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What is an AML Compliance Program? [Updated 2024 Guide]

Regulatory compliance consists of many rules and processes that organizations must follow. Anti-Money Laundering (AML) compliance guidelines aim to help prevent money laundering and terrorist financing while stopping other forms of fraud and illegal activities.

Whether a company must follow AML rules depends on the industry in which it operates. For example, in the US, the requirement for companies to implement AML compliance programs is defined in the Bank Secrecy Act (BSA). This legislation outlines specific criteria, mandating that financial institutions identify and report suspicious activities to the government through Suspicious Activity Reports (SARs). 

However, if the business has financial transactions, it will be mandatory for them to follow AML compliance guidelines. So, it doesn’t matter if you’re just starting out or looking to improve your current AML compliance program; having a comprehensive checklist and guidelines in place is vital.

Key notes to remember:

What is an AML Compliance Program? 

An AML compliance program is a set of regulations designed to combat financial crimes. Regulatory authorities implement and regularly update these regulations to align with current conditions. To stay compliant with AML standards, companies must integrate internal controls such as employee training, account monitoring, detection of suspicious transactions, and the reporting of suspicious activities.

Due to the intricate nature of procedures and the dynamic nature of the financial landscape, creating a robust AML program can be challenging. That’s why companies need to assess all related factors that could be influencing compliance, including:

To summarize:

The goal. AML compliance programs identify, react to, and eliminate fraud risks related to money laundering and terrorist financing. 

The importance. An effective compliance program enables the business to find out about potential money laundering risks, learn in-depth about non-compliance laws, and prevent suspicious activities within the organization. 

What Makes an AML Compliance Program Effective?

The Federal Financial Institutions Examination Council (FFIEC) outlines essential components for an effective BSA/AML compliance program, obliging institutions to:

Include measures for Customer Due Diligence (CDD) and comply with beneficial ownership requirements specified in regulations issued by the Financial Crimes Enforcement Network (FinCEN).

Related: AML Regulations in the USA Everything You Should Know as a Business Owner

What Risks Impact AML Compliance?

Before building a compliance program, every business must assess its potential risks and legal obligations, which include:

That’s why several risk factors can affect a company’s AML program, especially considering the constant changes in regulations. Also, let’s not forget technology’s impact and the new compliance rules that were set due to the widespread use of mobile banking and digital currencies.

What are the Fundamental Rules of AML Compliance Programs?

To develop a successful AML compliance program, organizations must follow some vital steps. Let’s explore them in more detail. 

🟣 Step One: Select a Compliance Officer 

This is the go-to person in all things related to AML compliance. This person will play an important role in the company by evaluating various processes and keeping the business in line with regulatory requirements. 

Key skills a Compliance Officer should have:

🟣 Step Two: Educate and Train Employees

As AML guidelines change over time, compliance expectations evolve. That’s why employees should have a proper understanding of AML processes. To achieve this goal, companies must conduct ongoing monitoring and design special training programs. This ensures that all team members have the right skill set to help the company stick to its AML duties. 

Key tips for helping conduct employee training:

🟣 Step Three: Develop Internal Compliance Controls

Next, it’s essential to maintain regulatory compliance by implementing internal controls and policies. Obligated entities must perform Customer Due Diligence (CDD) and monitor suspicious activity while ensuring that applicable data is reported to appropriate agencies like FinCEN. Practices can vary depending on the individual company’s size and the associated risks. 

Use this short checklist to navigate through AML policies more easily:

🟣 Step Four: Ensure Independent Testing 

While developing internal controls or training your employees is essential, AML compliance requirements also include regular independent testing.

To understand and assess the company’s program yearly, a qualified third-party company must take care of this testing. Instead of taking someone directly responsible for regulatory compliance in the company, independent audits check if all AML controls are in place and working correctly. 

Key facts about third-party audits:

🟣 Step Five: Perform In-Depth Risk Assessment 

Financial Crimes Enforcement Network (FinCEN) presented the final Customer Due Diligence (CDD) rule in May 2018. After it became immediately effective, it was considered one of the top essential components of AML compliance. 

The CDD rule recommends companies evaluate the risks of money laundering and terrorist financing by:

If a customer submits a fake document, engages in unusually large transactions, or tries to open a bank account with insufficient customer information, organizations need to take the necessary steps to report these red flags.

For instance, if a customer is trying to create a new account from a high-risk country or a blacklisted IP
address, it’s best to conduct additional checks before you approve their account and provide access to sensitive data.

So, what makes this rule important? The CDD regulation poses the need for a risk-based approach, obliging businesses to conduct a comprehensive risk assessment to identify AML threats in specific jurisdictions. 

Other AML Red Flags You Should Know

There are some indicators or AML red flags that suggest potential money laundering and other suspicious activities that require companies to conduct further investigation. Companies should stay vigilant and look out for these signs: 

How to Maintain AML Compliance? 

After you set up a successful AML compliance program, the question of how to maintain compliance at your organization becomes the next priority. That means sticking to the compliance checklist that you’ve established.

Companies must use their AML programs to monitor suspicious customer behavior, including the mentioned cases of surpassing thresholds and status changes, as well as internal controls, like employee surveillance, watchlists, market trends, and new compliance requirements for ongoing compliance with AML/KYC regulations. Continuous monitoring is a crucial step after customer onboarding to prevent fraud and detect potential money laundering or terrorist financing within the system.

As regulations change, companies are responsible for keeping their compliance program up-to-date. For example, now, under the EU’s 6th Anti-Money Laundering Directive (6AMLD), individuals working for organizations and entities acting on their behalf can now face criminal liability.

The risks of falling out of AML compliance can leave businesses with severe consequences. Fines range from $25,000 to $100,000 for failing to report a single suspicious transaction. 

How Automated AML Software Can Help 

AML software helps stay compliant with AML regulations easier by enabling organizations to identify, analyze and report suspicious activity in real time. It’s an entirely automated tool designed to benefit businesses that want to stick to ever-evolving AML policies. 

Assigning internal compliance teams to manual compliance processes is an inefficient use of company resources. Automation in AML helps companies ensure ease of integration into current workflows to avoid staff and regulators’ resistance while guaranteeing a smooth end-user experience

iDenfy can help you gain this competitive advantage by digitizing AML processes, including identity verification and AML screening or ongoing monitoring. With the ability to choose the level of friction, you can customize your customer onboarding flow by automatically verifying and additionally screening risky users to comply with CDD rules. 

Simplify compliance without compromising on security or your conversions. Try iDenfy’s multi-functional ID verification and AML compliance software for free today.

This blog post was updated on the 12th of January, 2024, to reflect the latest insights.

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