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February 19, 2024
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3 mins
As freelance work becomes more globalized, independent contractors worldwide strongly prefer receiving payments in USD over their local currencies. This shift is primarily driven by concerns over local currency volatility and inflation, which can significantly impact their earnings' value. As a result, there's a growing need for compliant solutions that facilitate payments in USD, ensuring stability and predictability in their income. This article aims to guide independent contractors in navigating the complexities of receiving payments in USD.
The US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has laid out the “Travel Rule” which mandates the sharing of specific information for funds transfers over a specific threshold to combat money laundering and enhance the security of international transactions. Cross-border transactions for USD are subject to this rule.
Cross-border transactions have become increasingly common, facilitating international trade, investment, and financial activities. While these transactions offer numerous benefits, they also present significant challenges, particularly regarding regulatory compliance and anti-money laundering (AML) efforts. Financial institutions and businesses engaging in cross-border transactions must undergo a complex regulatory landscape to ensure compliance with applicable laws and regulations.
Cross-border transactions involve the movement of funds, goods, or services across international borders. These transactions can take various forms, including wire transfers, trade finance, foreign investments, and international remittances. They are conducted by individuals, businesses, and financial institutions for purposes such as trade, investment, remittances, and personal transactions.
While cross-border transactions offer opportunities for economic growth and financial inclusion, they also pose significant challenges and risks, including:
Regulatory Complexity: Different countries have varying regulations governing cross-border transactions, including AML, counter-terrorism financing (CTF), and sanctions compliance requirements. Navigating these regulations can be complex and time-consuming for financial institutions and businesses.
Money Laundering and Fraud: Cross-border transactions can be exploited by criminals to launder illicit funds or engage in fraudulent activities, such as trade-based money laundering, invoice fraud, and Ponzi schemes. These illicit activities pose serious risks to the integrity of the financial system and can undermine trust and confidence in global markets.
Transaction Monitoring Challenges: Monitoring cross-border transactions for suspicious activities presents unique challenges due to the volume, complexity, and diversity of transactions involved. Financial institutions must deploy sophisticated AML systems and controls to detect and report suspicious transactions effectively.
Sanctions Compliance: Cross-border transactions may inadvertently violate international sanctions regimes imposed by governments or regulatory authorities. Ensuring compliance with sanctions requirements is critical for financial institutions and businesses to avoid penalties and reputational damage.
The FinCEN advisory highlights the growing threat of cross-border fraudulent activities and guides financial institutions on detecting and reporting suspicious transactions. Key takeaways from the advisory include:
Red Flags: Financial institutions should be vigilant for red flags indicating potential cross-border fraudulent activities, such as unusual transaction patterns, inconsistent or false documentation, and high-risk jurisdictions or counterparties.
Enhanced Due Diligence: Conducting enhanced due diligence on cross-border transactions and counterparties can help mitigate risks and identify suspicious activities. This may include verifying the legitimacy of transactions, assessing the risk profile of counterparties, and monitoring for unusual behavior.
SAR Reporting: Financial institutions are encouraged to file SARs promptly when they detect or suspect cross-border fraudulent activities. Timely reporting enables law enforcement agencies to investigate and disrupt illicit financial flows effectively.
Collaboration: Collaboration between financial institutions, regulatory authorities, and law enforcement agencies is essential for combating cross-border financial crime effectively. Sharing information and best practices can enhance the effectiveness of AML efforts and strengthen the resilience of the financial system.
If you are not a US resident but want to get paid in multi currency accounts as well as in digital wallets, your payment provider may pass down the fees associated with heightened compliance and bank fees for those transactions.
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When dealing with transactions between different countries and following all the rules, global HR and payroll companies like Niural can help. We specialize in providing compliant payment solutions when operating across borders. From ensuring compliance with AML and CTF regulations to managing payroll across multiple jurisdictions, we support your business in global expansion while mitigating compliance risks. To learn more, please email us at sales@niural.com.
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