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4 powerful tips for AML compliance

25th January 2021 Print

All financial institutions are required to comply with the Anti-Money Laundering (AML) rules and regulations in order to prevent issues like tax evasion, money laundering, and terrorist financing. But knowing how to remain compliant isn’t always easy.

The Lowdown on Anti-Money Laundering Compliance

In order for AML compliance to be efficient and effective within your organization, it’s necessary for all key stakeholders to be familiar with why it’s necessary. This requires some level of basic understanding of what money laundering is, how it potentially impacts your organization, and the role of AML rules and regulations.

Let’s begin with the “what.” Money laundering is, in the simplest form, an illegal process of moving money around to hide the original source. Money that’s gained from some sort of black-market trade or service - such as terrorism, drug sales, or human trafficking - gets transferred into an intentional circulation pattern that’s designed to manipulate and confuse authorities - making the money trail difficult or impossible to track.

While money laundering is normally used to cover up an illegal activity, the process of laundering money is typically labeled a white-collar crime because of the fact that it commonly involves high ranking business officials.

You’re probably thinking, “Okay, so what?”

“That makes for a nice Friday night special on Dateline, but what does this have to do with my business?”

Well, if you’re a financial institution, bank, fintech company, stock exchange, or real estate business, your business could become a target for criminals and criminal organizations seeking to launder money. And if you don’t have the proper screening methods and response systems in place, you could eventually become an unwitting accomplice in their scheme to wash black money white.

To help stakeholders within your organization understand how, here’s a 30,000-foot view of the money laundering process:

1. Placement: The black money is placed into banks.

2. Layering: Several financial transactions are made as part of the sale or purchase of both financial and nonfinancial assets. This manipulates the original placement of the money.

3. Integration: Finally, black money gets integrated into white money through a number of legal channels - which typically makes the money appear as profits from a shell company (or gains/appreciation on the sale of an asset).

It’s incredibly difficult (if not impossible) to spot a sophisticated money laundering scheme with the naked eye. If your organization doesn’t have a proactive plan in place for tracking these complex processes, you’re susceptible to being exposed.

The USA Patriot Act of 2001, which Congress passed in response to the September 11 terror attacks, requires any financial institution doing business in the United States to develop and implement an anti-money laundering program that meets a few requirements. The USA Patriot Act specifically requires organizations to meet the following criteria:

- You must develop and document internal AML policies, controls, and procedures.

- You must appoint an AML Compliance Officer to oversee the AML program.

- All employees must receive ongoing AML training and education.

- The AML program must be independently audited on a regular basis.

And while these requirements must be met, the USA Patriot Act leaves most of the execution up to the discretion of the organization. This provides enough leeway to tailor your AML program to your organization’s size, location, customers, and needs.

4 Tips for Airtight AML Compliance

Your AML program needs to be able to detect suspicious activities so that they can be reported to the appropriate authorities. This requires a strong understanding of regulatory requirements and precise implementation. With this in mind, here are a few tips for compliance:

1. Be Meticulous With Due Diligence

Every single customer or client needs to go through a meticulous due diligence process as part of onboarding. And in order to make this step as practical as possible, it has to be extremely efficient.

The best way to streamline due diligence is to leverage some sort of automation. A good AML compliance screening solution can help scan (and re-scan) anywhere from a few thousand users to 100 million users on a regular basis. It will also mitigate issues with false positives or false negatives, which prevents wasted time pursuing cases that aren’t relevant. 

2. Name an Appropriate Compliance Officer

It’s imperative that you name the right Compliance Officer - not simply the person who is most convenient. An effective AML Compliance Officer needs the right kind of experience - meaning they should have expertise in the legislative requirements required in your local environment.

But a Compliance Officer also needs more than experience with regulatory procedure. The most effective ones have expertise in the various methodologies and processes of the financial crimes they’re tasked with identifying and reporting. It’s this comprehensive vantage point that makes a Compliance Officer most effective. 

3. Watch for Red Flags

Vetting new customers on the front end is just the start. Once a client enters into your organization’s ecosystem, you have to keep an eye out for any suspicious activity that could happen under your watch. This includes large and unexplained transactions, abnormal deposits or withdrawals, and/or attempted transactions that appear questionable. (This latter aspect is especially important. Even attempts can be red flags and should be reported to the financial intelligence unit.)

4. Take Audits Seriously

Nobody likes an audit - particularly an independent audit where someone outside of the organization gets up in your business and makes a bunch of requests. But this is part of what it means to be AML compliant. 

The more transparent and forthcoming you are with information in an audit, the easier it is for all parties. Remember that the independent auditor isn’t here to get you in trouble - they’re here to help you refine your compliance program so that it can operate more efficiently moving forward.

Keep Your Business in the Clear

It’s not your responsibility to prevent illegal activity from happening in the first place. While it’s nice to have a strong enough program that money laundering and related activities are choked out from the start, your real responsibility is to identify these behaviors as soon as possible so that they can be reported to the appropriate authorities. And if you have a program that’s fully compliant with AML rules and regulations, your organization will find itself in the clear.