Money laundering has raised concerns in many industries which has led the local and global regulatory authorities to devise regulations that deter such crimes. Keeping in view the situation, states have introduced AML solutions. All businesses across the globe, whether they are travel companies, government agencies, banks, or financial institutions, are required to follow AML compliance strictly.
Why Money is Laundered?
Any money that is earned through illegal practices such as drug dealings, arms sales, or corruption is laundered. Such illegally earned money can not be used in the financial industry. For example, when any user deposits their money, the bank always asks for its source and monitors all the transactions made by the user. If there’s any dubious transaction, it would be immediately notified to the law enforcement authorities. So, to spend such money freely, it’s covered with many layers until or unless the link with the original source is broken.
For that, they first pass the money through the businesses that have weak verification systems and complicated financial records, manipulate that business’s accounts and show more revenue than normal. The ill-gotten money is mixed in the system that it becomes challenging for the businesses to separate it from the white money.
In this age of digitization, where money launderers use digital banks to launder money, traditional AML practices are no more enough. Thus, all businesses need automated AML solutions that can protect them from illegal money flows.
What an AML Compliance Program Requires
Banks and all financial institution requires efficient AML systems that prevent money laundering and meet the regulatory requirements. Failure to comply with the AML regulations costs the banks and other sectors with penalties and heavy fines. An efficient AML compliance program requires some key features which are as under:
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Risk-Based Approach
Banks must apply a risk-based strategy while opening accounts and executing risk assessments with KYC procedures. Clients’ transactions should also be controlled according to their risk ratings. Banks should also develop anti money laundering policies tailored to the criminal threats they could pose.
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Identity Verification
Identity verification is an important part of risk-based AML compliance. Banks must know who they are working with and authenticate that the person is actually who they claim they are. CDD and EDD measures for higher-risk customers should be a priority of the AML program.
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PEP Status
Banks must determine if a client is politically exposed. PEPs are more likely to engage in money laundering as a result of their roles. PEP clients are subject to more stringent due diligence. A bank’s AML monitoring should include PEP screening to identify any status changes while onboarding and even throughout the business dealings.
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Sanctions Screening
Banks must also avoid doing deal with people, companies, or nations that are listed on international sanctions lists. A sanction screening should be included in a bank’s anti-money laundering compliance program, which takes into consideration all relevant lists, such as those published by global regulators.
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Transaction Monitoring
AML screening programs should monitor transactions made by the clients for any suspicious activity and also evaluate the risk level of a customer.
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Suspicious Activity Records and Record-Keeping
If there is a suspicion of money laundering, AML compliance measures should include the submission of a suspicious behavior report (SAR) to monetary regulators. SAR submission must be simple and include high management input. Furthermore, it is necessary to keep a record at each and every stage of the AML verification procedure.
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AML Training
The bank should also include AML training in its policies to keep employees informed and adapt to the legislation and rising trends in criminal strategies.
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AML Compliance Officer
Financial institutions must appoint a compliance officer who must be a senior employee and provides insights into the AML compliance and act as a liaison for banks and other financial authorities.
Why AML Security is Important for Banking
Banks are one of the largest institutions in the financial sector. As they facilitate billions of transactions a day, they are at a greater risk of financial crimes. And it is a reality that criminals usually carry out money laundering activities using banks or other financial entities. So, they can identify the risks by taking precautions and staying compliant with the AML regulations. Furthermore, the rise of online payments with technological advancement, demands a robust identity verification procedure. Considering the current and more stringent directives, banks are shifting towards AI-powered AML solutions to fulfill AML compliance effectively.
