The fear of building a relationship with any criminal entity always remains a concern for businesses. So, to counter such fear and the consequences attached to such relationships, businesses are obliged to adhere to AML compliance. These are sets of rules by different bodies that help businesses prevent money laundering and related crimes.
Throughout time, many initiatives have been taken to make it difficult for those who always remain in efforts to earn illicit profits and turn that black money into white money using legal ways. To counter that, regular bodies continuously update their mandates for institutes more prone to money laundering or financial crime to create CDD. However, money laundering and suspicious transactions continue to rise.
In this blog, we’ll discuss a couple of regulatory bodies along with the five fundamental pillars of an AML compliance program. But first, we’ll delve into the different stages of money laundering.
Understanding the Money Laundering Hierarchy
The process of cleaning illegally obtained money using legal procedures traditionally occurs in three phases or stages (placement, layering, and integration). AML compliance ensures that the process does not reach the final stage and aims to halt it in the first two steps.
Let’s understand it with an example: Someone involved in money laundering will attempt to legitimize their funds by depositing small amounts into various bank accounts, which constitutes the placement phase.
After depositing small chunks of their stolen money into different bank accounts, they will move on to the layering phase. This involves transferring funds between accounts and then withdrawing them to obscure the exact origin of the money.
Integration is the final stage where the so-called legitimate money is used to purchase property, a house, or a car to officially declare that illicit-sourced earned money is white money.
AML Compliance: Crucial for Businesses
Businesses are often prone to exposure to financial crimes at the hands of money launderers. However, there are always ways to safeguard businesses from such traps. AML compliance provides rules and regulations that help businesses scrutinize their clients against the global watchlist.
Criminals know various ways to convert their illegally obtained black money into white money. Such methods include purchasing property, engaging in crypto businesses, and smuggling cash in bulk.
In the United Endeavor, banking sectors and relevant institutions work together to ensure anti-money laundering compliance. Their primary goal is to identify, evaluate, report, and prevent illicit financial activities, adhering strictly to guidelines established sanctioning bodies.
5 Globally Recognized and Identified Pillars of AML appliance and their Implementation for businesses 2024
While some acts apply specifically to certain countries, such as the BSA in the United States, the five pillars of an AML Program are recognized and trusted globally. These pillars are very helpful for businesses planning to implement their own sort of AML program.
- Appoint an Officer
Appointing a designated individual within the office who possesses a comprehensive understanding of AML protocols, rules, and regulations is foundational in bolstering compliance efforts. This individual assumes the critical responsibility of overseeing all compliance duties and obligations, serving as the focal point for implementing necessary changes to rules and regulations and disseminating expertise across the team.
Their role extends to staying meticulously informed about the evolving landscape of AML compliance, proactively adapting existing protocols, and formulating new rules to align with regulatory updates and emerging risks. By entrusting such responsibilities to a dedicated expert, the organization can enhance its compliance posture, foster a culture of adherence to AML standards, and effectively navigate the complexities of financial regulation.
- In-Depth Risk Assessment
In the second phase, establishing rules and protocols entails a meticulous alignment with international regulatory standards, ensuring comprehensive compliance through thorough risk assessment. Given the diverse operational landscapes of organizations and businesses, mitigation strategies must be tailored to the specific risk profiles they face. This involves crafting protocols that not only address immediate risks but also anticipate potential future threats, leveraging deep risk assessment methodologies.
Such protocols should be dynamic and adaptable, capable of evolving alongside changing regulatory landscapes and emerging risks. By prioritizing alignment with international standards and embracing a nuanced approach to risk management, organizations can foster resilience and ensure sustainable operations in an increasingly complex global environment.
- Build Internal Policies
For risk management and smooth operational tasks, it’s crucial for a company to establish a department that specifically handles compliance-related matters. This involves staying up-to-date with the latest market trends and evolving compliance regulations from different bodies across the globe.
To make it even more obligatory for every team member, let them know how neglecting compliance can impact the organization, and ultimately their jobs, particularly those responsible for fraud detection.
- Create a training program for your employees
The significance of a comprehensive training program for the team cannot be overstated, particularly in the realm of Anti-Money Laundering (AML) compliance, where staying abreast of the latest changes and trends is imperative. Crafting an agenda that reflects the dynamic landscape of AML regulations and market trends is essential to effectively address emerging challenges, including the proliferation of unprecedentedly large transactions and the growing sophistication of methods used to obscure personal details.
By integrating these pressing issues into the training curriculum, the team can enhance their understanding of evolving risks and equip themselves with the necessary tools and strategies to adapt and effectively mitigate these challenges, ensuring the integrity of compliance efforts and safeguarding against illicit financial activities.
- Perform Customer Due Diligence
FinCEN, a United States treasury department, recognizing the importance of customer due diligence implemented it in May 2018. This has since become a pillar of AML compliance. Customer due diligence mandates that companies assess risk by identifying their customers’ identities, monitoring their transactional history according to AML compliance screening, and observing their activities across the platform. If even their IP address is located in a country more prone to money laundering, they must be reported.
Does your business need an AML compliance program?
It varies depending on your business location and the regulations applicable in those areas. Banks and financial institutions usually receive strong recommendations to mitigate the risks of money laundering, bribery, and other illegal activities.
