What are the key steps for businesses that grips its foundation and system reliability? The business maintenance processes and security measures vary from business to business based on the services it is providing. Working with a huge network of businesses, vendors, third-party intermediaries, customers, and end-users, it is critically important to screen every group or party that interacts with your system directly or indirectly. For this, there is a primary checklist against which each business should be sifted to ensure the policies and business compliances. Among this checklist, AML compliance is one of the most critical and mattering points for every business.
The baseline of success for every legitimate business is to avoid dirty money inscribing into the system. Dirty money includes all the illegal ways and means through which money is being earned or transferred. This could be the money from political corruption, terrorism, criminals or money-launderers. Such sneaking activities can ultimately decline the value of a business.
For the resilient and reliable systems, money laundering checks should be implemented not only to avoid ill-gotten money to be part of the system but also to comply with the local regulators. The malevolent activities have some hidden incentive at their end which is the reason for such involvements. But, this should be eliminated in order to introduce soundness in the businesses.
Concerns of AML Compliance Laws
1. US’ Bank Secrecy Act (BSA):
The US companies are ought to comply with the AML criminal ordinance. According to 18 US code sections, specifically, section 1956 and section 1957, it is important for the businesses to continuously monitor the transaction flows and discard the bad actors from the system.
Section 1956: This section focuses on the unlawful activities and transactions that take place within the system and the identities that are involved in conducting or even know such activities and hide it. Section 1956 explicitly mentions the penalties which represent criminal activities under the premises of a certain business. The criminal would be subjected to a fine of less than or equal to $50,000 or twice the value involved in the transaction, among them whichever is greater. If not the fine, then the imprisonment of about twenty years will be the cost of such intent.
Section 1957: This section states that any monetary transaction that is conducted and is greater than the amount of $10,000, is considered illegal if it is known to be the property derived from illicit activity. The court can impose an alternate fine of the amount twice than the transaction being performed.
2. EU Fourth and Fifth Anti Money Laundering Directives (AMLD4 & AMLD5)
Al the legal entities that are operating in the European Union are the major focus of money laundering directives. The main purpose of these directives is to secure the EU’s financial system from terrorist and money laundering activities.
AMLD4: It allows companies to introduce high-level secure tools, for example, e-KYC and online identity verification systems. This will be helpful in reducing online fraud and payment scams while providing a benchmark at the national level by authenticating the users remotely.
AMLD5: It is the extension of AML 4 which assures transparency, electronic PEPs record to verify the identities against that database, Customer Due Diligence (CDD), and electronic money laundering records. Not only this but to grow a number of online industries are also on the agenda of AMLD5. AMLD5 will effectively come into practice on the 10th of January 2020.
3. The Financial Action Task Force (FATF)
FATF has set the standards for the global AML compliance laws according to which the countries shape their systems and introduce security tools to monitor terrorist financing and money laundering activities. FATF counsel’s legal entities to Know the Customer ID verification in the onboarding process. According to FATF, the accounts should be continuously monitored to circumvent any unexpected deed to happen in the system. In case of any suspicious activity, FIUs should be reported immediately to prevent serious loss. Entities must go through the sanction lists to avoid the entrance of identities that have already failed to comply with the CTF/AML requirements.
Businesses need to comply strictly with the local regulators to avoid the possibility of such fines and reputational damage. The system should be secure enough to detect the spammings taking place inside the system and monitor the proceedings. The laundering of pecuniary instruments can be reduced with stringent AML checks. This would be helpful in streamlining the system processes providing security to the system side by side. AML checks may include the records of PEP (Politically Exposed Person) or money launderers, or it may involve deceitful transactions, illegal gambling, and their transfer to someplace that are restricted.
AML Compliance: Steps Businesses Can Take
1. Identity Verification
Identify the beneficial owners who are part of your system. This can be done through paperwork and online identity verification. It is important to verify that trusted and actual people are the component of your business. A large number of financial institutions are adopting innovative ways and replacing it with traditional identity verification ways. These seem to be more efficient in terms of performance and remote verification.
2. Perform CDD
Scan identities through the watchlist which covers the questions related to the honesty of a particular person. Customer Due Diligence (CDD) ensures the complete information of a person and his funds. The source of funds, identity screening against electronic records, business nature, etc. are the requirements of CDD.
3. AML Screening
The ownership of the identity can change with time, therefore it is not enough to check the customer once he enters into the system. There should be a constant screening of customers against sanctions lists, electronic databases, and records to ensure scrutiny. Also, background AML checks should be implemented at the backend of the system that verifies each onboarding customer against those security parameters.
4. AML Monitoring
The continual ongoing activities need to be monitored on a regular basis. This analysis would be great with respect to the check of exceeding transaction threshold, the number of transactions taking place in a certain time span, suspicious activities, employee surveillance, communication records, transfer details, etc. Any discrepancy in such activities can result in harsh fines for the business.