What is AML Compliance?

Any reporting entity must have a dedicated anti-money laundering (AML) compliance program that outlines how they comply with the most recent AML legislation – often this is combined with counter-terrorism financing (CTF) management in a comprehensive AML/CTF program.

Your AML compliance program must clearly indicate how your organisation identifies, mitigates and manages any and all risks of the products and/or services you provide being improperly used for money laundering or terrorist financing activities. Furthermore, the program must be appropriate to the perceived level of risk that your business could potentially face.

The ultimate goal of any AML compliance program is to identify and prevent illegal activities such as money laundering and terrorist financing from occurring. Not only does it protect financial institutions from financial and reputational damage: it also helps make your community and the wider global community safer against criminal activities.

What is An Anti-Money Laundering Compliance Program?

An AML compliance program brings together all the vital data points and strategies around how an organisation meets its compliance obligations. This includes, but is not limited to:

• Accounts monitoring and detection
• Internal controls and operations
• User processes and up-to-date policies
• Reporting authorities within the organisation
• Step-by-step guide on reporting financial crime.

The ultimate purpose of having an anti-money laundering program is to uncover discrepancies and eliminate any potential threat of money laundering, terrorism financing and fraud-related activities.

However, in order to build a truly robust AML program that illuminates bad actors and keeps the organisation safe from the consequences of non-compliance, there are a number of factors to consider. For example, the AML compliance program must be inherently risk-based. That means understanding the real likelihood of the company being used for money laundering or terrorism financing purposes, based on the size of the business, its operational structure, its executive hierarchy, its sector-specific complexities and more.

To help get a more rounded view of these essentials, consider:

• Who are your customers, and do you have a customer due diligence process in place?
• What services or products do you provide?
• How do you deliver those services or products?
• What is the jurisdiction (or additional foreign jurisdictions) within which you operate?

It’s helpful to visualise any anti-money laundering compliance program as being made up of two key parts. In part one, you cover all the essential processes that help you identify, mitigate and manage any risks that you may reasonably face. In part two, you build out dedicated procedures for identifying and verifying customers and beneficial owners – including politically exposed persons (PEP).

The bottom line is that there is no umbrella framework under which you can build out an AML compliance program for every organisation. Each reporting entity will operate within a specific sector and have its own unique circumstances and risks of money laundering and terrorism financing. That means you need to do your thorough due diligence to ensure you are meeting your compliance obligations and constantly updating your program to reflect potential new threats.

What Must An AML Compliance Program Do?

A practical AML compliance program must be able to ensure your organisation has the tools, the processes and the people to detect any suspicious activities associated with money laundering. This includes, but is not limited to, common illegal acts like fraud, terrorism financing and tax evasion. The program must also make clear how to report those threats to the proper authorities.

Your AML compliance program should also consider the risks posed by anyone your organisation does business with. Ultimately, your AML program must be developed on the basis of a strong understanding of the latest regulations, and also be managed by experienced compliance officers who have the knowledge and expertise to ensure every employee is aware of and compliant with AML rules.

What Are The Five Elements of a Robust AML Compliance Program?

Every AML compliance program should be a custom document that meets the specific needs of the institution.

That being said, there are a number of mandatory inclusions that should be part of every AML compliance program. To help you incorporate the key components of an effective AML program, make sure you focus on these five elements:

1. How to Detect Suspicious or Illegal Activities

Your organisation must have the tools in place to quickly detect any potential money-laundering threats, which may be indicated by activities such as abnormally large sums of money being deposited into an account, or fake (or missing) data found in an application.

If organisation has any reason to believe that funds have been acquired or transferred illegally, or that they have been linked to terrorism or fraud activities, then it is their responsibility to report those suspicions to the proper authorities within their jurisdiction.

2. Conducting Thorough & Regular Risk Assessments

Using a ‘scoring system’, you can accurately conduct customer due diligence. This means assessing and categorising customers into different tiers of risk based on the threat level they potentially pose.

This scoring system should incorporate things like high-risk countries, PEPs, UBOs, OFAC sanctions, and due diligence results.

3. Solidifying Your Internal Controls

Your internal practices and guidelines must be robust, particularly around information sharing within the institution, so ensure you:

• Focus on ongoing customer due diligence procedures that adhere to the latest compliance demands.
• Appoint experienced candidates to the role of AML compliance officer or MLRO to ensure compliance responsibilities are always being managed.
• Quickly report any suspicious activities through the proper chain of command – initially to the management team, then the AML compliance officer, and then the reporting authority within your jurisdiction, if necessary.
• Adequately train employees on how to effectively spot and respond to money laundering activities – any employee training program must be developed in line with the latest AML legislation.

4. Training

For everyone from new employees to AML compliance officers to the C-suite, regular training will help everyone understand their roles and responsibilities, as well as the proper channels through which to make a report. In addition to regular basic-level training, it’s also important to apply targeted training programs to high-risk departments.

Training topics should cover: general information (i.e. how to spot and thwart financial crime); the legal framework of AML regulations; and AML penalties, including the financial and potential jail penalties for failure to comply with AML laws.

5. Third-Party Reviews From Independent Auditors

Having a third-party, independent auditor review your AML compliance program is a helpful way to spot any gaps in an institution’s processes and procedures. They should be given free rein to investigate KYC procedures, compliance training, ongoing monitoring, reporting systems and more. After they have completed their report, financial institutions can implement changes to ensure they mitigate any future risks and stay compliant with the latest AML regulations.

How Can An AML Compliance Officer Help?

By appointing an experienced principal AML compliance officer to develop, update and enforce your compliance program, you can add another layer of security to your organisation. In addition to overseeing the implementation of your institution’s AML program, they may also manage:

• Internal auditing
• Compliance analysis
• Development of compliance guidelines
• Updating the program when new threats or risks are uncovered
• Hiring of junior AML compliance officers
• Employee training programs

It’s important, however, that any candidates for the position of principal AML compliance officer have adequate experience and expert knowledge of regulatory data sources and analysis tools, and are able to demonstrate their proficiency in understanding and complying with the most up-to-date AML regulations.

Furthermore, your AML compliance officer(s) must be given enough authority to allow them to carry out their duties effectively. This may include how they interact with authorities and auditors, their ability to set up briefing sessions with the C-suite or senior management, and allowing them to recommend AML policy decisions based on their own research, audits and reports.

Any AML compliance officer must be a legislative expert in the organisation’s jurisdiction. If the company operates internationally as well, they must be well versed in the legislative requirements of that region as well. For example, AML compliance programs in the United States focus on the Bank Secrecy Act, while in the United Kingdom, AML compliance officers – also known as money laundering reporting officers (MLROs) – typically report to the National Crime Agency.

Should Financial Institutions Conduct AML Training?

In addition to appointing an AML compliance program officer in your institution, it is highly recommended that your employees – at all levels of the organisation – have a working knowledge of AML procedures, regulations and compliance requirements.

Especially those who work with customers, companies and beneficial owners, they will bear more responsibility for the implementation of the AML program. There must be both a basic level of AML training for the average employee, as well as specific training for individuals who hold greater AML-specific responsibilities. It is critical that these training regimes are outlined in the AML compliance program and that your AML officer oversees regular training sessions, including teaching certain employees how to perform more sensitive tasks.

If an organisation does not have a dedicated AML compliance officer or requires additional expertise, a number of training companies provide AML education sessions to teams who need to acquire compliance knowledge and competencies.

How to Get AML Compliance Right

Nexis Diligence is a screening solution that contains AML, KYC and UBO data on millions of companies around the world. There is also additional data on blacklists, politically exposed people (PEP), sanctions lists, watchlists, and more, which means you can use the platform to perform your due diligence and find any and all ownership information in a single search to identify potential risks.