AML in banking — from compliance to excellence

Having effective Anti-Money Laundering (AML) processes is a fundamental requirement in banking. Almost every country in the world has strict AML regulations for banks with the threat of severe fines, sanctions and even jail for offenses. There’s also the risk of considerable reputational damage for noncompliance.

How can you create robust processes that don’t hinder the acquisition of good accounts and scale globally in a fast-changing environment? It’s one thing to want to have a solid AML program, and it’s quite another to implement it in a way that deals with all the complexities, manages the risks and is systematic, scalable and adaptable.

A (short) history of AML

In the U.S., AML regulations began with The Currency and Foreign Transactions Reporting Act of 1970, known as the Bank Secrecy Act (BSA). The BSA requires financial institutions to:

• Keep records of cash purchases of negotiable instruments
• File reports of cash transactions exceeding $10,000
• Report suspicious activities that might indicate money laundering or other criminal activities

Since then, the BSA has been amended many times. The latest being the FY2021 National Defense Authorization Act (NDAA), which included the Anti-Money Laundering Act of 2020 (AML Act) and the Corporate Transparency Act — a robust update to AML rules and regulations governing one of the world’s primary financial markets.

On the global front, AML initiatives took off in 1989 when countries worldwide formed the Financial Action Task Force (FATF), which develops international standards to prevent money laundering activities. After 9/11, FATF expanded to include the control of terrorist financing.

In the EU, there’s been a series of AML Directives, with the latest being 6AMLD. They are now moving to have a single EU AML Authority (AMLA), which will act as the central force on AML matters and coordinate the various national regulators and financial intelligence units.

While every country will have its specific take on AML laws, many global banks look to EU regulations as the top bar for AML compliance initiatives; meeting demanding EU requirements will help position AML programs around the world to meet local standards.

Data technologies as an AML game changer

The days of manually checking IDs in person at a local bank are quickly ending. Manual processes are slow, prone to human errors and inconvenient for new customers.

Fortunately, technology improves identity verification speed, accuracy and reliability, the first step of an effective AML program. Leveraging APIs, AI/ML, biometrics and advanced optical character recognition (OCR) technologies enables banks to gather more information and analyze it more intelligently. Consideration of numerous alternative sources such as email history, mobile data and mobile app analytics can assist in risk assessments. The result is a higher likelihood of detecting synthetic and fraudulent identities before issuing an account.

Once applicants are deemed legitimate, technology also helps cross-reference their names against watch lists to ensure no connection to corruption or other risk considerations. Continual monitoring of these lists helps keep banks aware of potential risks.

Technology also provides better tools for transaction monitoring to detect and report any suspicious activities. Technology can detect unusual patterns indicating a potentially problematic account even before it becomes suspicious.

The entire AML process benefits from workflow automation tools that assist in generating documents, reports, audit trails and notifications. Some examples of workflow automation for AML purposes include:

• Quickly generating risk profiles for customers
• Automating complex identity verification processes to route onboarding paths based on risk assessment
• Providing comprehensive and in-depth global due diligence information
• Delivering fully auditable reports with vital details for internal audit teams and regulatory examiners

Technology helps banks acquire, manage, analyze and report massive amounts of data, enabling AML professionals to better focus on deploying strategies, optimizing performance and implementing best practices.

AML best practices

Having the right AML technology is vital. But, understanding why, how and where the technology fits into your organization is just as important. Effective AML programs need the right people and culture to deploy, monitor and adjust the systems to ensure effectiveness.

In our post AML compliance checklist: best practices for Anti-Money Laundering, we point out the fundamental requirements for a robust AML system:

• Written policies that are clear, communicated and up-to-date
• A designated compliance officer with the power to influence the company’s actions
• Proper training so affected employees understand the company’s policies and procedures
• Periodic reviews to keep the program tested and current

It starts at the top; a strong AML program begins with the board and senior management buy-in. If leaders look the other way or give tacit approval to cutting corners, the employees will often do the same.

It’s important to note that under 6AMLD in the EU, senior leaders that fail to create a legitimate AML deterrent can face personal criminal liability. It’s becoming apparent that accountability is becoming more stringent, and effective global AML programs should consider how best to protect senior leadership.

Communication from leaders goes a long way. They set the agenda and focus of operations. It’s in their interest to provide the necessary budget and give compliance departments the tools they need to understand customers and their behaviors.

The data derived from AML programs, and the associated insights, can inform numerous other strategic and tactical activities for banks, such as:

• Detecting fraudulent activities
• Improving risk modeling
• Advancing auditing systems and reporting
• Integrating third-party analysis
• Understanding consumer and business customer transaction patterns

Numerous other communications will help guide the organization. Ongoing informative and engaging training helps keep employees on their game. Presentations from key stakeholders on company guidelines and the importance of AML help build awareness. AML should not be an afterthought but seen as crucial protection for the organization.

An impactful AML program is about being proactive with elements such as:

• Tough auditing practices that help uncover lapses
• Risk assessments that are dynamic and account for ongoing regulatory, technological and institutional changes
• Review plans that reassess programs on a scheduled basis
• Organizational, divisional and team responsibilities that are clearly defined and refined as members and roles change

A successful AML program goes beyond simply meeting compliance requirements. It helps detect problems before they occur and protects the organization and its clients from risk. It allows the bank to have better insights into customers and their transactions, creating opportunities to deliver better value and additional services.

Banks with impressive AML programs demonstrate to regulators, investors, customers and employees that they care about the details and properly invest in people and technology. Excellence in AML indicates excellence in banking, and those institutions that understand this will propel their organization forward.