Your Basic Guide to AML Compliance

How do you measure success with regards to Anti Money Laundering (AML) compliance? The obvious answer is that you’re not being fined for non-compliance and prevent laundered money from seeping into your financial system.

But is it sufficient to simply meet the minimum requirements? Don’t you want your AML compliance program to offer you more and implement systems that are cost-effective, efficient, and resilient? The good news is that there are new capabilities that can further enhance your existing AML compliance processes without breaking the bank or creating inter-departmental wars.

Before diving deep into the specifics, let’s take a look at the big picture. The main reason for creating AML regulations is to make it challenging for criminals to get away with their ill-gotten gains. Since many crimes have a financial incentive at their core, hindering proceeds is a good way to discourage fraud, theft, tax evasion, corruption, and numerous other crimes. The money should be spent on ideas, and programs that are more productive and benefit individuals and society.

That core tenet – ANL is a crucial component of a functioning and fair society – is the basis of an effective program. AML compliance isn’t a necessary evil but an important requirement. Ensure that any decision-maker who has affected your operations or budget respects and understands the true value of the compliance.

AML Fundamentals

Each jurisdiction has certain requirements, but this blog won’t include prescriptive measures for all of them. Instead, let’s look at some best practices that will serve you well, regardless of which country you’re doing business in.

  • Written Policies: Don’t attempt to wing it. AML compliance isn’t something you want to tweak on your own. I’s important for you to carefully think through policies and have them written out for everyone to see (regulators, staff, and executives). What are your communications procedures? What regulations are you complying with, and how? What is your record retention policy? Any identification policies? 
  • Compliance Officer: Whose is responsible for the program? Designate a person to own the system and ensure that processes are up-to-date being and followed, the training is thorough, reports are being filed, and that the system is running smoothly. Let the compliance officer take advice from a senior-level person who has the power to influence the company on such matters; after all, a lot is depending on the program’s success both from a financial and reputational point of view.
  • Training: All the employees who deal with transactions or customers need to understand their company’s policies and procedures. They need to understand the checks they should make, techniques used by money launderers, the legal requirements, and how to report suspicious activities. Training is not just a one-time thing. View some training programs to keep staff informed and vigilant to ensure your program is up-to-date. 
  • Review: If it ain’t broke, why fix it? It’s easy to become complacent, but it’s important to nip problems in the bud. Unfortunately, by the time you yourself start addressing a problem, it may be too late. Have an independent professional, like a third-party, or at least someone who isn’t associated with daily compliance operations, assess your program periodically.

AML Red Flags

What situations or activities should you watch out for? Remember, money laundering is all about legalizing illegal funds, so some patterns indicate that money might not arrive from legal means. Look for unusual activities such as:

  • Large cash transactions.
  • A significant amount of transactions can indicate a layering of transactions (splitting deposits to fall below reporting thresholds).
  • Spikes in amounts or activity.
  • Transactions linked to cash-heavy businesses like gambling.
  • Transactions connected with jurisdictions having a history of money laundering.
  • Transactions linked with businesses or individuals that are potential money launderers.

The above activities are noticeable through ongoing AML transaction monitoring procedures or in the initial due diligence process. While onboarding, a baseline for normal activities should be evident. Whether it’s classifying by the expected transaction amount, source of funds, account type, or some other criteria, set up a process to determine when it needs reviewing, and how. Whether it’s an external report to regulators or an internal examination, it’s not enough to note a red flag.

For instance, just filing a report to file a report isn’t really solving the problem. The government has been complaining that financial institutions are now submitting a lot of SARs (or Suspicious Activity Reports) and that the SARs usually don’t contain sufficient information to warrant the notice’s filing. Coherent processes to deal with events are critical to successful AML compliance.