Nearly two trillion dollars are laundered globally every year through human trafficking, drug smuggling, terrorism,and other organized crimes, with the US alone losing nearly 500 billion dollars of taxes annually. To gear up for the mounting risks of money laundering, all companies need to enforce a well-coordinated AML audit program, that complies with the Bank Secrecy Act (BSA) and the Financial Industry Regulatory Authority, both of which ensure that appropriate procedures and internal controls are in place to account for changes in regulations and business.
What Constitutes an Effective AML Program
A successful AML program revolves around the following pillars of compliance:
1. Appointing an AML compliance officer
A designated AML compliance officer , well-versed with the BSA, should monitor the company’s compliance with AML obligations, oversee the employees’ training, ensure the proper maintenance of all AML records,and promptly file Suspicious Activity Reports with the Financial Crimes Enforcement Network (FinCEN).
2. Designing internal policies, procedures, and controls
Companies must design policies that prohibit and control money laundering in all its duplicitous forms. The policies will arrest activities that facilitate money laundering, or funding of terrorist or criminal activities.
3. Educating and training employees
Since internal audits often ascribe many AML issues to insufficient knowledge and/or expertise, companies should conduct regular employee training. The training should help identify red flags and signs of money laundering, and educate employees about appropriate response protocol. An independent AML Testing Training and Experience, that periodically assesses testing needs, will optimize the training and identify developmental opportunities:
a. AML Training Plans
While many institutions rely on professional training firms, others use existing firm-wide or department-wide compliance and AML assets, which is a less expensive and time-consuming solution than the former.
b. Independent Testing Resource Plan
The company’s auditor should undergo Audit Training before commencing the audit, so he/she can apply up-to-date methods in the audits that follow. An independent testing resource plan will give the auditor a teaser of what’s to follow, by relating various AML systems of internal control.
c. Training Needs Assessment
A Training Needs Assessment will help the company understand if its employees or auditors require any particular kind of training, identify the most pressing training needs, and focus on bringing into practice high-priority solutions.
d. Tracking and Reporting
It is difficult to demonstrate that the company has indeed conducted AML training. Regulators can easily question the company’s commitment to this activity, by demanding an AML Training Record. Therefore, it is imperative to maintain proper training records and documents supporting the training sessions.
4. Testing the AML program
Either the AML compliance officer or other external, qualified personnel can test the adequacy of the company’s AML compliance program. The company can sanction the testing annually, and increase the frequency if circumstances require it. The testing should include the following steps:
a. Evaluating the procedures for reporting and record keeping as per the BSA.
b. Evaluating the company’s transactions especially in high-risk areas.
c. Evaluating responsive actions against identified deficiencies.
5. Instituting a Customer Identification Program
The company should follow reasonable procedures to verify the identity of new customers. The AML programs of the clearing and introducing firms should have risk-based policies, procedures,and controls for monitoring and alleviating the money laundering risks that fully disclosed clearing arrangements pose and for reporting suspicious activity.
6. Administrating a Standard Testing Program
The company must carry out an annual review for updates in its inventory and develop a consistent Standard Testing Program accordingly, which demonstrates flexibility towards all lines of business. The company should report the AML issues the Program identifies in a timely fashion to the senior management or to the Committee of Audit.
Money laundering has proven to be a monumental issue pervading all industries around the globe. Companies have concluded that they need to systemize sturdier AML programs as part of their compliance frameworks. Regulators need to focus more on appointing competent and knowledgeable AML compliance officers and audit staff, conducting proper training and testing, and organizing regular audits. Since targeted laws and statutes,designed to control money laundering, are making headway through the legal system, organizations remain optimistic about battling this crime and hope that it will soon be a yesteryear problem.
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31 CFR 1023.210 – Code of Federal Regulations is the codification of permanent and general rules which are published in the Federal Register by Federal Government agencies.