Money laundering is a global threat to banks, credit unions, financial institutions, and even individuals. Every entity involved needs to build new methods or have a pre-existing AML (Anti-money Laundering) compliance program.
An Anti-Money Laundering program is a series of rules and regulations that protect financial institutions, banks, and other organizations to prevent and detect the threat of money laundering. The Anti-money laundering compliance program is a never-ending process, the United States Bank Secrecy Act (BSA) has been amended over and over again to keep up with fraudsters. The EU’s AMLD5 (5th Anti-Money Laundering Directive) has heavily influenced the Bank Secrecy Act.
Keeping all this in mind and the changing fraud trends, banks, financial institutions, and other businesses operating in the industry should build robust and flexible programs. Building a successful AML compliance program is a huge challenge, and businesses need to do a lot to build a successful program.
What Should an AML Program Do?
The primary aim of an AML compliance program, supported by AML software, is to help banks and financial institutions detect and prevent financial fraud, including money laundering, tax evasion, fraud, and terrorist funding. It enables the monitoring of suspicious activities and facilitates reporting to the authorities. Suspicious activities need to keep track of suspicious activities and should have a way to report them to authorities. Ideally, an AML compliance should leverage the effectiveness of the internal systems to detect money laundering.
An Anti-Money Laundering compliance program should have strong foundations, a strong understanding of AML rules and regulations, and personnel oversight. The right set of technologies such as online proof of address verification, online document verification, or Open Banking APIs can help in building robust and agile AML compliance programs.
Table of Contents
Building an AML Program
While developing an anti-money laundering compliance program, the senior management of a bank, financial institution, and others should create a set of rules and regulations that support the needs of the organization, provide legitimate customers with a positive experience, and effectively detect and prevent money laundering. While a number of factors may affect how and when the AML compliance program works, some fixed rules are needed to be followed.
Risk Assessment
Risk assessment is a huge factor in building a successful AML compliance program. Every different financial institution faces a different set of money laundering risks and each AML program should focus on these risk factors to minimize the existing risk. Most of the risks revolve around products and services offered, customer needs, clients, and geographical location.
Your approach towards AML risk management should fit the risk factors of your company. Ideally, a successful AML compliance program should avoid the administrative burdens of over-compliance and potential legal jeopardy of under-compliance. There is no particular single compliance program that can be applied to all financial institutions. Individual financial institutions are expected to build AML compliance programs that perfectly suit the business’s risk profile.
Internal Controls
The second factor to consider while building an AML compliance program is internal controls. These systems and methods are utilized by financial institutions to detect and report suspicious activities related to financial crime. The program should also include a regular review of these internal controls to ensure they are operating with as much effectiveness as possible to meet regulatory compliance standards.
Internal AML control methods should also extend to a financial institution’s employees, who should be aware of their roles and responsibilities to detect and prevent fraud. Knowing how to successfully conduct due diligence on customers and business entities is a vital process. Individuals should know how to navigate policies and procedures to ensure AML rules and relations are followed perfectly.
Independent Audits
An effective AML compliance program should include a series of independent testing and auditing by third-party organizations. Based on the risk factor of an institution, different levels of testing should be implemented. Independent testing should take place every 12-18 months, but financial institutions that are operating in high-risk areas should consider a more vigilant approach.
The third-party organization that’s used to conduct independent testing should be well-reputed and trusted and should meet the needs of your businesses. Institutions that have enough resources should conduct testing using their own risk assessment team which is independent of AML and compliance.
AML Regulation Training
To successfully build an AML compliance program, the whole organization must work like a well-oiled clock. Every employee within a financial institution should have a working knowledge of AML procedures. But some employees who have to onboard customers should have greater knowledge of the compliance programs.
To minimize the risk of money laundering, financial institutions need to provide a certain degree of training to all the employees and add a further level of targeted training to those with more crucial responsibilities. Therefore, similar to creating an audit and testing schedule, an AML compliance program should also focus on those employees receiving regular training, and knowing how to perform assigned duties.
A variety of organizations offer AML compliance training programs for their employees who need to update their knowledge regarding fraud prevention.
Compliance Officer
To make sure an AML compliance program operates successfully, financial institutions must have a designated compliance officer. AML compliance officers should have enough experience and authority to make sure that they can work diligently without additional friction. Those duties include communicating with the ideal authorities and auditors, briefing senior management, and making AML policies.
AML compliance officers should be experts in managing legislative requirements of their geographical location. AML compliance programs for the financial institutions operating in the USA focus heavily on the Bank Secrecy Act. That’s why most of the AML compliance programs are overseen by a compliance officer.