Today, organizations are faced with the constant threat of cybercrime. To combat financial crime and the illicit flow of money, regulatory authorities require these enterprises to follow certain obligations. Given the requirements, it becomes increasingly important to adopt smart and effective solutions to ensure in-house compliance. Regulatory frameworks such as the 5AMLD by the European Union require stringent implementation of AML and CFT compliance. Financial businesses can adopt Anti Money Laundering (AML) compliance practices to prevent cybercrime and money laundering.
What Key Challenges do Businesses Face?
Ensuring AML compliance is not everyone’s cup of tea, especially when there are bad actors always on the go. Businesses need a proper mechanism to make sure the information they acquire and transmit is appropriately managed. This is essential in executing AML/CFT regulations and in preventing potential violations of compliance standards. Before the practical implementation of technology-based solutions, information sharing between law enforcement and financial institutions was an uphill task.
Today, with effective and reliable AML compliance tools, companies need not worry about detecting criminal entities and reporting them to regulatory watchdogs. But as technology became popular, fraudsters become more active and sophisticated in carrying out organized cybercrime. Financial crime such as money laundering is not limited to gaining profit since outlaws use the ill-gained money to continue other nefarious acts like funding terrorist activities, illegal smuggling, and cross-border trafficking and to evade the taxation system.
AML/CFT for Effective Information Sharing
To combat financial crime better, AML/CFT standards were put into effect. One of these is the 40 recommendations by the global financial watchdog, FATF, that presents effective guidelines to combat regulatory challenges faced by organizations around the globe. This set of guidelines aimed at better information sharing protocols between regulatory authorities and businesses that are AML-compliant. Here are some advantages of AML/CFT standard systems:
- Financial crime can be detected better by using the money trail provided by companies
- Expropriating property and funds to remove profit for crime
- Identifying bad actors that act as a third-party intermediary between the money launderer and the financial businesses
- Exposing heads of criminal or terrorist organizations that are undercover for a long time
- Protecting the legal financial systems from crime and restoring their integrity
Fundamentals of AML Compliance Standard
There are three fundamentals that are necessary for ensuring AML compliance within an organization, state, or country. These interventions are listed below:
1- AML/CFT obligations should be mandatory for key players in the industry such as banks, real estate firms, and other reputable financial institutions. These entities are directed to gather necessary records related to customer transactions to assist regulatory authorities in fighting crime.
2- Once the transactional information is acquired, these financial institutions are required to maintain it for some time. The records need to be well-organized so that when law enforcement departments need them, they can be instantly retrieved.
3- AML compliance standards require the creation of crime prevention units that exchange information with other similar parties to prevent financial crime better. This is more of a national responsibility of the country than an organizational measure.
Pillars of AML Compliance
The regulatory landscape has become stringent throughout the years. AML compliance is something that everyone in the corporate sector is aware of. But only a definition doesn’t suffice when it comes to understanding the purpose and implementation. Here are some fundamentals of ensuring AML compliance for financial businesses.
Know Your Customer
Customers are an asset to any organization or business. Therefore, it is important they are legitimate and do not come from a shady background. In this regard, companies perform Know Your Customer (KYC) procedures to find out about their customer’s identity information better. KYC programs play a crucial role in maintaining AML/CFT compliance since they help identify and verify if the customer is genuine or another criminal.
AML Compliance Officer
When it comes to effective implementation of AML compliance, a designated official is necessary to overlook the organizational infrastructure in light of AML regulations. The compliance officer must have adequate knowledge to ensure that the AML compliance program runs smoothly and all requirements are met on time by the organization. This officer makes sure financial information is shared with relevant crime prevention authorities to curb money laundering.
Financial businesses need to keep a vigilant eye on high-risk customers and entities before establishing ties with them. An AML compliance program must follow a risk-based approach to properly assess the overall risk a particular customer poses to an organization. Politically Exposed Persons (PEPs) and those with a higher public role must be placed categorized as high-risk since they can always misuse the authority to gain financial profit. Ongoing monitoring of these customers can allow businesses to detect suspicious transactions, and report them to crime enforcement networks to combat such activities.