In order to combat financial crime, banks, credit unions, and a variety of other financial institutions across the world, are required to develop and put in place Anti-Money Laundering (AML) Compliance Programs.
What is AML Compliance Program?
An anti-money laundering program is a set of regulations and procedures that financial institutions follow to prevent and detect money laundering or terrorist financing activities.
Anti-money laundering compliance programs are an ongoing process: the United States’ Bank Secrecy Act (BSA), has been amended by a variety of subsequently-introduced legislation (including the USA Patriot Act), while the EU introduced its Fourth Anti-Money Laundering Directive in 2017, and its Fifth Anti-Money Laundering Directive in 2020.
With this in mind, all financial institutions should have a strong understanding of what an AML compliance program needs to achieve, and how to create a program which works for them.
In practice, an anti-money laundering compliance program should ensure that an institution is able to detect suspicious activities associated with money laundering, including tax evasion, fraud, and terrorist financing, and report them to the appropriate authorities. An AML compliance program should focus not only on the effectiveness of internal systems and controls developed to detect money laundering, but on the risk posed by the activities of customers and clients with which an institution does business.
An AML program should be built on a strong foundation of regulatory understanding and overseen by personnel who are experienced and knowledgeable enough to create a climate of compliance at every level of their organization.
When developing an anti-money laundering compliance program, it falls to senior management to create a set of policies and procedures which work for the unique needs of their organization. While a variety of factors may affect the size and shape of your program, it should be built around a set of key criteria.
Risk assessment is a pillar of AML compliance and represents a crucial first step in building an effective program. No two institutions face the same set of AML risks, and your AML program should take into account factors like the products and services you offer, your customers and clients, and your geographic location.
Your approach to AML risk management should suit the specific needs of your company – ideally, your AML program will avoid the administrative burdens of over-compliance, and the potential legal jeopardy of under-compliance. There is no one-size-fits-all solution to the inherent challenges of the financial landscape; individual institutions are expected to build a solution which works for their risk profile.
An AML compliance program should focus on the internal controls and systems the institution uses to detect and report the financial crime. The program should involve a regular review of those controls in order to measure their effectiveness in meeting compliance standards.
Internal AML controls extend to an institution’s employees, who should be aware of their own roles and responsibilities within the system, how to conduct due diligence on business interests, and how to navigate policies and procedures which ensure compliance on an ongoing basis.
An effective AML compliance program should build in a schedule of independent testing and auditing by third-party organizations. Independent testing should be mandated to take place every 12-18 months, although institutions working in particularly high risk areas might consider a more frequent schedule than that. The third-party organization chosen to test AML compliance must be qualified to conduct a risk-based audit appropriate to your institution. In large institutions, this audit may be conducted by an internal team which is independent from AML and Compliance.
While every employee within a financial institution should have a working knowledge of AML procedure, specific employees will bear greater responsibility for the implementation of its compliance program. It may be appropriate for an institution to implement a base level of training for all employees, and add further, targeted training to those with more AML-specific responsibilities. Therefore, in a manner similar to creating an audit and testing schedule, an AML compliance program should ensure that those employees receive regular training, and know how to perform assigned duties.
A variety of organizations offer AML compliance training programs for employees who need to update their knowledge and competencies.
AML programs should appoint a designated principal compliance officer who is responsible for overseeing the general implementation of AML policy within their institution. AML Compliance Officers should have sufficient experience and authority within their institution to ensure they can perform their duties effectively. Those duties include communicating with authorities and auditors, briefing senior management, and making AML policy recommendations based on audits and reports.
It goes without saying that AML compliance officers should be experts in the legislative requirements of their local environment: in the United States AML compliance focuses heavily on the Bank Secrecy Act, so anti-money laundering programs are overseen by a ‘BSA Officer’. Similarly, in the UK, oversight of AML activities falls to the ‘Money Laundering Reporting Officer’ (MLRO), who reports to the National Crime Agency. In any context, an AML Compliance Officer’s expertise should extend beyond regulatory procedure, to the details and methodologies of the financial crimes they are charged with detecting and reporting.