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Developing Effective Anti-Money Laundering Internal Controls

Chris Doxey

The International Compliance Association (ICA) defines money laundering as:

“the process by which criminals use to disguise the original ownership and control of the proceeds making said proceeds appear to have derived from a legitimate source.”

The crime of money laundering includes three stages: 1) placement, 2) layering or “washing” and 3) integration. Sometimes these three stages can overlap in the process of “legitimizing” the funds.

Investing in a solution

Mitigating money laundering risk is now a focus as evidenced in the 2016 survey conducted by Risk.net. The results show a significant growth of investment in anti-money laundering (AML) and particularly non-AML compliance: 51.5% of respondents said that AML budgets would increase.

Who does money laundering impact?

Money Laundering doesn’t only impact banks. According to Provitivi’s guidance, "Guide to U.S. Anti-Money Laundering Requirements", the following businesses can be impacted by money laundering crimes:

  • Check cashers and money transmitters
  • Broker-dealers in securities
  • Casinos
  • Insurance companies
  • Real estate businesses
  • Exporters and importers
  • Retailers focusing on luxury items

Anti-money laundering/combating the financing of terrorism (AML/CFT)

According to the International Monetary Fund (IMF):

“money laundering requires an underlying, primary, profit-making crime (such as corruption, drug trafficking, market manipulation, fraud, tax evasion), along with the intent to conceal the proceeds of the crime or to further the criminal enterprise.”

The IMF has recommended some critical internal control and self-assessments that should include a review of the following high-risk transaction types and products:

  • Large cross-border cash money transactions over $10,000
  • Funds and wire transfers
  • Monetary instruments (bank checks, cashier’s checks, money orders, and traveler’s checks)
  • Prepaid access devices

AML/CFT internal controls

  1. Pre-screening: Many companies have consolidated their screening and due-diligence efforts to incorporate all compliance requirements for both their customers and suppliers into one program which includes the following:
    • Office of Foreign Asset and Control (OFAC)
    • Office of Inspector General (OIG)
    • Know your Customer (KYC)
    • Politically Exposed Persons (PEP)
  2. Establishing Roles and Responsibilities for an AML Internal Controls Program: Determine who has overall responsibility for the program which includes developing policies and procedures, training, communication, monitoring, reviewing, assessing and managing risk.
  3. Reporting: The Money Laundering Report Officer (MLRO) that you have assigned your program most prepare a series of reports and determine if there are sufficient grounds for suspicion provide a report to National Crime Agency (NCA). The MLRO acts as a liaison with the NCA after the Suspicious Activity Report (SAR) is filed.
  4. Training: Your AML/CFT training program should be tailored to fit the needs of your firm and should be scheduled according to changes in laws or when a critical case occurs. Usually AML awareness is provided with ethics training and other corporate training for new employees and is refreshed annually.
  5. Reporting Suspicious Activity: There should be a system for employees to report a suspicious transaction either through their management reporting chain or an employee “hotline.”
  6. AML/CFT Self-Assessment Process: To ensure that these controls are working, we suggest that the process owners impacted by AML control requirements implement a quarterly self-assessment process. This process will ensure compliance and will protect the reputation of your company.

 

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