Four Pillars of AML Compliance Program
What is Anti-Money Laundering?
Anti-money laundering (AML) are the laws, regulations, and procedures made to prevent criminals from disguising illegally obtained funds as their legitimate income. Although these laws cover a limited range of transactions and criminal behavior, their implications are far-reaching.
AML Compliance Program
An Anti-Money Laundering (AML) program is a set of regulations and procedures that financial institutions follow in order to combat financial crime, banks, credit unions, and a variety of other financial institutions across the world.
What is an AML Compliance Program?
The Anti-Money Laundering Compliance Program is an ongoing process: it is everything a company does in relation to compliance: be it built-in internal operations, user-processing policies, accounts monitoring and detection, or reporting of money laundering incidents.
The aim and agenda of an AML compliance program are to expose and react accordingly to inherent and residual money laundering, terrorist financing, and fraud-related risks.
With this in mind, all institutions are based on a strong understanding of what an AML compliance program needs to achieve, and how to create a program that works for them. To develop a coherent program, businesses have to follow set out requirements.
What Should an AML Compliance Program Do?
An Anti-Money Laundering Compliance Program ensures any institution to be able to detect suspicious activities associated with money laundering, which includes tax evasion, fraud, terrorist financing, and report these to the appropriate authorities. The program should focus not only on the effectiveness of internal systems and controls developed to detect money laundering but also on the risk posed by activities of customers and clients of the institution with which it does business. An AML program is built on a strong foundation of regulatory understanding and overseen by personnel to create a climate of compliance at every level of their organization.
The Four Pillars of AML Compliance Program
A compliance program helps an organization to analyze and draw up its potential risks and legal obligations. This could mean the risks an institute is exposed to, anti-money laundering laws in their jurisdiction, and fines for non-compliance, possible suspicious activities that will indicate money laundering. To level up the development of an AML compliance process, businesses should outline the four pillars of the AML Compliance Program:
- Compliance Officer
- Tailored Internal Policies, Procedures, and Controls
- Ongoing, Relevant Training of Employees
- Independent Review for Compliance
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Compliance Officer
An Anti-Money Laundering Program should appoint a designated principal compliance officer who is responsible for overseeing the general implementation of AML policies within the institution. The Compliance Officer should have sufficient experience and authority within the institution to ensure the performance of their duties effectively. Which include communicating with authorities and auditors, briefing senior management, and making AML policy recommendations based on audits and reports.
An AML Compliance Officer’s expertise should extend far beyond regulatory procedures, to the details and methodologies of the financial crimes they are charged with detecting and reporting. They need to be assigned with ongoing responsibility for ensuring compliance with the Bank Secrecy Act. The officer should have the necessary authority, budget, and training to get the job done – commensurating to the risks for the business.
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Tailored Internal Policies, Procedures, and Controls
The Anti-Money Laundering Compliance Program should also focus on the internal controls and systems the institution uses to report or detect financial crime. The program should involve a regular review of these controls to ensure their effectiveness. The institution’s employees should be made to be aware of their own roles and responsibilities within the system, which could mean how to conduct due diligence on business interests, or how to navigate policies and procedures which ensure compliance on an ongoing basis.
The business navigates based on written policies and procedures that govern its action. These policies and procedures should be tailored to the business, based on a written assessment regarding the risks of the business. The business should meet under all obligations related to registration, documentation of transaction activity, obtaining customer identification, maintaining records, currency transaction reporting, monetary instrument logging, suspicious activity reporting, ongoing training, and so forth.
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Ongoing, Relevant Training of Employees
Every employee within a financial institution should have a working knowledge of AML procedures along with specific employees bearing greater responsibility for implementing the compliance program. It is plausible for an institution to implement a base level training for all employees, and targeted training for those with more AML-specific responsibilities. A variety of organizations offer training programs for employees to better their knowledge and competencies. Procedures are not implemented unless employees are trained, so it should be kept current and relevant, while the employees manage according to the procedures. An effective training program will not be “one size fits all” but rather tailored. Any sound changes to the program should include off-cycle training that informs impacted employees about the program changes. It is important to keep accurate records of all training provided and who received the training, which is a key element in substantiating compliance with this pillar.
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Independent Audits
The fourth pillar is Independent Audits, an effective way to test and audit which cannot be performed by someone with direct responsibility to the compliance so it’s to be done by a third-party organization. The third-party organization must be qualified to conduct a risk-based audit, in case of low or medium risk, a knowledgeable independent party may conduct the audit.
Independent Audits should be a mandate every year, although institutions working in high-risk areas should be more frequent. The testers should have all the necessary knowledge and experience with AML compliance to understand and analyze the program. The purpose of the review is to confirm whether the program is operating as designed and if the internal controls are effective.
Conclusion
The four pillars of AML Compliance Programs are a necessary means to the required foundation of an effective compliance program. It is imperative to incorporate these measures for institutions to renovate their anti-money laundering (AML), building it steadier. The in-built internal operations, user-processing policies, account monitoring and detection, reporting of money laundering incidents aim to expose and correctly react to inherent and residual money laundering, terrorist financing, and fraud-related risks.
References:
https://www.amlrightsource.com/news/posts/the-five-pillars-of-an-aml-compliance-program
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