A Guide to Anti-Money Laundering for Crypto Firms

What is an AML Compliance Officer?

AML Compliance Knowledge & Training

What is an AML Officer?

In order to oversee internal anti-money laundering policies and remain compliant with important regulations, banks, credit unions, and similar financial institutions are required to appoint an Anti-Money Laundering Compliance Officer.

As part of the fight against financial crime, governments across the world require their financial institutions to put in place anti money laundering compliance programs. Implementing anti-money laundering (AML) legislation can be challenging: in the United States, for example, the Bank Secrecy Act (BSA), introduced in 1970, has been amended by numerous subsequent laws, including the Patriot Act in 2001. Consequently, US financial institutions have had to navigate an increasingly complicated BSA compliance landscape, often involving significant administrative burdens and serious legal consequences. 

With that complexity in mind, in order to achieve regulatory compliance it is often necessary for firms to appoint an AML Compliance Officer: a principal figure responsible for overseeing the effective development and implementation of an AML program. Since the AML Compliance Officer performs a vitally important role within their institution, senior management employees should consider the following factors when making an appointment.

What Does an AML Compliance Officer Do?

While all employees should be aware of their company’s AML policy, the AML Compliance Officer is responsible for its implementation at an institutional level. An AML Compliance Officer’s primary professional focus falls on the internal systems and controls that their institution puts in place to help detect, monitor, and report money laundering activities to the authorities. Their job is to ensure that their institution is not exposed to criminal risk and does not inadvertently facilitate financial crime.

The finer details of the AML compliance officer role vary by country. In the US, for example, a BSA-AML Compliance Officer liaises with the Financial Crimes Enforcement Network (FinCEN), while a UK anti money laundering officer reports to the National Crime Agency (NCA). Broadly speaking, however, AML policies and strategies are mirrored across jurisdictions, and the practical duties of an AML Compliance Officer include:

  • Assisting with the development, implementation, and maintenance of an anti-money laundering program within their institution
  • Ensuring compliance with current AML regulations, and other relevant legislation (e.g the USA Patriot Act)
  • Developing and maintaining a risk assessment framework for products and services, clients and customers, and other issues relating to money laundering
  • Keeping and maintaining records of high risk customers, and reporting suspicious activities to the authorities
  • Arranging and implementing inspections and audits from third-party organizations, and making compliance recommendations based on their findings
  • Briefing and reporting to senior management on matters relating to internal AML compliance policies and procedures
  • Overseeing and implementing an ongoing AML training program for other employees

AML Compliance Officers and AML/CFT Defense

An AML Compliance Officer is a highly visible part of a firm’s compliance infrastructure, which generally comprises three lines of defense. The first line of defense refers to the AML/CFT controls that are built into general business operations and set out in company-wide policies and procedures. At this level, all employees should understand their obligations and how to detect and report suspicious transactions. 

AML Compliance Officers operate on the second line of defense. At this level, the officer is responsible for ensuring that their company is fulfilling its regulatory obligations at every level of authority. In practice, this means conducting compliance testing, reporting relevant threats to senior management, and acting as an intermediary between their company and the relevant financial authorities. 

The third life of AML defense refers to a company’s internal audit mechanism. The AML Compliance Officer should be involved in devising their company’s audit policy, ensuring that their company’s AML/CFT measures are suited to its risk environment, and that employees receive sufficient AML/CFT training. 

Appointing an Anti Money Laundering Compliance Officer

Given the importance of an institution’s AML compliance program, an AML Compliance Officer is required to be fully knowledgeable and skilled in all areas of financial policy and procedure, and aware of the methodologies of financial crime. When making the appointment, it is vital that senior management choose a candidate who not only has the ability and expertise to perform their duties effectively but who suits their institution’s unique professional needs.

The ability and dedication of an AML Compliance Officer will shape their institution’s AML program, and reflect its commitment to combating financial crime. With that in mind, when appointing an AML officer within a company, the following factors should be priority considerations:

Time & Focus

Consider the administrative burden your AML Compliance Officer will face within your institution and ensure they are afforded the time and resources to carry out their duties. Larger organizations with a much greater administrative load will likely need to appoint a full-time employee with a singular focus on AML compliance. Conversely, smaller institutions may be able to designate those duties in a part-time capacity.

AML Officer Expertise & Training

An AML Officer must have considerable experience and understanding of the financial and regulatory landscape and of relevant risk management strategies. This knowledge and expertise should go beyond internal AML systems and controls and extend to methodologies of money laundering (and its associated criminal activities), and to the potential risk posed by certain customers and clients. Known as a “risk-based approach”, this assessment of illicit activity associated risk allows financial institutions to deploy the appropriate resources before responding with prioritized control measures.  

AML compliance is a constantly evolving field, so your Compliance Officer’s expertise should reflect the current regulatory climate. With that in mind, a variety of industry bodies exist which offer AML certification and training.  

Authority & Confidence

Given the frequent legal implications of AML compliance, it’s vital that your Compliance Officer holds sufficient authority to perform their role and its responsibilities effectively. AML Officers not only monitor and handle a variety of sensitive financial data but must interact with senior management and the board of directors, and with the financial authorities, on a regular basis. Ideally, an AML Officer should be a director-level employee with the industry experience and confidence to engage with every aspect of their professional environment.

Independence

With those qualities in mind, an AML Compliance Officer should also be independent of their company’s business infrastructure. Independence is so important to the AML Compliance Officer role because it enables the appointed individual to pursue their compliance objectives without undue influence from their company’s business lines. In practice, this means ensuring that an AML Compliance Officer has clear lines of direct communication with the board of directors and that those lines do not compromise their ability to objectively scrutinize risks. 

EU AML Compliance Officer Guidelines

In August 2021, the European Banking Authority (EBA) issued draft guidance offering clarity on the role of the AML Compliance Officer in EU firms. The guidance follows concerns that previous Compliance Officer guidance included in the Fourth Anti-Money Laundering Directive (which came into effect in 2017) had been implemented unevenly across the bloc’s financial sectors. In particular, the EU highlighted poor communication between Compliance Officers and senior management as an issue that needed regulatory attention. 

Under the proposed guidelines, firms will be required to

  • Appoint an AML Compliance Officer at a managerial level
  • Instruct Compliance Officers to develop an AML/CFT risk assessment framework, setting out business-wide and individual risks 
  • Codify the information that Compliance Officers should include in the suspicious activity reports that they submit to senior management 
  • Respond to requests from national regulators seeking to test the “adequacy and effectiveness of the AML/CFT compliance officer function in line with these and other ESA [European Supervisory Authority] guidelines”

The proposed Compliance Officer guidelines reflect the Sixth Anti-Money Laundering Directive’s focus on the harmonization of AML/CFT regulations across the EU. 

AML Checklist for MLROs

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Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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