Money laundering is a problem that has been around for centuries. It involves the process of reintroducing illegally gained funds back into the financial system, and can affect not only banks, but also businesses. Since its earliest days, money laundering has expanded beyond banks, and today companies of all types can fall victim.
Anti-money laundering (AML) procedures were first introduced in the 1980s and have continued to develop as criminals have continued to evade the law. Most companies must now follow AML procedures or face big fines and public backlash. While at first AML compliance was only required of financial institutions, the laws are rapidly expanding. Here’s your comprehensive guide to AML compliance.
What is an AML compliance program?
An AML compliance program defines how companies and financial institutions monitor, detect, and report financial crimes. Essentially, this program helps tackle the inherent risk of money laundering that companies can face. A good AML compliance program should focus on both the effectiveness of internal systems and the risks that customers pose.
In order to sufficiently develop an AML compliance program, organizations should familiarize themselves with the current AML laws and regulations that are in place. The program should be overseen by personnel who are both experienced and knowledgeable about AML. As such, it may be necessary to bring in a new hire to oversee this part of your business.
When it comes to building an AML compliance program, the duty falls on senior management to create policies and procedures for the unique needs of the company. Not every company faces the same AML risks, and the program needs to reflect that.
The components of an AML compliance program
The first step of any anti-money laundering compliance program is detection. Ideally, suspicious activity should be spotted immediately. For financial institutions, things like a large cash deposit or providing false information are immediate red flags that should be escalated up the system. Early detection means criminals won’t be successful, and can be stopped sooner.
Risk assessment is vital for AML compliance and is essential for building an effective program. The use of a scoring model can assist you greatly when it comes to ranking the risk of potential and current customers. Things like your company’s location, the services you offer, and who your customers are are all things that should be taken into account. Unfortunately, there is no universal solution when it comes to AML, so your program will need to fit the specific needs of your company.
Internal controls will be necessary for any AML compliance program. These controls will ensure that you are able to both detect and report financial crime. Internal controls should be reviewed regularly to make sure that they are effective and that they meet compliance standards. Automated and manual systems such as Know Your Customer (KYC) should be tested regularly.
Reporting suspicious and criminal activities is a vital part of any anti-money laundering compliance program. Failure to report to the authorities could result in large fines and public backlash. Following the law is of the essence when it comes to AML procedures.
While it is important to screen potential customers, it is also extremely important to monitor current customers and adjust their risk level as needed. For example, if a customer steps into political office, they are now considered to be a politically exposed person (PEP) and now have a higher risk of criminal financial activities.
Additionally, it’s important that employees understand the role they have to play. Trainings should be done regularly, to help employees comprehend the policies and procedures that ensure compliance. Some employees may have greater responsibility for implementing the compliance program and as a result, may need further training. A variety of different companies offer AML training should you need to look outside the company.
What is an AML Compliance Officer?
In order to oversee an AML compliance program, financial institutions and credit unions will need to appoint an anti-money laundering Compliance Officer. While all employees should understand their company’s AML policy, the AML Compliance Officer is responsible for the implementation of said policy. Their focus should be on the internal systems and controls that are in place regarding the prevention of money laundering activities.
The specific duties of an AML Compliance Officer vary by country, and each nation will have a specific entity that needs to be reported to. However, anti-money laundering laws and requirements are relatively similar all around the world thanks to the Financial Action Task Force (FATF).
The practical duties of an AML Compliance Officer usually include:
- Assisting with the creation, implementation, and review of the AML compliance program
- Ensuring that their organization is compliant with current AML regulations
- Maintaining and storing records of any high risk customers
- Reporting suspicious activities to the authorities
- Arranging regular inspections and audits, and making recommendations based on the findings
- Overseeing AML training for other employees
- Keeping senior management up to date on matters regarding AML compliance
Appointing an AML Compliance Officer who is knowledgeable and skilled is vital for the success of your AML compliance program. Candidates should have the expertise to perform their duties successfully, as well as the knowledge of your organization’s unique needs. An AML Compliance Officer shapes the anti-money laundering program, which means careful consideration should be taken when searching for one.
There are a number of things that you will need to take into account when looking for an AML Compliance Officer. The size and scope of your institution will determine whether you need a full-time officer or a part-time one. Additionally, it is vital that you choose someone with considerable experience and knowledge of both the financial and regulatory landscapes. Their expertise needs to go beyond an understanding of AML internal systems, and should include risk management and the methodologies of money laundering.
The importance of auditing
In order for any effective AML compliance program to be effective, regular testing should take place by an independent third party. Ideally, independent testing should take place at least once a year. If a financial institution works in a high risk area or market, then a more frequent schedule should be considered.
An audit will test your company’s KYC due diligence procedures, employee training, systems for ongoing monitoring, and systems for reporting. The auditors may also look at past audits to determine if sufficient changes have been made based off of past recommendations.
An independent auditor should have previous AML experience, and meet regulatory specifications. Generally, an independent auditor should not be involved with the creation of your AML compliance program. For larger companies, it may be useful to designate an internal auditing team that is independent from AML and compliance.
Staying ahead of the criminals
Implementing an AML compliance program will certainly help to mitigate a lot of risk, but in order for any AML policy to be truly effective, due diligence is needed. This includes staying on top of the latest news and trends when it comes to financial crimes. There are far too many cases of major banks being the center for millions of laundered dollars, and by looking at where they went wrong, you can avoid the problem yourself.
Additionally, staying up to date with the current AML laws and regulations will ensure that you are taking the necessary preventative measures. This is exactly why an AML Compliance Officer can be so beneficial – they know what you need to stay compliant and are committed to doing so. Taking a proactive approach shows regulatory bodies that you are serious when it comes to money laundering prevention.
Anti-money laundering laws are constantly expanding, most recently to include cryptocurrencies and virtual assets. It could very well be that your business does not need to be AML compliant now, but will in the near future. By keeping a finger on the latest trends, you’ll know what’s best for your business and if you’ll be required to comply with AML procedures.
Anti-money laundering is a landscape that is only going to grow and expand in the future. As long as people are trying to launder money, AML will exist. By establishing an AML compliance program, appointing an AML Compliance Officer, and conducting regular audits, you stand a very good chance of not becoming a victim.
Technology is also adapting to help the world of AML. Various companies now offer services such as AML screening and ID verification, which help take the pressure off of you. The future of AML is certainly looking to become faster and more efficient, as automation is introduced. While the automation technologies are still in their infancies, they are only getting better and soon may provide a valuable way to aid AML procedures and reduce operational costs.
It is crucial that your business is not misused for money laundering purposes. AML compliance ensures that you are not only protecting your customers, but also your business.