and continues to monitor activity for ongoing risk assessment. AML and KYC programs are integral to a comprehensive compliance strategy that safeguards the financial system, meets regulatory requirements, and minimizes exposure to financial crime.
Legacy AML/KYC processes are based on structured data and rules-based systems. However, modern-day investigations require a broader view that connects internal alerts to external intelligence. By leveraging OSINT tools like ShadowDragon Horizon™, analysts can go beyond watchlists and sanctions databases to map online behavior, uncover associated aliases, and detect patterns of beneficial ownership across borders.
For example, consider a situation in which a fintech identified a potential risk with a new customer connected to an offshore entity. OSINT tools were able to trace the beneficial owner to previous sanctions via secondary social media profiles and website registrations, information that isn’t available through standard watchlists.
KYC/AML Regulations Around the World
AML and KYC regulations reflect a combination of international standards and individual countries’ regulations and expectations. Financial institutions must comply with the Financial Action Task Force (FATF) recommendations while also navigating local requirements, such as those from the Financial Crimes Enforcement Network (FinCEN) in the United States, the European Union’s Anti-Money Laundering Directives (AMLD), or the Financial Conduct Authority (FCA) in the UK.
In addition to meeting these requirements on paper, institutions must also demonstrate that their controls work effectively in practice. OSINT tools like ShadowDragon Horizon™ empower compliance teams to augment traditional KYC data with external intelligence (e.g., social, open web sources, and network indicators) to uncover concealed risk and enhance due-diligence files both prior to onboarding and during investigations.
In every jurisdiction, regulations are under increased scrutiny, and fines for poor controls are increasing globally.
For example, in December 2022, the United States Securities and Exchange Commission (SEC) announced a settlement with Danske Bank A/S related to disclosures regarding its AML compliance in its former Estonian branch. The SEC found that from 2009 to 2016, most of the transactions the Estonian branch conducted on behalf of non-resident customers presented increased AML risk.
The SEC also found that Danske Bank’s public disclosures during that period did not adequately inform investors about the extent of the branch’s AML risks or associated compliance issues. As part of the settlement, Danske Bank agreed to forfeit approximately $2.06 billion, a total that included penalties imposed by Danish authorities as part of the coordinated global resolution.
This case underscores several key lessons for the international banking community. First, U.S. authorities have continued to use general fraud provisions to reach certain types of misstatements related to compliance, even where the conduct in question takes place outside the United States, so long as the subject bank is seeking to access the U.S. financial system.
This case is a reminder of the need for accuracy and candor in communications with correspondent banks about AML policies and procedures, as omissions and stale statements can open up another area of exposure. The settlement also shows that fines in AML cross-border enforcement actions can reach multi-billion-dollar levels when multiple jurisdictions coordinate their actions.
In another case, HSBC faced regulatory action from U.S. authorities for failing to maintain effective AML safeguards. A U.S. Senate investigation found that HSBC’s compliance controls were inadequate to detect money laundering by drug cartels, sanctioned nations, and other high-risk customers who moved money through Mexico, Iran, Syria, and other countries. The bank did not properly monitor an estimated $15 billion in bulk cash transactions between 2006 and 2009, according to the report.
HSBC agreed to pay $1.92 billion as part of a settlement and accept outside oversight under a deferred prosecution agreement, signaling that regulators will use both civil penalties and criminal mechanisms to enforce compliance.
In 2017, the New York Department of Financial Services (DFS) imposed a $425 million penalty on Deutsche Bank AG and its New York branch for a “mirror-trading” scheme that enabled approximately $10 billion to be transferred out of Russia through a series of coordinated trades between the bank’s Moscow, London, and New York offices. DFS noted in its order that the bank repeatedly missed opportunities to detect or stop the scheme, largely due to systemic failures in its AML controls, weak KYC processes, and insufficient internal governance.
As part of the consent order, Deutsche Bank is required to retain an independent monitor to perform a comprehensive review of its global AML program, prepare a detailed remediation plan, and remedy various corporate governance and compliance program deficiencies. The enforcement action underscores that even established international banks can be held accountable under state regulatory authorities for AML failures tied to cross-border trading activity.
International Standards
The Financial Action Task Force is an intergovernmental organization that provides recommendations on AML and countering the financing of terrorism (CFT) for jurisdictions to implement. The FATF has a critical role in establishing the global standards for AML and KYC compliance.
United States
AML compliance in the United States is primarily guided by the Bank Secrecy Act (BSA). The USA PATRIOT Act, an amendment to the BSA, was implemented following 9/11 to heighten AML rules in the U.S. It places a greater emphasis on customer due diligence and scrutiny of cross-border wire transactions.
FinCEN, a bureau of the U.S. Department of the Treasury, issues administrative rules, gathers and analyzes financial transaction data, and implements AML/CFT compliance at the federal level.
European Union
The EU has enacted a series of Anti-Money Laundering Directives to implement FATF recommendations. AMLD5 focused on beneficial ownership transparency and expanded AML/KYC requirements to virtual assets. AMLD6 further broadened the scope of money laundering crimes, increased institutional liability, and enhanced information sharing between member states.
United Kingdom
The U.K.’s Financial Conduct Authority enforces KYC and AML rules. Firms are required to conduct customer due diligence, ongoing monitoring for suspicious activity, and comply with both domestic and international expectations.
Asia-Pacific
Regulators in many APAC countries have established regulatory and supervisory frameworks based on FATF recommendations. However, the maturity of local AML/CFT regulations varies widely across the region. Singapore and Hong Kong have stringent requirements, while other countries are still developing consistent supervisory practices.
Latin America
AML enforcement in Latin America has stepped up in recent years. Brazil, Mexico, Colombia, and Argentina lead the way in implementing new regulations. Most countries in the region have signed onto international AML standards, but enforcement can be challenging.
Middle East
AML laws are becoming more comprehensive across the Middle East, driven by international pressure from FATF. While some countries, such as the UAE and Qatar, have robust laws and frameworks, others lack effective implementation and supervision.
Africa
The Action Group against Money Laundering in Central Africa (GABAC), Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Inter Governmental Action Group against Money Laundering in West Africa (GIABA), and Middle East and North Africa Financial Action Task Force (MENAFATF) have been collaborating with the FATF to enhance the implementation of international standards across the continent.
In many African countries, laws have improved, but supervision has lagged, creating risks for financial institutions.
Escalating Enforcement
A common theme across all regions is that regulators are getting more aggressive. Authorities are levying record-breaking fines against financial institutions for AML/KYC shortcomings. Regulators also want to see more proactive transaction monitoring, rather than reactive or “box-checking” efforts. The financial, reputational, and even criminal risks associated with non-compliance are increasing.
The table below highlights the key regulations, primary regulators, and other details for different countries and regions.
| Region | Core Laws and Directives | Typical KYC Scope | Reporting Obligations | Beneficial Ownership | Virtual Assets | Primary Regulator(s) | Penalties Snapshot |
|---|---|---|---|---|---|---|---|
| Global Baseline | FATF Recommendations | CDD, EDD for high-risk, ongoing monitoring, PEP/sanctions screening | STR/SAR guidance via national FIUs | FATF urges central registers or equivalent access | FATF treats VASPs as regulated entities | FATF; national FIUs/regulators implement | Non-binding; countries risk grey/black-listing |
| USA | Bank Secrecy Act (BSA), USA PATRIOT Act, CDD Rule, Corporate Transparency Act (BOI reporting) | CDD/EDD, risk rating, ongoing monitoring | SARs to FinCEN, CTRs; recordkeeping | FinCEN BOI reporting; access for law enforcement | FinCEN rules for certain VASPs/MSBs | FinCEN, federal prudential regulators, state agencies | Civil/criminal penalties; multi-million-dollar fines; enforcement actions and monitors |
| EU (EEA) | AMLD5, AMLD6 (moving toward single AML Rulebook and EU AML Authority) | Harmonized CDD/EDD, ongoing monitoring, PEP/sanctions screening | STRs to national FIUs; cross-border cooperation | BO registers at member-state level (access varies) | VASPs registered and supervised | National competent authorities, FIUs; (future) AMLA | Administrative fines scaled to turnover; cross-border coordination |
| UK | Money Laundering Regulations, POCA, Sanctions and AML Act; FCA Handbook | Risk-based CDD/EDD, ongoing monitoring, PEP/sanctions screening | SARs to UKFIU (NCA) | PSC (persons with significant control) regime; BO registers | FCA-supervised cryptoasset firms (registration) | FCA, NCA/UKFIU, HM Treasury | Large administrative fines, criminal liability, business restrictions |
| Singapore | MAS Notice 626/824, PS Act | Strong risk-based CDD/EDD, ongoing monitoring | STRs to STRO | BO info required and available to authorities | DPT service providers licensed and supervised | MAS | Significant financial penalties; licensing actions |
| Hong Kong | AMLO, SFC/HKMA guidelines | CDD/EDD, ongoing monitoring, PEP/sanctions | STRs to JFIU | BO registers with access for authorities | VASP licensing regime | HKMA, SFC | Fines, license suspension/revocation |
| Australia | AML/CTF Act and Rules | CDD/EDD, ongoing monitoring, sanctions screening | SMRs to AUSTRAC | BO expectations via CDD (reform under consideration) | Certain digital currency exchanges registered | AUSTRAC | Civil penalties; enforceable undertakings |
| Canada | PCMLTFA, FINTRAC Guidance | CDD/EDD, ongoing monitoring, sanctions screening | STRs, LCTRs to FINTRAC | BO verification requirements | MSBs/VC dealers registered with FINTRAC | FINTRAC, OSFI | Administrative monetary penalties; disclosure orders |
| UAE | Federal Decree-Law on AML/CFT, Cabinet Decisions | CDD/EDD, ongoing monitoring | STRs to FIU-UAE | BO registers required | VASP frameworks (varies by free zone, e.g., VARA) | CBUAE, SCA, free-zone authorities | Fines, license actions |
| Other (LATAM, Africa) | National AML laws aligned to FATF | CDD/EDD, sanctions screening developing | STRs to national FIUs | BO frameworks maturing | VASP oversight emerging | Central banks, securities regulators, FIUs | Range from modest to severe; trend toward higher fines |
Key Components of KYC Compliance
KYC is a layered process of customer identification, validation, and ongoing risk monitoring and management. The first stage is customer identification and authentication; it involves a deep KYC check with continuous risk rating and ongoing monitoring that includes global watchlist screening.
OSINT tools like ShadowDragon Horizon™ augment these activities by expanding visibility beyond static databases. These tools assist analysts in identifying obscured connections, online personas, and behavioral patterns that conventional KYC processes might overlook, resulting in a more actionable and defensible risk profile.
Customer Identification Program (CIP)
KYC begins with a Customer Identification Program, which requires banks to obtain basic information such as a customer’s name, date of birth, address, and government-issued ID. This confirms the customer’s identity and verifies that the individual or business entity exists and is not a fictitious person.
Investigators can use ShadowDragon Horizon™ to help rule out the possibility of a fake or stolen identity. When information about a person, device, or organization is gathered from public data across multiple sources (such as emails, website addresses, and social profiles), it’s possible to compare and check if the declared attributes are the same as the observed attributes.
Customer Due Diligence (CDD)
Once a customer’s identity is verified, financial institutions must understand their risk profile through CDD. This includes information such as the type of business, the source of funds, geographic exposure, and anticipated account activity. CDD establishes a risk rating for the customer, enabling the financial institution to determine the level of ongoing monitoring required.
ShadowDragon facilitates more thorough due diligence by identifying digital links that may indicate concealed risk, such as undeclared associations or networks connected to negative media or historical enforcement actions. OSINT-powered findings augment CDD by uncovering behavioral and reputational aspects not always evident in official records.
Enhanced Due Diligence (EDD)
Customers deemed high-risk (e.g., those operating in certain industries or countries, with complex ownership structures, or exhibiting other risk factors) will require EDD. Enhanced due diligence often involves more thorough documentation and increased scrutiny of the beneficial owners, as well as tighter ongoing controls surrounding transactions.
For EDD cases with complex ownership structures or high-risk jurisdictions, ShadowDragon is able to map the relationships between beneficial owners and related entities through public data sources. This can be used to uncover hidden layers of ownership, offshore connections, or negative associations, important for demonstrating transparency and the ability to identify beneficial ownership to meet regulator expectations.
Ongoing Monitoring and Reviews
KYC is not a one-time activity. Financial institutions are required to monitor account activity for suspicious transactions, such as unusual patterns of behavior or high-risk transactions. Regular reviews are also necessary to update risk assessments and ensure that the controls align with the customer’s risk profile.
Continuous monitoring with Horizon™ Monitor allows compliance teams to spot early warning signs between periodic review activities, such as new website registrations, sudden social media activity, or links to sanctioned individuals or entities. Automating these reviews with OSINT data enables institutions to respond with greater speed and precision to changes in customer behavior or exposure.
PEP and Sanctions Screening
Banks must screen customers against Politically Exposed Persons (PEPs) and global sanctions lists. PEPs are individuals who may have special influence or access to government funds. These customers typically receive a higher level of scrutiny.
Sanctions screening helps to ensure the financial institution is not doing business with individuals or entities that are subject to government or international restrictions.
Advanced OSINT tools like ShadowDragon enhance screening programs by alerting users to digital connections between customers and high-risk and sanctioned individuals, even when the connections are indirect or intentionally concealed. This intelligence layer, when added to the PEP and sanctions workflow, enables organizations to advance beyond mere name matching and perform contextual relationship analysis.
Deploying OSINT solutions like ShadowDragon at each stage of KYC compliance converts data aggregation into meaningful intelligence. From verifying identities and mapping beneficial ownership to ongoing behavioral monitoring, this approach helps institutions meet global regulatory expectations while staying ahead of evolving threats.
AML Compliance Program Essentials
An AML compliance program is designed to provide regulators and internal stakeholders with assurance that the financial crime risks are being taken seriously. It should be documented, consistently applied, and tested to withstand scrutiny.
Gaining that level of confidence requires access to and analysis of OSINT, as organizations seek to reveal external signals of risk beyond traditional transactional data. Solutions like ShadowDragon extend AML programs by surfacing external social, online, network, and behavioral signals to compliance teams, helping to close gaps in both preventive and detective measures.
These are the core elements that should form part of any institution’s AML framework:
AML Policies, Controls, and Procedures in Writing
AML policies are documents describing a bank’s approach to risk identification, ongoing monitoring, and reporting to appropriate parties. Detailed controls and procedures, often step-by-step in nature, document how these policies are implemented in practice.
AML Compliance Officer
An AML program should be supported by a designated compliance officer or team with appropriate authority and resources to drive implementation and ongoing compliance. This role is often the primary point of contact with the regulator and may involve updating policies, overseeing ongoing transactions, conducting customer due diligence, and monitoring and reporting on relevant matters.
Risk-Based Approach to AML Program
AML program requirements are not static and will vary from one financial institution to another. Requirements must be commensurate with the risk, and the bank’s risk management program should consider factors such as customer types, geography, product offerings, and transaction volume.
ShadowDragon directly supports a risk-based approach by providing contextually relevant information that enhances and refines customer and geographic risk ratings. Information derived from OSINT can uncover hidden exposure to high-risk countries, cryptocurrency transactions, or adverse online associations and allows for controls to be adjusted in real-time to reflect current risk.
Independent Testing and Audit
AML programs should be regularly tested by the bank’s internal audit function or a third-party auditor on a regular and ongoing basis. Independent testing of a bank’s transaction and customer due diligence procedures, as well as ongoing monitoring of transactions and customers, will help validate that the procedures are working and identify gaps for remediation before they’re identified by the regulator or through a material breach by a criminal actor.
AML Training and Awareness
AML training is a critical component of every institution’s AML program, as employees (not just compliance staff) are responsible for AML compliance. Transaction monitoring, for example, is a crucial element of an AML program and should be thoroughly understood by all members of the organization who participate in this activity.
Transaction monitoring training keeps employees up-to-date on what to look for in terms of suspicious transactions and helps regulators see that the bank has a culture of awareness and vigilance.
Incorporating OSINT training (how to ethically collect, analyze, and interpret publicly available information through tools such as ShadowDragon) can also help build this culture. Educating staff on how open-source intelligence contributes to investigations helps embed intelligence-led compliance practices across departments, not just within AML teams.
When deployed across the AML framework, OSINT tools like ShadowDragon transform compliance programs from reactive reporting mechanisms to proactive intelligence operations, where a mix of formal controls and external data work together to help institutions identify anomalies, justify their reasoning, and show regulators that AML supervision is both robust and responsive.
AML and KYC Process Flow in Financial Institutions
AML and KYC processes follow a specific workflow within banks and financial institutions. Each step builds on the last to confirm customer identities, assess risk, and maintain oversight throughout the relationship. The typical process includes the following steps.
Customer Onboarding / Identity Verification
The process begins when the financial institution opens an account with the customer. This initial onboarding process involves collecting personal or business information and verifying it against known, reliable documents, third-party data, or digital identity verification techniques.
Tools like ShadowDragon Horizon™ enhance onboarding verification by tracing digital identities associated with email addresses, usernames, or registered websites. This enables compliance teams to confirm legitimacy and identify inconsistencies. For example, false identities, duplicate accounts, or connections to previously identified entities can be detected prior to onboarding a customer.
Beneficial Ownership Identification
For corporate accounts, complex structures, or other non-individual entities, financial institutions identify the natural persons who ultimately own or control the account. The aim of this step is to prevent shell companies from being used to launder or move illicit funds.
OSINT can identify ownership structures and associated entities that are not readily visible through traditional company registry searches. ShadowDragon allows users to connect corporate entities and online activities to uncover obscured beneficial owners or international linkages. This is particularly useful in countries with less transparent disclosure regulations.
Risk Scoring and Customer Profiling
Institutions will assign a risk score to the customer based on their type, products, geographic location, and the nature of the expected account activity. Risky profiles will be subject to enhanced due diligence and ongoing scrutiny.
ShadowDragon’s intelligence data adds to customer risk models by overlaying external behavioral and reputational signals such as connections to high-risk jurisdictions, crypto activity, or online chatter indicating potential illicit behavior. Integrating OSINT into scoring models helps generate more fluid, context-based risk ratings.
Screening Against Sanctions and Watchlists
Customers are screened against global sanctions lists, PEP lists, law enforcement watchlists, and any other internal lists of restricted persons, organizations, or countries. This process ensures the organization does not engage in business with sanctioned or high-risk parties, helping maintain compliance and mitigate exposure to financial crime.
ShadowDragon Horizon™ and other OSINT tools can help identify indirect or obfuscated connections to sanctioned parties by cross-referencing open data like website registration information, communication metadata, and social connections. This enhanced contextual due diligence goes beyond static name matching, uncovering hidden networks that may otherwise slip through automated filters.
Ongoing Transaction Monitoring
KYC is not a one-time check but an ongoing process of monitoring customer activity against their defined risk profile. Transactions are continuously reviewed, and any unusual or suspicious behavior is flagged for further investigation. Monitoring is conducted on a risk-based basis to ensure higher scrutiny for accounts with higher risk.
Horizon™ Monitor facilitates continued monitoring by surfacing real-time external signals (e.g., newly registered websites, new business fronts, or sudden spikes in online activity) that are directly connected to high-risk customers. When a risk analyst is able to connect internal transaction data and OSINT context, it’s easier to escalate suspicious activity before it goes into the reporting process.
Reporting Suspicious Activity (SAR/STR)
If suspicious activity is discovered, the financial institution will report it to the relevant financial intelligence unit through a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR). This is a crucial step in ensuring compliance and preventing crime.
OSINT evidence compiled in ShadowDragon can be used to support claims made in SARs or STRs by demonstrating how digital artifacts connect to the networks or individuals under investigation. This can create more detailed reports that provide corroborated, actionable intelligence that can help regulators and law enforcement accelerate case resolution.
Recordkeeping and Documentation
Documentation is required at every stage of the process. Records must be maintained as evidence to support investigations by regulators, law enforcement, and financial intelligence units, thereby demonstrating compliance.
Recording OSINT collection and analysis processes (e.g., data provenance, timestamps, and investigative steps from tools like ShadowDragon) also helps with an audit trail. This transparency ensures the reliability and admissibility of open-source gathered intelligence with regulatory requirements.
Challenges in AML and KYC Compliance
Even with comprehensive AML and KYC programs, financial institutions encounter significant hurdles in implementing and enforcing AML and KYC requirements effectively. Many of these challenges stem from issues related to scalability, accuracy, and the evolving regulatory environment.
Tools like ShadowDragon enable financial institutions to address these shortcomings and enhance internal data with external intelligence, linking customers, companies, and digital assets across global networks. Bridging the gap between internal structured financial data with open-source, unstructured data, can also significantly reduce blind spots in decision making and enable institutions to more accurately analyze data at scale.
Scaling Customer and Transaction Volumes
Financial institutions process and manage vast volumes of customer and transaction data daily. Efficiently monitoring and analyzing this data for suspicious activity, while maintaining operational performance, is a prevalent challenge.
OSINT can help reduce this burden by pre-enriching customer/entity data prior to ingestion into transaction monitoring systems. ShadowDragon automatically correlates external data, such as emails and aliases, to flag potentially risky entities early, reducing downstream workload and improving prioritization for investigators.
Transaction Monitoring: The False Positives Dilemma
Automated transaction monitoring systems can generate false positives by flagging legitimate transactions as suspicious. Each false alert diverts precious resources for manual investigation and can frustrate both compliance staff and customers.
Analysts can use ShadowDragon’s OSINT datasets to either substantiate or rule out alerts faster by providing external behavioral context. Rather than investigating each transaction in isolation, analysts can determine whether the parties have had historical exposure to sanctioned networks, darknet activity, or negative media, reducing false positives and strengthening the defensibility of true positives.
Navigating Complexities of Cross-Border Transactions
Institutions operating in multiple jurisdictions face the additional complexity of complying with overlapping and sometimes conflicting AML and KYC regulations. An entity considered low-risk in one jurisdiction may be flagged in another, complicating cross-border transactions and operations.
For example, a prominent Russian oligarch and citizen leads a major business conglomerate and is currently listed on international sanctions lists following high-level political meetings with sanctioned individuals. Despite this, his family maintains active overseas business links, including a relative’s role at a U.S. venture capital firm and the use of Cypriot corporate entities directed by his spouse.
These structures demonstrate the ongoing use of international networks and offshore companies to support and expand business activities, raising potential concerns about sanctions compliance and possible breaches of restrictions.
In such scenarios, ShadowDragon’s network-mapping capabilities can trace the digital and relational ties between sanctioned individuals, intermediaries, and front companies. Visualizing these concealed networks with OSINT can reveal the links that static screening cannot detect, allowing for quicker escalation and evidence-based compliance reporting.
Evolving and Expanding Costs
Maintaining and updating AML and KYC programs requires significant investment in technology, training, and staffing. Despite automation efforts, many checks remain manual and time-consuming, with overall compliance costs continuing to rise under regulatory pressure.
Incorporating OSINT automation with ShadowDragon lowers your manual investigative burden. It centralizes and simplifies lawful data collection and correlation within a single platform. Automation streamlines compliance workflows and reduces operational costs over time by eliminating redundant manual lookups and decreasing dependence on external data vendors.
Enhancing Customer Onboarding While Complying with Regulations
The need for thorough due diligence can lead to longer onboarding times and potential customer frustration. Balancing regulatory compliance with customer experience is particularly challenging in competitive markets where speed and convenience are critical.
Leveraging OSINT during onboarding enables compliance teams to verify customer legitimacy quickly without adding friction. ShadowDragon’s fast background searches on open data allow you to quickly confirm identities, affiliations, and reputational standing early in the onboarding process, so onboarding can remain both compliant and customer-friendly.
Technology and Innovation in AML/KYC
Manual review and Excel-based processes simply can’t keep pace with compliance demands at scale. Technology and innovation are helping banks, credit unions, and financial services companies reduce false positives, improve detection, and manage the sheer data volume that AML and KYC compliance entails.
Artificial Intelligence (AI), Machine Learning (ML), and Automation
AI/ML models can help a compliance team reduce false positives by training the model on past investigations and identifying genuine risk patterns. Automation enables the more efficient review of high-volume, repeatable tasks, such as transaction monitoring and watchlist screening, to free up analysts for more nuanced cases.
Digital Identity Verification and Biometrics
Digital identity verification solutions that instantly verify customer details vs. paper-based manual review. Biometrics, such as facial recognition, fingerprint scans, or voice ID, provide an additional level of assurance and help prevent malicious actors from slipping through the onboarding process.
Blockchain for Tamper-Proof Recordkeeping
Blockchain’s immutability makes it an attractive option for maintaining secure records of customer due diligence files, beneficial ownership information, or audit trails. Regulators are focused on transparency, and blockchain can offer verifiable, auditable trails that are more resistant to tampering.
OSINT Tools for KYC/AML Investigations
Open-source intelligence can add context and reveal information outside an institution’s internal records and databases. Platforms like ShadowDragon Horizon™, Horizon™ Identity, and Horizon™ Monitor provide KYC/AML investigators with the ability to surface obscured connections, map networks of shell companies, and identify risky activity across online platforms. Rather than relying on cookie-cutter monitoring alerts, these tools can help compliance teams assess customer risk more clearly.
Leading banks and fintechs are utilizing AI-driven transaction monitoring, biometric customer onboarding, and OSINT platforms to fulfill their compliance requirements.
Some large institutions have significantly reduced false positives through machine learning, while others use third-party digital KYC providers to verify identities in seconds. OSINT investigations are also used to gain additional insights in high-risk onboarding situations, where traditional sources and databases provide an incomplete view.
AML and KYC Compliance Best Practices for Banks and Financial Institutions
AML and KYC compliance requires institutions to develop and implement a program that is operational, credible, and sustainable in the eyes of regulators, partners, and customers. Institutions that view compliance as a continuous discipline, rather than a one-time project, position themselves to manage risk effectively.
Leveraging OSINT platforms like ShadowDragon helps institutions put this continuous mindset into practice. OSINT-based insights deliver real-time visibility into customers’ networks, online activities, and international exposures, enabling compliance teams to remain proactive and agile as risks shift.
Adopt a Risk-Based Approach
AML programs should be risk-based, with institutions applying more due diligence and scrutiny to high-risk customers. Resources are better utilized, and customer service is not unduly burdened, when enhanced due diligence is focused on higher-risk accounts, while standard KYC and monitoring procedures remain in place for lower-risk customers.
Bringing OSINT into the risk-based approach provides an institution greater visibility into their real-world exposure. ShadowDragon allows investigators to link open-source data (emails, registered websites, aliases, and social activity) to customer profiles, exposing any potential covert risk factors or connections that may have otherwise been overlooked during the initial collection of supporting documentation. This allows for a more accurate risk score and prioritization.
Build a Culture of Compliance Across the Organization
AML and KYC programs should be top-down, with the board of directors, senior management, front-line, and back-office staff all participating and promoting a culture of compliance. Embedding AML compliance within a company’s culture is the best way to ensure it’s applied consistently on a day-to-day basis.
Fostering a culture of intelligence-led compliance empowers teams to go beyond the checklist. Compliance staff, investigators, and front-line teams armed with OSINT solutions such as ShadowDragon can identify red flags in real time (e.g., unusual online activity indicating higher risk) to support an investigative culture across the organization.
Regular Training and Certification for Compliance Staff
AML training and certification keep compliance staff up to speed on changes in AML regulations and help ensure they possess the necessary skills and knowledge to fulfill their responsibilities. Including OSINT methodologies in AML training programs ensures that compliance analysts can lawfully collect and interpret open-source data. Training also reduces the risk of violations that can lead to fines, bad audit findings, or more severe consequences.
Certification can also demonstrate to auditors and regulators that a financial institution possesses the necessary skills and commitment to meet AML requirements.
Maintain Strong Collaboration with Regulators and Auditors
Regular communication with regulators and auditors, including attending meetings and responding to requests for information promptly, is one of the most effective ways to build trust and proactively address changes to AML and KYC expectations.
Institutions that maintain a cooperative relationship with auditors are also more likely to have weaknesses in AML and KYC programs caught and remedied before they result in a finding.
Recording details about how OSINT is used as part of AML workflows (data provenance, collection standards and ethics, analytics validation, etc.) with ShadowDragon can further demonstrate transparency to regulators. Showing how third-party information was used to inform decision-making can assure auditors that compliance programs are well-designed, defensible, and consistent with regulatory expectations.
Continuous Improvement Through Independent Audits and Program Reviews
Institutions should strive for continuous improvement in AML and KYC compliance, including by having an independent third party regularly review their programs and procedures. External audits and annual reviews not only identify blind spots but also help determine if programs and procedures function effectively in practice.
OSINT analytics can be a key contributor to such reviews. When conducting annual risk assessments, look for the existence of typologies, fraud patterns, or online threat vectors not present in internal datasets, but prevalent in the wild. ShadowDragon’s datasets can also be used to shape annual risk assessments and to identify what might be added to your program in the future based on real-world intelligence.
Consequences of Non-Compliance
AML and KYC obligations aren’t the exclusive purview of the compliance department; regulators hold the entire institution accountable for lapses, and the consequences of failing to comply with AML and KYC obligations are significant.
Many of these failures occur not because organizations lack policies, but because they lack visibility. OSINT tools like ShadowDragon provide that visibility, allowing compliance teams to identify external risk factors, corroborate suspicious patterns, and discover covert networks long before failures happen.
Financial and Regulatory Penalties
In the last few years, regulators have levied historic fines to institutions for deficient AML programs, with penalties in the hundreds of millions for both large banks and smaller institutions with inadequate AML controls.
For example, in 2021, ABN AMRO agreed to pay €480 million to the Dutch Public Prosecution Service to settle accusations of serious deficiencies in its AML program between 2014 and 2020. Regulators found the bank did not vet and monitor clients appropriately, misclassified high-risk customers, and ignored red flags on suspicious transactions, which led prosecutors to charge the bank with “culpable money laundering.”
In 2020, the Federal Court of Australia imposed a civil penalty of AUD 1.3 billion on Westpac for serious and systemic breaches of Australia’s Anti-Money Laundering/Counter-Terrorism Financing Act 2006. Westpac admitted to contravening the law on more than 23 million occasions. This included failures to report over 19.5 million international funds transfer instructions (IFTIs) (covering over AUD 11 billion in transfers) to AUSTRAC, omit source information in transfer chains, poor monitoring of correspondent banking relationships, and poor customer due diligence, including for transactions potentially related to child exploitation.
In 2023, the U.S. Treasury Department announced historic resolutions with Binance with FinCEN and OFAC for violations of U.S. AML and sanctions laws. Binance admitted that it did not have sufficient AML and sanctions controls in place, including customer identification and sanctions evasion failures.
The agreements with FinCEN and OFAC include a $3.4 billion civil penalty and a $968 million penalty, respectively, which were the largest penalties ever imposed at the time. In addition, Binance agreed to a five-year independent compliance oversight period and requirements to improve its compliance program.
In the UK, the FCA fined Starling Bank £29 million in 2024 for “shockingly lax” controls. Key failings included inadequate sanctions screening and a failure to appropriately risk-segment high-risk customers.
As mentioned previously, in December 2022, the SEC brought fraud charges against Danske Bank for allegedly deceiving investors over AML failures in its Estonian branch. The bank agreed to pay $413 million ($178.6 million in disgorgement, $55.8 million in interest, and $178.6 million in civil penalty) to settle the charges related to conduct from 2009 to 2016.
According to a press release issued by the SEC, “Danske Bank has agreed to pay more than $2 billion as part of an integrated, global resolution with the SEC, the Department of Justice, the United States Attorney’s Office for the Southern District of New York, and Denmark’s Special Crime Unit.”
As the above cases demonstrate, financial penalties for non-compliance can be substantial, and they often arise from multiple regulators across jurisdictions. A single matter can trigger coordinated actions from U.S. agencies (e.g., FinCEN, SEC, DOJ) and overseas authorities (e.g., FCA, EU national supervisors), resulting in fines, disgorgement, and remediation or monitorship requirements.
Reputational Harm and Erosion of Customer Confidence
Consumers want a bank they can trust to safeguard their assets and protect their information. When a financial institution is the subject of a public enforcement action, it can tarnish the institution’s reputation, sour customer relationships, and even cause customers to take their business elsewhere.
A regulatory action is also public. When the failure of a bank becomes known:
- Negative media attention can magnify errors, potentially causing long-term reputational damage.
- Competitors and regulators pounce on the opportunity they perceive.
- Clients and prospects may leave for institutions they view as safer or better governed.
For example, Westpac’s AUD 1.3 billion penalty in 2020 illustrates how regulatory failures can inflict lasting reputational damage. The revelations of more than 23 million breaches of AML and counter-terrorism financing laws (including failures to monitor high-risk transactions linked to child exploitation) dominated headlines and deeply eroded public trust. The case became synonymous with compliance breakdowns and forced a major overhaul of the bank’s governance and risk culture.
Heightened Regulatory Scrutiny
Regulators can and do increase their scrutiny of an institution following compliance failures. This can result in more frequent examinations, additional reporting requirements, and ongoing monitoring that can place a significant burden on the institution and its resources.
In the wake of serious compliance failures, regulators are more likely to “red flag” the institution, requiring:
- More frequent and more intrusive audits
- Closer supervision of remedial efforts
- Remediation plans, including the appointment of an independent monitor in some cases
For example, following its historic 2023 settlements with the U.S. Treasury, Binance was subjected to a five-year period of independent compliance oversight as part of its agreement with FinCEN and OFAC. The arrangement requires Binance to strengthen its AML and sanctions controls, enhance customer due diligence, and submit to regular third-party reviews, illustrating how major enforcement actions often lead to years of intensified regulatory supervision.
Criminal Liability for Executives
When failures are systemic or intentional, there can also be individual liability for executives and compliance officers, in the form of fines, disqualification, and even criminal prosecution:
In high-profile AML enforcement actions, regulators typically examine whether warning signs were ignored, controls were overridden, or red flags were not acted upon at the senior leadership level.
In the Danske Bank Estonia case, for example, former executives were considered for prosecution for their oversight of illegal activity through its Estonian branch.
The prospect of individual liability, even in cases where convictions are not obtained, significantly increases the risk stakes for senior managers and compliance officers.
Future of AML and KYC Compliance
AML and KYC are evolving rapidly due to intensifying regulatory pressure, accelerating technological innovation, and a growing focus on risk-based decision-making. Regulators, banks, and fintechs are increasingly converging on common goals: deeper transparency into customers and transactions, unified risk management practices, and the ability to identify and act on threats in real-time.
Many institutions are already ahead of the curve. OSINT platforms like ShadowDragon Horizon™ are enabling organizations to link fragmented data across sources and jurisdictions. By consolidating identity, behavior, and network data into one unified intelligence layer, OSINT is providing organizations with faster, more defensible intelligence to enable real-time decision-making and proactive risk mitigation.
Stricter Regulatory Requirements Ahead
New rules on beneficial ownership transparency and requirements for effective ongoing monitoring are expected to arrive in the next few years. Regulators will also set stricter expectations for model risk management and continue to apply pressure on virtual asset oversight. Enforcement will focus on outcomes rather than just policies and controls on paper.
This shift to outcome-focused supervision will benefit those institutions who can demonstrate provable intelligence underpinning their decisions. By integrating OSINT with ShadowDragon, compliance teams can prove how external evidence (beneficial ownership connections, online activity, social exposure, etc.) supports the accuracy of their risk models and monitoring outcomes.
Convergence of AML, KYC, and Fraud Prevention
Identity proofing and transaction monitoring will be better integrated with sanctions, fraud, and threat intelligence signals. The ability to build a 360-degree view of customer risk based on these combined data points is a top priority.
Platforms are expected to integrate case management and advanced analytics into a single, shared data set. That would enable more efficient investigations and reduce duplication of effort.
OSINT plays a key role in this convergence. Tools like ShadowDragon Horizon™ coalesce disparate signals, such as customer identity data, sanctions exposure, and fraud indicators, into a central investigative environment. This holistic approach enables compliance and fraud teams to trace entities across digital ecosystems, identify coordinated schemes faster, and reduce redundant reviews.
Growing Importance of Real-Time Monitoring and Analytics
Batch processing is increasingly giving way to continuous monitoring, with more firms leveraging behavioral analytics and graph analysis that can react to activity as it happens. Alert triage functions are also expected to become faster and more intelligent. Model explainability and sound model governance will be just as critical as raw detection capabilities.
Real-time OSINT collection and analysis amplify these capabilities by providing continuous external context around customers, entities, and transactions. Horizon™ Monitor surfaces network relationships, emerging threats, and newly sanctioned entities in near real time to strengthen alert prioritization and model validation, bridging human judgment with automated monitoring.
Global Push Toward Standardization and Interoperability
Cross-border activity will necessitate the use of standardized data and secure data sharing. Beneficial ownership registries, Travel Rule compliance, and regulator-to-regulator cooperation are all moving toward more standardized formats.
Interoperability enables institutions to compare risk signals across markets while maintaining adherence to data privacy requirements. OSINT platforms like ShadowDragon align with this vision by facilitating standardized, lawful data collection from public sources, enhancing global interoperability without infringing on privacy.
Banks and financial institutions should prioritize investing in clean data, model governance, and an architecture that links KYC profiles, AML monitoring, fraud signals, and open-source intelligence. This will make new regulations easier to adopt without the need for constant rebuilds.
Final Thoughts
AML and KYC are the guardrails of the banking industry. A well-written policy, clear controls, and a risk-based approach can help reduce exposure to financial crime and meet regulatory requirements. Technology has become central to that work, especially in ways to scale programs without generating mountains of false positives.
ShadowDragon provides the real-world context that basic checks can miss. With ShadowDragon Horizon™ and Horizon™ Identity, compliance teams can verify claimed identities, map beneficial owners, and surface related entities.
Horizon™ Monitor tracks people, companies, and keywords for the changes that matter. Together, they can enrich PEP and sanctions matches, connect cross-border dots, sharpen alert triage, and generate audit-ready evidence. Get in touch with us for a demo to discover how ShadowDragon can enhance your AML and KYC compliance efforts.
