As facilitators of a wide range of transactions, banks play a key role in the financial system. In fact, banks serve as the entry point for both legitimate as well as illegitimate funds into the economy. As a result, banks are the target of legislation aimed at detecting and preventing money laundering (ML) and terrorist financing (TF).
The rapid pace of technological developments, such as the use of digitized payments and online banking, along with an increasingly global economy, where funds can be wired across the globe instantly, continues to have a tremendous impact on the banking industry. The ease and convenience of modern-day banking also present new and emerging threats, including novel ways of exploiting the formal financial system.
This whitepaper delves into all areas of banking anti-money laundering (AML) compliance to ensure you have a full understanding of the requirements and best practices for proper compliance.
Banking Compliance
To provide a complete picture of best practices for banking compliance we have divided this whitepaper into nine chapters.
Introduction and Chapter 1: Key AML Regulations
Governments and regulatory bodies worldwide have established laws and regulations to combat money laundering, terrorist financing, and other financial crimes. These AML requirements aim to uncover illicit funds disguised as legitimate income. Because illicit funds are most prone to discovery when they are first placed into the financial system, AML laws almost exclusively place responsibly for the detection, mitigation, and prevention of money laundering on banks and other financial institutions. Failure to comply with AML regulations can result in severe legal consequences, including fines and penalties, reputational damage, loss of business, and in extreme cases, even imprisonment. This section delves into the AML compliance regulations that banks are subject to.
Specifically, this chapter discusses:
Chapter 2: Regulatory Agencies and AML Guidance
This chapter discusses the various organizations that play an important role in things such as promulgating AML requirements, providing guidance, and helping to ensure compliance with AML laws and regulations.
It includes the following sections:
- The Financial Crimes Enforcement Network (FinCEN)
- The Federal Financial Institutions Examination Council (FFIEC)
- The Financial Action Task Force (FATF)
Chapter 3: AML Compliance Program
Hundreds of billions of dollars in illicit funds are laundered through financial institutions every year. Therefore, it is essential that banks design and adopt appropriate and effective controls to prevent being used, whether wittingly or unwittingly, in furtherance of crime. These controls entail the implementation of a robust AML compliance program.
This chapter delves into:
- The compliance program structure
- The five pillars of compliance
- Internal controls
- Designated compliance officer
- Ongoing training
- Independent testing/audit
- Risk-based customer due diligence (CDD)
- The culture of compliance
Chapter 4: Customer Due Diligence (CDD)
CDD prefers to the processes and procedures of performing customer reviews, background checks, and other screening to ensure that customers are properly risk-assessed. Robust CDD measures are paramount to effective AML compliance.
This chapter covers:
- FinCEN’s Customer Due Diligence Final Rule
- Beneficial Ownership
- Customer risk profile
- High risk customers
- Politically Exposed Persons (PEPs)
- Ongoing monitoring
Chapter 5: Risk Assessment
An AML risk assessment is a thorough and systematic process designed to detect, evaluate, and mitigate the risks of money laundering and terrorist financing linked to a business relationship, such as the provision of banking services.
Topics discussed in this chapter include:
- Risk assessment
- Identifying ML/TF risks
Chapter 6: Know Your Customer (KYC)
Know Your Customer (KYC) is a broad term that refers to the processes and procedures used to protect banks and other financial institutions against a variety of financial crime, including money laundering and terrorist financing.
This chapter delves into:
- Customer identification program (CIP)
- CIP definitions
- Minimum information required
- Customer verification
- Adequate notice
- Reliance on another financial institution
- Third parties
- Record retention
- Screening against government lists
Chapter 7: Office of Foreign Assets Control (OFAC)
OFAC is an office of the U.S. Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted individuals and entities such as foreign countries, regimes, terrorists, international narcotics traffickers, and those engaged in certain activities such as the proliferation of weapons of mass destruction or transnational organized crime.
Topics discussed include:
- OFAC sanctions screening
- Blocked transactions
- Prohibited transactions
- OFAC licenses
- OFAC reporting
- OFAC compliance program
- OFAC risk assessment
- OFAC internal controls
Chapter 8: Recording and Record-Keeping Requirements
Because illicit funds make their way into the financial system through banking institutions, one of the BSA requirements is that banks assist U.S. government agencies in detecting and preventing money laundering. A main way in which this is done is through the filing of BSA reports, particularly SARs and CTRs.
Topics discussed in this chapter include:
- Suspicious Activity Reports (SARs)
- Currency Transaction Reports (CTRs)
- Mandatory information sharing: Section 314(a)
- Section 314(a) consists of three main parts
- Information requests
- 314(a) Secure Information Sharing System (SISS)
- Retroactive searches
- Voluntary information sharing: Section 314(b)
Chapter 9: Looking Ahead
The financial sector is experiencing rapid changes, as virtual currencies become more common, and new technologies continue to be developed.
In this chapter, we discuss:
- Cryptocurrency & blockchain technology
- The role of emerging technologies in AML compliance
- Trends and predictions
Conclusion
Compliance with AML laws is not merely a regulatory obligation. It’s a commitment to the security and integrity of the global financial system. As the focus of both public and legislative attention on the prevention of money laundering continues, it is essential that banking institutions make AML compliance a top priority. This begins with understanding the applicable laws and regulations. Furthermore, the rapid increase in technological developments is bringing significant and inevitable changes to the banking industry at a rapid pace.
As a result, it is more important than ever before that AML compliance professionals keep current on evolving regulatory requirements and expectations, as well as emerging technologies, trends, and best practices. More than ever before, AML compliance departments will need to be flexible, nimble, and able to adapt quickly and efficiently.
At Alessa, we are committed to delivering transformative solutions to fight financial crime. We help our clients reduce risk, save money and grow their business, while also making the world a better place. For additional information on how we can better assist your bank in its fight against fraud, money laundering and terrorist financing, view our fraud management solutions and AML compliance solutions for the banking industry.
How Alessa Streamlines Banking Compliance
Alessa’s integrated AML Software Solution equips your compliance team with a variety of industry-specific solutions to strengthen your AML program and reduce costs.
To learn more about how Alessa can streamline your compliance program view our AML software ROI calculator, or reach out to speak with a risk professional.
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