What Is an Anti-Money Laundering Compliance Program?
To combat financial crimes, banks, credit unions, and various other financial institutions worldwide must develop and implement anti-money laundering (AML) compliance programs.
What is an Anti-Money Laundering Compliance Program?
The Anti-Money Laundering Program is a set of regulations and procedures used by financial institutions to prevent and detect money laundering or terrorist financing activities.
The Anti-Money Laundering Compliance Program is an ongoing process: the U.S. Bank Secrecy Act (BSA) has been revised by various subsequent laws (including the U.S. Patriot Act), and the European Union has introduced its Fourth Anti-Money Laundering directive and the Fifth Anti-Money Laundering Directive issued in 2017 and 2020.
Keeping this in mind, all financial institutions should have a deep understanding of what anti-money laundering compliance programs should achieve and how to create programs that will be useful to them.
What should the AML program do?
Indeed, the anti-money laundering compliance program must ensure that institutions can detect suspicious activities related to money laundering, including tax evasion, fraud, and terrorist financing, and report them to the proper authorities. The AML compliance program should not only focus on the development of internal controls and systems to detect money laundering but also on the risks posed by clients and their activities that conduct business with the institution. The AML compliance program must be based on a solid knowledge of the regulations. It must be supervised by experienced and knowledgeable personnel to create an atmosphere of compliance at all levels of the organization.
Establishing an anti-money laundering compliance program
When formulating an AML compliance plan, top management must develop a set of policies and procedures to meet the unique needs of their organization. Although several factors can affect the size and shape of the program, it must be based on a set of key criteria.
Risk assessment is the foundation of anti-money laundering compliance and represents a critical first step in establishing an effective plan. No two organizations face the same risks against money laundering. An anti-money laundering plan should consider factors such as the products and services the organization offers, its customers, and geographic location.
The method to use for AML risk management should be tailored to the specific needs of the company. Ideally, an AML program will avoid the administrative burden of over-compliance and avoid potential legal compliance risks. There is no one-size-fits-all solution to all the challenges inherent in the financial sector. Each organization must establish a solution that suits its risk profile.
The AML compliance program should focus on institutions’ internal controls and systems to detect and report financial crimes. It should include periodic reviews of these control measures to measure their effectiveness in meeting compliance standards. The internal AML control should extend to the employees of the organization. They must understand their roles and responsibilities in the system, conduct due diligence on business interests, and browse policies and procedures to ensure continued compliance.
An effective anti-money laundering compliance plan should be based on a timetable for independent testing and reviewing by third-party organizations. Although organizations working in high-risk areas may consider more frequent schedules, independent tests should be conducted every 12 to 18 months. Third-party organizations that choose to test AML compliance must be qualified to perform appropriate risk-based audits for the organization. In large organizations, this audit can be performed by an internal team independent of AML and compliance.
Anti-Money Laundering Training
Although all employees of financial institutions should have a working knowledge of anti-money laundering procedures, certain employees will take greater responsibility in implementing their compliance programs. For organizations, it may be appropriate to implement a basic level of training for all employees and increase it for those with more specific AML responsibilities. Therefore, similar to the creation of audit and testing procedures, the AML compliance program should ensure that these employees receive regular training and know-how to perform their assigned tasks.
Many organizations provide AML compliance training programs for employees who need to update their knowledge and skills.
The AML compliance program must appoint a designated Chief Compliance Officer responsible for overseeing the overall implementation of the anti-money laundering policy within the organization. Anti-money laundering compliance officers must have sufficient experience and authority within their organizations to ensure that they can perform their duties effectively. These responsibilities include communicating with competent authorities and auditors, reporting to senior management, and making anti-money laundering policy recommendations based on audits and reports.
There is no doubt that anti-money laundering compliance personnel should be proficient in the regulatory requirements of their local environment. In the United States, anti-money laundering compliance personnel mainly focus on the “Bank Secrecy Act”, so the funds of anti-money laundering programs are supervised by “BSA officials”. Similarly, in the U.K., the Money Laundering Reporter (MLRO), who reports to the National Crime Agency, is responsible for the supervision of anti-money laundering activities. In any case, the experience of anti-money laundering compliance officers should extend beyond the scope of regulatory procedures to the details and methods of financial crimes that are found and reported.