A recurring problem faced by financial institutions worldwide is that of money laundering. While raising dirty money is not all that difficult in today’s world, layering up the money trail to make it untraceable has become a tedious task for criminals. To detect the illegal funds in any of the stages of money laundering is a crucial task that all financial institutions are committed to fulfilling. Any attempts made to counter money laundering are known as “Anti-money Laundering” procedures.
Is AML Verification Necessary?
Anti-money Laundering verification, a task that involves the authentication of all customers against global watch-lists, has been mandated by global regulatory authorities. The Financial Action Task Force, commonly known as the global watchdog of financial institutions, made AML verification processes necessary to minimize the threat of money laundering and terrorism financing. Any company that performs AML verification is known to be AML compliant. Listed below are the five steps implemented by companies that wish to meet AML compliance standards.
Formation of an AML Compliance Program
Companies that are subject to Anti-Money Laundering compliance laws need to develop a company-wide AML compliance program. This program must be designed keeping in mind the specific needs, regulatory requirements, and the customers of an institution. The aim of a successful AML compliance program is to identity internal deficiencies, such as fraud, misconduct, and other violations, and to correct the weaknesses as soon as possible. Key characteristics of an effective AML compliance program include specific policies on monitoring and documentation, an action plan for the prevention and timely detection of fraud, periodic reviews, as well as an independent review of the compliance program devised by the company.
Implement AML Due Diligence Procedures
Particularly for financial institutions such as banks and brokerage firms, the implementation of anti-money laundering due diligence procures is essential. AML dude diligence refers to all the procedures taken place to identify and detect suspicious transactions that may be indicative of money laundering and related criminal acts. It is critical for such institutions to implement the AML policies that meet the business’ AML verification needs.
Report Suspicious Transactions
In case any suspicious transaction has been detected by a bank’s employee, for instance, its timely reporting is mandatory. The suspicious activity report, commonly referred to as SARS, is a report generated that indicates all the details about the suspicious transaction. This makes up a critical part of an effective AML compliance program, as it indicates violations of the Bank Secrecy Act.
Adopt Customer Identification Programs
All businesses that are financial in nature are required to verify the identity of the customers prior to opening their account. This process, known as Know Your Customer (KYC), is mandatory, a failure of which can result in hefty fines and penalties. To implement KYC, the customers are identified based on their ID documents. This can include their government-issued ID card, passport, driver’s license, and other official documents.
In today’s digital-first world, KYC implementation has been streamlined through the introduction of automated solutions. These solutions eliminate the need for manual customer identity verification checks, and instead make KYC possible through biometric verification and other machine-based processes. This makes the KYC process simple to implement as it involves automated data extraction from paper-based forms, rapid verification, and accurate results in less than 30 seconds.
To ensure that the company continues to stay compliant with AML regulations, continuous monitoring and enforcement of the policies is necessary. For this purpose, many firms designate a compliance officer that has responsibility of ensuring AML compliance in all the operations taking place within a business. Other ways companies implement continuous monitoring is by conducting internal audits or by hiring an external auditor to perform independent audits.
Any company that wishes to ensure anti-money laundering compliance can follow five specific steps. This includes the formation of an AML compliance program, the implementation of the devised program, reporting of suspicious transactions that may reflect money laundering, the adoption of KYC verification procedures, and continuous monitoring of all such procedures to ensure ongoing compliance. By doing so, companies can not only avoid monetary fines, but also AML lawsuits as well as a tarnished brand image.