AML Checks

AML checks are a mandatory part of doing business, designed to help companies to check that potential employees, third-party vendors, investors and customers aren’t engaged in any illegal activity. When you’re working with freelancers, what AML checks are regulated, and what do you need to know about your freelancer before you start working with them? This article will tell you everything you need to know. 

This post is part of our guide on how to pay contractors. 

What is an AML check?

AML stands for Anti Money Laundering. The idea of the checks is to help spot suspicious or illegal activity before you begin working with someone in any capacity. AML checks are mandatory for some businesses, such as in the banking and insurance industries. For example, when a bank opens a new account with a customer, they will need to perform an AML check to remain compliant with their industry-specific regulations. 

How does fraud and scamming happen in freelance marketplaces?

You might wonder how AML checks can be necessary for working with freelancers. Isn’t it a simple transaction where you pay for work that the individual has completed? The truth is, with more people using the gig economy than ever before, there are plenty of opportunities for misuse and fraud. In 2020 alone, there were more than 4.7 million incidents of identity theft and fraud, up from 3.2 million in 2019. 

Here are three of the most common examples of scams that are growing issues for everyone involved in the gig economy, from freelancers and businesses working with freelancers, to marketplace owners and third-parties who handle payments.

• Stolen credit cards: This kind of scam happens when fake accounts on freelance marketplaces pay for work from freelancers using stolen credit cards, and then claim the work is of poor quality, asking for a refund. This refund request will usually ask the freelancer to return funds to a new bank account where the criminals can access the money. 
• Money laundering: Freelancers are increasingly being approached to accept fake jobs on freelance platforms, and then instead of completing the task, simply transfer the majority of the money they are paid to a different bank account, laundering the money and making it appear legitimate. They are paid a fee for their part in the crime. 
• Identity theft: This type of fraud and misuse can go in both directions. Either organizations can ask for additional details about their freelancers that they don’t need, in order to steal credentials and sell them on the Dark Web, or freelancers can pretend to be someone they are not, usually with the help of stolen or pre-sold marketplace accounts, or with fake personal details. 

What part of an AML check is relevant for working with freelancers?

For organizations working with freelancers, there is one element of AML checks that is mandatory – and it can help with a lot of the growing scams mentioned above. It relates to KYC, Know Your Customer.  This means that if you’re working with freelancers, before you pay your freelancer, you are required to show that you have verified their identity and that they are exactly who they claim to be. 

By verifying their identity as part of the onboarding process, you can avoid identity theft issues, and create checks and balances to ensure that no criminal activity is taking place, or to follow up if something appears untoward at any point in the future. 

How do I perform KYC checks when onboarding freelancers?

Depending on where you’re looking for and finding your freelancers, you’ll have a different amount of responsibility on your plate for AML/KYC checks. For example, if you find your freelancers through a talent management system like Fiverr Enterprise, the KYC checks are baked into the process, and you can check this one off your to-do list immediately. 

Unfortunately, not all freelance marketplaces can promise this perk, and of course you might be onboarding a freelancer through a word-of-mouth referral or any number of other methods. In that case, the ball is firmly in your own court to make sure KYC checks are complete. 

Here’s what you need to do: 

1. Request documentation: Get some official paperwork that verifies your freelancer’s identity. For an individual, you could ask for their passport, Taxpayer Identification Number, driver’s licence or ID card. For a business or agency, you might need to ask for details such as registration or business identification number. You might need to use some software to check the documentation, to ensure that it hasn’t been tampered with or altered in any way. 

2. Perform due diligence: Of course, this term may be different for everyone, but government regulations are purposefully vague here. You need to make sure you’ve done what you can to check that the freelancer is not a risk. Think about asking for previous work references, checking ratings on the marketplace where you found them, or confirming with your contact that they have had successful projects with the freelancer in the past. You might also want to check details such as how often they move location, or the frequency of payments they’ve received over the past 12-24 months.

3. Ensure regular monitoring: Once you’ve onboarded the freelancer, you still have an obligation to keep your eye out for anything strange. Has the quality of the work dropped, or is your freelancer asking you to pay to a new bank account or via a new process? KYC isn’t a “one and done” kind of action, it’s an ongoing activity that you’re responsible for when working with external companies, individuals, and businesses. 

The benefits of AML checks go both ways

The more popular something becomes, the more opportunities there are for criminals to take advantage. As the gig economy grows in size and scale, AML checks are more important than ever. It will becomes especially important when it comes to paying international freelancers.

As a business, you must remain compliant with regulations and ensure you’re working with trustworthy individuals and companies – a robust KYC check should provide peace of mind that the job opportunity is a legitimate source of income from a business who are working above board and with full integrity.