IoT is a useful tool for anti-laundering measures, writes Zachary Amos, Features Editor of ReHack Magazine
Money laundering and related illicit financial activity remain a pressing concern in the United Kingdom, especially in high-value trade, cross-border commerce and sectors with complex supply chains. The UK’s regulatory framework — including the Sanctions and Anti-Money Laundering Act 2018 and the Money Laundering Regulations — demands robust detection, monitoring and verification measures.
The Internet of Things (IoT), which consists of networks of sensors, trackers, smart devices and real-time connected systems, offers powerful tools for combating money laundering.
1. Real-time tracking of goods in supply chains
Smart sensors, radio-frequency identification tags and GPS trackers make it possible to follow shipments and high-value goods at every step of their journey. Some hauliers in the United Kingdom already use IoT devices to track inventory and transport status.
When a container changes route unexpectedly or experiences unusual delays, alerts can be triggered for further investigation. This visibility helps uncover trade-based money laundering techniques, such as phantom shipments, mis-invoicing or undeclared rerouting. Correlating physical sensor data with financial records makes mismatches easier to detect.
2. Enhanced data collection for identity verification and due diligence
IoT devices enhance Know Your Customer (KYC) and Enhanced Due Diligence (EDD) by providing new and reliable data points. Location patterns, biometric sensors and behavioural data from connected devices strengthen verification processes. Geolocation information can confirm whether a claimed address or country of residence corresponds to actual device usage, while biometric sensors can validate a customer’s identity in remote transactions.
Criminals have been known to use stolen personal details — including names, addresses and bank account numbers — to fraudulently apply for mortgages, credit cards, or even create fake passports and driver’s licences.
By correlating IoT-derived physical data with customer records, financial institutions gain a powerful tool to detect inconsistencies between claimed identities and real-world behaviour. This reduces the likelihood of fraudulent applications slipping through anti-money laundering (AML) controls.
3. Monitoring transactional and physical anomalies via predictive analytics
IoT networks generate vast amounts of real-time data that — when combined with artificial intelligence and machine learning — can reveal unusual patterns indicating potential illicit activity.
Temperature sensors on pharmaceutical shipments can expose tampering, while location data can reveal unexpected route changes. Predictive analytics can analyse long-term behaviour — such as repeated anomalies or unusual dwell times — and flag potential risks earlier than manual inspections or periodic audits.
4. Automating and strengthening customs, trade and border controls
Customs authorities and port operators can integrate IoT data into their systems to gain constant visibility over goods entering, exiting or transiting the UK. This allows for more precise, risk-based checks rather than time-consuming blanket inspections.
The UK’s Border 2025 Strategy and the Single Trade Window initiative already seek to improve supply chain data sharing, and IoT-derived information could further enhance the accuracy and timeliness of customs declarations. By linking real-time sensor data with regulatory systems, customs officers can quickly identify discrepancies that may signal laundering schemes.
5. Reducing false positives and improving efficiency in AML compliance
Traditional AML monitoring often generates many false positives — transactions flagged as suspicious that later prove legitimate. IoT data can add valuable context by confirming the physical delivery of goods or verifying shipment routes, which helps compliance teams filter out low-risk cases. This ensures resources are focused on genuinely suspicious activity, improving investigative efficiency and reducing operational costs.
6. Strengthening data integrity and audit-trail transparency
IoT devices create digital evidence of physical movements and transactions, and when these logs are securely stored, they can provide an immutable audit trail.
Integrating IoT records with distributed ledger or blockchain systems can make tampering even more difficult, a practice aligned with global AML guidance from the Financial Action Task Force. Such transparent records enable regulators, auditors and financial institutions to trace assets and activities more confidently, discouraging attempts to obscure illicit flows.
Best practices for implementation
Maximising IoT’s effectiveness in AML requires deliberate strategies and collaborative action. Below are some recommended best practices:
- Adopt a risk-based approach: focus IoT investment on sectors or trade lines most exposed to trade-based money laundering or value chains where goods are high-value or historically misdeclared
- Ensure secure design and standards: devices should include tamper detection, encrypted communication, identity verification and regular firmware updates
- Promote data-sharing frameworks: supply chain data from IoT can be shared with authorities under lawful, audited mechanisms that respect privacy
- Develop public–private partnerships: logistics firms, technology providers, financial institutions and regulators should collaborate on pilot programmes to test IoT-enabled controls
- Prioritise scalability and flexibility: solutions should scale, support diverse devices and adapt as regulations evolve
IoT Is a strategic ally against money laundering
IoT technology provides tools that enhance visibility, traceability and data richness in both physical and financial flows. Since the UK enforces strict AML regulations and faces persistent threats of trade-based laundering, IoT offers substantial advantages.
It can expose suspicious activity, reinforce KYC and EDD processes, minimise false positives, and support customs and regulators in enforcing compliance. IoT is a powerful ally in safeguarding the financial system against money laundering when deployed with proper governance, security and respect for privacy.
Zac Amos is a freelance tech writer who specialises in IoT, cybersecurity, and automation. He is also the Features Editor at ReHack Magazine. Follow him on LinkedIn.
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