In recent years, anti-money laundering (AML) has become an increasingly sophisticated criminal activity. It’s estimated that between 2% and 5% of global GDP is laundered each year, and identity theft has now become one of the top money laundering trends. It’s therefore not surprising that AML rules have been required to keep up.

In a race to stop criminals from disguising illegal money as legitimate profits, for highly regulated industries like banking and finance, the need to get AML compliance right is vital. But it’s a complex challenge, particularly when rules can change by country or region. 

The anti-money laundering software market is projected to reach $1.77 billion for 2023, so the appetite to tackle compliance head-on is most definitely there. But, AML rules are inflexible. So even if they are flouted by accident, there would be consequences. The result is that businesses can face penalties and criminal charges. According to 2019 anti-money laundering statistics, 60.5% of banks’ fines were due to AML regulations violations.

Compliance is therefore a top priority. Paired with the right software, there are five critical components to ensure a successful and robust AML programme.

Assessing your company’s risk

Starting off on the right foot is crucial. Without a thorough risk assessment, your AML programme is destined to fail before you have even begun. First, you must identify the company’s risk categories: which locations, products and services are likely to see criminal activity, and what type? Then, you have to analyse the data in these categories, examining transaction data (e.g.,international fund transfers) for red flags. You then have to update risk profiles regularly as the nature of business changes. Businesses move fast, so regular updates are vital to ensure you don’t miss anything suspect.

Effective risk management requires going beyond your own company and clients. This means evaluating the beneficial ownership of client companies, as the unnamed powers behind an organisation may have a hidden agenda. In fact, you could consider beneficial ownership as a red flag simply because it is difficult to identify the key players, their history and their motives. Transparency is key. 

Employing a compliance officer

You’re going to need someone to drive this risk assessment. This is where hiring a dedicated compliance officer comes in. It is their responsibility to drive initiatives like this, but to also stay informed of regulations and develop and enforce a structured AML programme. They will also oversee your company’s employee training on AML compliance and report to senior management. However, most importantly, it is their role to protect your company from facing disciplinary action from regulators such as HM Revenue & Customs. As already mentioned, breaking the rules set by these organisations can have serious and costly repercussions for your company. Employing a skilled compliance officer can help to alleviate that risk level and prevent problems from arising.

Ensuring strong internal systems

Your compliance officer can also implement strong company policies, processes and procedures that act as internal controls to identify and report any irregularities or suspicious activity. These policies should include guidance on transaction monitoring, meticulous record keeping and ongoing process evaluation. This should include following know your customer (KYC) processes by practicing customer due diligence and researching new prospects thoroughly before starting a relationship. This can help you to avoid doing business with those companies that have a high risk of money laundering and keep your customer relationships aboveboard.

Putting proper training in place

Internal processes need to be driven by the whole company — every employee has a part to play in upholding AML compliance. As such, you must train your employees regularly on the basics of money laundering and on developments in regulations. This training can be delivered in person, online or a combination of the two.

Regardless of method, your training programme should focus on AML history and regulations but should be specific to your industry. Most importantly, employees need to learn to recognise suspicious transactions – for example, something like a series of £9,000 transfers to several accounts. Criminals often use this strategy to avoid triggering reporting mandates while laundering vast sums of money. Led by your compliance officer, this mandatory training can make your employees the first line of defence against criminal activity.

Getting independent testers

It’s important to note that your company is responsible for monitoring itself, and government bodies expect you to put measures in place to stay compliant. One of the measures is undertaking an independent audit which would look at company financial activity reports, evaluate AML training, test transaction procedures and review policy manuals. An audit of this nature will highlight problem areas, allowing you to put measures in place before you have any issues with regulatory bodies. This review will also enhance your reputation as an honest and ethical institution.

AML compliance can seem like a complex and daunting task for companies big and small. However, following these five steps can help pave the way for an effective AML programme. This can be further streamlined by making the most of expert partners, advanced tools and solutions, which we already know are growing in demand. By harnessing all of these components, you will save time, money and problems with regulatory agencies, while also removing the headache for your tech and security teams.