An Anti-Money Laundering and Counter-Terrorist Financing or an AML CTF program is used by financial institutions and businesses such as investment and lending firms, insurance and crypto companies that are at risk of money laundering. They must identify these risks and reduce them using AML laws developed by local and global regulatory agencies. The institutions that fail to abide by these laws or launder money would face penalties, resulting in the tarnishing of their reputation.
Negative Effects of Not Curbing Money Laundering
Globally there are two major money laundering sectors including, terrorist organisations and drug trafficking. Money laundering causes a worldwide impact on the financial markets as it creates instability due to large fluctuations and unpredictable changes in the demand for money. And not to mention the increased violence, crime and harm to people and businesses. There are significantly high ill-effects of money laundering for financial institutions including, their deterioration in economic growth, promotion of corruption and crime, reduced work efficiency and poor reputation.
Importance of AML/CFT Support
Having an effective and efficient AML CTF program ensures that these money laundering issues are dealt with appropriately. The program increases deterrence to the crimes caused by money laundering and hence reduces the risks for the companies through their ease of use. Since 2020, there have been stricter audits, regulations and penalties regarding anti-money laundering. The companies can comply with the regulations and protect themselves against potential threats and fines posed for non-compliance.
What Constitutes an Effective AML CFT Program?
Consultation With Qualified AML Compliance Professionals
One of the first steps to develop an appropriate and effective framework is to have an expert in AML or consult with companies that provide regulatory compliance solutions. They are well-versed in the legalities of AML/CFT and develop structured governance to investigate and report the issues within the organisation in time and prevent it from further risks. AML compliance professionals investigate suspicious transactions and risky behaviours in the company.
Training and Information-update Among AML Experts
AML CMF is a very dynamic sector where laws and regulations against ML/TF are updated frequently. Therefore, it is not enough to have those who know the legalities they need to undergo constant training to update themselves regarding the current developments and ensure that the company complies with the new regulations and policy guidelines. They also help educate all the employees in understanding the risks of money laundering or terrorist financing for a business and the importance of reporting such activities to the AML team to investigate.
Well-Established Procedure for Reporting and Investigation
The AML team must establish structured steps to identify, manage, prevent and mitigate any ML/TF risks that the business might be facing. The investigation process must include regular review of the program, development of novel methods to deliver designated services, implementation of innovative technologies to monitor the program and execution of the services effectively. The process must also include a structured training program of employees, appointment of an AML/CTF Compliance Officer, clear delegation of responsibilities, employee diligence program, transaction monitoring program etc.
Clear Know Your Customer (KYC) Regulations
Another aspect of the AML/CTF program is the customer identification and verification process, also known as KYC. The AML team collects information about the customers following the rules posed by the government regulatory bodies. The AML reporting entities independently review the program to ensure that the KYC procedures are valid. This information helps protect the business as it will have a record of the customers, their identification, contact information, business type and its legitimacy.