The Must-Haves for Effective AML Compliance

“Why does opening an account take such a long time?” Bank consultants hear this question repeatedly. The customer feels as if their time is being wasted. What actually happens is that their identity is being confirmed, evaluated, and extensively protected through the anti-money laundering (AML) system.

The AML system is designed to understand its customers and their financial dealings to serve them better, manage their risks prudently, and mitigate the impact of corruption or terrorism. You need an elite AML system in your business to protect the identity of your clients, protect your business against fraud or corruption, mitigate any risks that criminals would use your financial institution to launder money, and safeguard against terrorism. 

Know Your Customer (KYC) controls are vital functions in implementing an effective and compliant AML system. KYC implementation involves information central to the identity of a person. This includes: 

  • Name 
  • Address 
  • Date of Birth 
  • Piece(s) of Identity that verifies facts above
  • Identification Number (specific to an individual but varies by country)

These are all obligatory to safely and accurately confirm the identity of a potential or current customer. Institutions are required by law to follow specific guidelines internationally provided by the Financial Action Task Force (FATF) and domestically determined by the laws of the country in which they reside. As a compliance officer, it is unequivocally essential that the business you represent has a high-quality KYC process.

Why having an AML system is essential to your business: 

Criminals are constantly banging on the proverbial glass ceiling that is the AML system. They are searching for tiny cracks in the system that can be infiltrated and abused. One revolving door that stays open is compliance implementation. 

The FATF is the grand central station for the most up-to-date information on combating money laundering. ‘’The FATF Recommendations set out a comprehensive and consistent framework of measures which countries should implement to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction. Countries have diverse legal, administrative, and operational frameworks and different financial systems, and so cannot all take identical measures to counter these threats.’’ 

Many countries have compulsory laws for financial institutions and high-risk facilities to implement extensive KYC controls and AML systems. 

In short, the purpose of KYC controls and guidelines is to prevent banks from being used by criminal elements for money-laundering activities.

Many companies have a misunderstanding that consists of incorrect information regarding KYC controls and AML compliance. Many businesses believe that if they are correctly implementing a KYC system, they are within AML compliance. This is not accurate. Not following compliance puts the company at risk of hefty penalties and reputational damage from negative publicity.

Recommendations for combating money laundering: 

The FATF lists 40 recommendations that all countries should follow to combat money laundering. A practical and robust AML system is at the center. More than half of the European Union, the U.K., and the U.S. closely follow these recommendations. 

At their core, a financial institution or Designated Non-Financial Businesses and Professions (DNFBP) must have a comprehensive AML system to meet compliance standards. The purpose of an AML system is to understand its customers and their financial dealings to serve them better and manage their risks prudently. FATF recommendations are designed to lead countries to develop rigorous KYC controls and an effective AML system that limits or mitigates the impact of money laundering, terrorism funding, corruption, and other forms of financial crime. 

Here is a condensed list of the recommendations that your business must implement to reach AML compliance: 

  • The ability to identify, assess, and understand their money laundering risks and to take action to mitigate those risks. 
  • The company must connect with proper authorities that can freeze or seize and confiscate laundered property or accounts. 
  • Ability to maintain, for at least five years, all transactions.
  • Ability to verify and monitor a politically exposed person (PEP).
  • Measure the risks that may arise concerning the development of new products and business practices. 
  • Financial institutions should be licensed and registered, and adequately regulated. 
  • They understand that the ultimate responsibility for customer due diligence (CDD) measures remain with the financial institution relying on the third party. 
  • Must establish financial intelligence units. 
  • DNFBP, such as; casinos, real-estate agents, dealers in precious metals or stones, lawyers, notaries, independent legal professionals, and trust and company services, are required to conduct customer due diligence to act within AML compliance.
  • Supervisors should have adequate powers to supervise or monitor and ensure compliance by financial institutions to combat money laundering. 
  • In conducting investigations, authorities should be able to obtain access to all necessary documents and information for use in those investigations. 

This is not an exhaustive list but a framework to start implementing to reach compliance. Overall, adequate KYC controls and a robust AML system are instrumental in applying effective compliance. 

How A Data Pro can help you:

The world spends trillions in currency annually to fight financial crime. Would you like to reduce your share? 

Our company combines different technologies with human expertise to deliver the most valuable information and insights for decision-makers. We also have people who speak over 50 languages with various professional backgrounds, and four years of average experience in the company, which allows us to provide services of the best quality and at the best price. 

Take a few minutes to review the due diligence and compliance screening options from A Data Pro. 

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FATF (2012-2022), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris, France,