Businesses need to adhere to AML compliance regulations and procedures in order to achieve transparency, minimize fraudulent activities, and avoid any fines.
What is an AML Compliance Program?
AML compliance program is a holistic term used to describe a set of activities an organization must undergo to monitor, detect and report money laundering incidents. Its basic purpose is to readily prevent financial fraudulent schemes. In order to avoid any penalties, businesses have to observe these AML laws.
AML Compliance is an ongoing process where the United States has the Bank Secrecy Act (BSA) further modified by various legislations. In Europe, this program draws its instructions from the recently introduced fifth Anti-Money Laundering Directive.
Requirements for Businesses to be AML Compliant
To be AML compliant, a business needs to have a state-of-the-art reporting system. This system should be able to report to the relevant authorities whenever a fraudulent financial activity is detected. Secondly, businesses must have a system to assess the profiles of their customers. Know Your Customer (KYC) is part of a greater AML compliance process where businesses verify the identities of their customers which allows them to minimize the induction of bad actors. Thirdly, the availability of a compliance officer is pertinent to effectively keep a business conducting within AML compliance regulations.
Damage to Businesses turning a Blind Eye to AML Compliance
AML rule violations and their subsequent penalties hurt businesses financially, impedes their growth potential, and tarnishes their reputation. The research published in Duff & Phelps’ 7th annual Global Enforcement Review states that the fines relating to AML rule violations emanated to a whopping amount of $706m, just in the first half of 2020 alone. For the entirety of 2019, this figure was only $444m. This points to the ever-growing need for businesses to employ a system of AML screening to adhere to AML compliance laws.
How are AML Compliance Laws changing?
The recent developments relating to BSA and FinCEN point to a potential change in the AML space and the conduct of business altogether. From now on, new businesses will have to provide the details of their beneficial owners at the time of their establishment. Moreover, they will have to identify the new beneficial owners if there is a change in leadership. Furthermore, the existing businesses will have two years to identify their ultimate beneficiaries. These changes will be much appreciated by the compliance professionals while tightening the space for shell companies and hidden beneficiaries.
Similarly, Ukraine also introduced its new AML laws in April 2020. The provisions include:
- Institutions that provide initial monitoring can undergo remote verification.
- Freezing of CFT related accounts.
- A lifetime politically exposed person (PEPs) status of a customer.
- Analysis of customer’s location and place of registration.
In Canada, FINTRAC is the regulatory authority responsible for KYC/AML regulations. It has proposed some changes which will be enforced in 2021. These laws include:
- FINTRAC has introduced a modification in the 24-hour rule which states that the transactions made within 24 hours that are larger than $10,000, will be considered as a single report. As of now, the transactions made within 24 hours that are equal to or less than $10,000 are considered as one.
- The reporting bodies will be required to keep track of politically exposed persons (PEPs).
- Reporting bodies will be required to keep track of the transaction details referred by other reporting bodies, regarding Electronic Fund Transfers (EFTs).
- In regular intervals, reporting bodies must hold reviews of beneficial owners to verify their information.
How Banks should adapt to the Changing Landscape?
Financial organizations, to combat money laundering and terrorist financing activities, should assess the potential threats and legal responsibilities before creating a compliance program. They include the risks that the business can or will encounter. Furthermore, anti-money laundering laws businesses have under their jurisdiction and the subsequent rule breaches must be analyzed. Moreover, they must set firm terms and guidelines to streamline the compliance program. They should also take assistance from anti-money laundering software as the AML systems are always striving to be one step ahead of these changes.
The amendments in AML/KYC compliance regulations by FINTRAC, FinCEN, AUSTRAC, and other authorities are getting more stringent day by day. Subsequently, the penalties on rule breaches are also getting harsher to curb theft and fraud. So, financial institutions must acknowledge this fact and promote AML compliance to avoid risks to their growth and reputation.