Anti-money laundering (AML) checks are procedures established by businesses to stop and spot illegal activities involving the movement of money from criminal activities. These checks are essential in keeping financial integrity and complying with legal requirements such as the FCA’s Money Laundering Regulations.
Understanding AML recommendations
Businesses need to be familiar with the relevant anti-money laundering recommendations and regulations to effectively implement AML checks. These guidelines provide a framework for developing and implementing AML programmes that meet industry standards and legal requirements.
- Customer Due Diligence (CDD): Organisations must verify the identity of customers and assess the risk associated with their business relationships. CDD procedures typically include collecting identification documents, conducting background checks, and monitoring customer activity for suspicious transactions.
- Record keeping: Businesses are required to maintain accurate, comprehensive records of customer transactions, account activity, and AML compliance efforts. These records can be used to investigate suspicious activity and demonstrate compliance with regulatory requirements.
- Training and education: Employees should receive ongoing training and education on AML regulations, procedures, and best practices. This will help them identify potential red flags and take appropriate action.
- Independent testing: AML programmes should be subjected to regular independent testing to ensure their effectiveness and compliance with applicable regulations. This can involve internal audits, external reviews, or simulations of suspicious activity.
Why are anti-money laundering checks important?
By preventing the laundering of dirty money, businesses can help disrupt criminal networks and reduce the risk of financing terrorism. Additionally, sticking to anti-money laundering regulations can improve an organisation's reputation and build trust with customers and stakeholders.
Essential anti-money laundering checks
To make sure you’re up to speed with what’s required - read on for context on five crucial AML checks with key considerations for implementing each.
1. Know Your Customer verification
Know Your Customer (KYC) checks involve collecting and verifying essential customer information, such as identification documents, proof of address, and source of funds. They help to identify potential risks and prevent the onboarding of individuals or entities involved in illicit activities.
KYC recommendations
- Collect valid identification documents including passports, driver's licences, or national identity cards. Make sure to verify the customer's residential address through utility bills, bank statements, or rental agreements.
- Determine the individuals who ultimately control the customer entity, even if they are not directly named on the company's records.
- Understand the customer's primary source of income through payslips, tax returns, or business records. Have a process in place to assess the customer's financial position and the source of their funds, especially for high-value transactions.
- Evaluate the customer's risk profile based on factors such as jurisdiction, business activities, and potential links to high-risk jurisdictions or individuals.
2. Transaction monitoring
Businesses should continuously monitor customer transactions for suspicious activity, such as large or unusual deposits, withdrawals, or transfers. This can involve using automated systems to identify patterns or red flags that may indicate money laundering.
Transaction monitoring recommendations
- Implement rules and thresholds to identify suspicious transactions based on predefined criteria, such as large or unusual deposits, withdrawals, or transfers.
- It’s recommended to utilise advanced analytics techniques, where possible, to detect complex patterns and anomalies in transaction data that may be indicative of money laundering.
- Continuously monitor transactions in real-time to detect suspicious activity as it occurs and, to ensure accuracy, conduct periodic reviews of customer accounts to identify potential red flags that may have been missed through real-time monitoring.
- Identify specific indicators of suspicious activity, such as large cash transactions, unusual patterns of activity, or transactions involving high-risk jurisdictions.
3. Sanctions screening
Businesses must screen customers and transactions against sanctions lists maintained by governments and international organisations. This helps to prevent dealing with individuals or entities subject to sanctions.
Sanctions screening recommendations
- Regularly update sanctions lists to ensure they are current and comprehensive. Be sure to monitor sanctions lists issued by governments, the United Nations, the European Union, and other relevant organisations.
- Automated systems are available to compare customer information against sanctions lists in real-time.
- Conducting manual reviews is important for complex cases or when automated screening systems flag potential matches.
- It’s important to robustly screen customers, transactions, and entities involved in business relationships, including ultimate beneficial owners and associated parties.
4. Politically Exposed Persons screening
Politically Exposed Persons (PEPs) are individuals who hold prominent public positions and their family members. Businesses should implement enhanced due diligence measures for PEPs to mitigate the risk of corruption and money laundering.
PEP screening recommendations
- Establish clear criteria to identify Politically Exposed Persons, such as those holding positions in government, the judiciary, or state-owned enterprises. This includes Identifying family members who may also be considered PEPs.
- Collect additional information about the PEP's position, source of wealth, and business interests, as well as any changes in their position or business activities.
- Evaluate the level of risk associated with the PEP based on factors such as the country's corruption perception index and the nature of the PEP's position.
5. Suspicious Activity Reporting
If a business suspects that a transaction or customer is involved in money laundering, it must file a Suspicious Activity Report (SAR) with the appropriate regulatory authority. SARs provide law enforcement agencies with valuable information to investigate and prosecute financial crimes.
SAR recommendations
- Identify specific indicators of suspicious activity, such as large cash transactions, unusual patterns of activity, or transactions involving high-risk jurisdictions.
- Set thresholds for when a transaction or activity is considered suspicious based on factors such as the customer's risk profile and the nature of the transaction.
- Establish procedures for identifying, investigating, and reporting suspicious activity within the organisation. This includes filing SARs with the relevant regulatory authority promptly.
- Maintain detailed records of all SARs filed, including the reasons for filing and any follow-up actions taken.
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