What is Anti-Money Laundering Software?
In the fight against financial crime, anti-money laundering software is a valuable tool for institutions all over the world.
Anti-money laundering (AML) software is used by legal and financial institutions as part of the effort to combat financial crime – specifically, to detect, identify, and report money laundering activities. The use of AML software should form part of a wider AML compliance program, and should be implemented as part of a risk based approach to a financial institution’s unique profile.
AML software is often an integral and indispensable part of an institution’s AML strategy – thanks to the complexity of the legislative landscape in which that institution operates. In the United States, for example, compliance with the Bank Secrecy Act (1970) involves significant administrative effort, including a rigorous external audit process and numerous reporting obligations – the UK’s Money Laundering Regulations (2007), and the EU’s Anti-Money Laundering Directive (2017), are similarly complex.
The regulatory compliance obligations imposed by AML legislation, generate vast amounts of data pertaining to individual customers and transactions, which would be beyond the ability of human AML officers to manage. AML software, on the other hand, can process those amounts of data with efficiency and accuracy – filtering information for AML officers, and assisting them in their obligations to their institutions, and to the financial authorities.
Broadly, AML software platforms help financial institutions implement their AML programs. Their practical applications may be diverse, and range from data management and procedural filtering to predictive analysis and machine learning. AML software may be used to monitor and flag large-scale suspect activities involving high value assets, or smaller, individual transactions.
While different platforms obviously vary in the functions and capabilities they offer, AML software tends to fall into four main categories:
- Name screening: Certain territories maintain ‘blacklists’ of high-risk customers and entities (such as the United State’s Specially Designated Nationals List) which financial institutions are prohibited from doing business with. AML software can be used to quickly identify blocked persons, and flag them to an institution. In addition to identifying sanctions, screening is also used to identify Politically Exposed Persons (PEPs), and individuals receiving adverse media attention.
- Transaction monitoring: This category of AML software focuses specifically on identifying suspicious patterns in customer transactions, using historical information and the specifics of certain account profiles. In the United States, AML software tasked with monitoring suspect transactions would be used to generate a Suspicious Activity Report (SAR) which would then be submitted to FinCen.
- Currency Transaction Reporting (CTR): AML software can be used to spot transactions involving large amounts of cash, or multiple small transactions aggregating a large amount of cash. Under the Bank Secrecy Act, for example, transactions of over $10,000 would be flagged automatically.
- Compliance: AML software can be used in the day-to-day implementation of compliance requirements. The data management capabilities of AML software can be used to keep detailed records of employee training and scheduled audits, and track reports submitted to financial authorities.
AML officers, charged with overseeing the implementation of their institution’s AML compliance program, are responsible for the integration of its AML software. Since they may be held personally liable for any breaches of the law, and potentially face criminal consequences, it is extremely important that AML Officers select their software program carefully, considering how it will be implemented and what ongoing support will be available from the vendor.
As risk managers, AML officers must assess the specific needs of their institution and decide which AML software platform will suit it best. To this end, a good vendor will work with an AML officer to assess those particular needs and ensure the chosen platform addresses them in the most efficient and effective way. As legislation changes and software capabilities improve, AML officers should take steps to ensure their software is updated to its latest version and remains fit for purpose.
AML officers should also consider the specific training needs of the employees within their institution who will be using AML software. While an extremely useful tool in the fight against financial crime, AML software effectiveness is enhanced by the ability of its users.