AML screening, abbreviated to Anti-money laundering, refers to a set of laws, regulations, and methods aimed at preventing criminals from hiding illegally obtained cash, making it appear as a legitimate form of income. The implications of AML regulations are far-reaching. For instance, AML laws require financial institutions such as banks, fintechs, insurance firms, stock exchanges, and brokerage companies to monitor customer transactions to ensure that their customers are not aiding money laundering or related financial crimes.
Typically, financial institutions hire third-party AML providers to verify the authenticity of an individual customer or a business entity. Given the huge task at hand, AML providers use technologies backed by machine learning (ML) and artificial intelligence (AI) models. This way, manual methods of verification, which were time-consuming and prone to human error, are successfully eliminated.
In this article, we will be discussing the services rendered by AML providers and how these strategies help eliminate the disastrous act of money laundering.
Utilizing Advanced Technology
A key role of AML providers is to provide the perfect solution for the implementation of ongoing customer screening. AML screening solutions, powered with ML and AI models, share the compliance burden of banks. These solutions not only automate the identity verification process but also carry out background checks to screens customers against criminal watch lists, PEP (Politically Exposed Person) lists, and global sanctions – all of which are regularly updated.
How Automation Solves The Problem
Continuous AML screening is no longer considered a tedious task as AML providers offer automated software to conduct background checks in predetermined intervals. This way, every bank can avail of a customized solution to cater to respective compliance needs.
On top of providing customized solutions, AML providers also eliminate the need for a manual process of identity verification and AML screening. Manual processes are known to be insufficient, error-prone, and time-consuming. On the other hand, developing an in-house AML screening solution is unfeasible for small-scale banks and can be hacked by established criminal organizations.
Therefore, a third-party AML provider is generally deemed as the best solution for preventing financial crimes such as money laundering and terrorist financing. By efficiently utilizing an anti-money laundering verification solution, banks can verify their clientele within mere seconds and obtain accurate results. This way, fraudsters can be weeded out with greater accuracy, leading to the long-term financial wellbeing of a bank.
Is An AML Screening Solution Enough?
Fines and penalties due to AML non-compliance continued to increase all through 2020. Crimes such as money laundering, financing of terrorist activities, corruption, bribery, and any kind of fraud have countless damaging consequences.
With the growth in digital transformation, gaining access to confidential financial data has become much easier. It has created numerous loopholes and opportunities for fraudsters to manipulate security systems. In 2020, AML-related fines skyrocketed to an amount of USD 13.74 billion, with three large US-based banks at the forefront: Wells Fargo, Goldman, and JP Morgan Chase.
To avoid facing such hefty fines, an AML compliance program has to be devised within a bank.
AML Compliance Programs
AML compliance programs consist of standard procedures that have to be implemented to meet global compliance standards. Even though AML regulations differ between jurisdictions and industry sectors, some obligatory features of an AML compliance program are found in all. They include:
Firstly, banks have to devise sufficient AML compliance policies. These include specific compliance measures to prevent the laundering of dirty money. Implementation of these measures relies on the bank’s decision to either opt for an internal anti-money laundering screening solution or hire an AML provider to streamline and expedite the entire process.
At times, criminal organizations pull the strings of bank employees and manipulate them to transfer “dirty” cash from one place to another. Therefore, it is critical to train employees about identifying such situations and suspicious entities to ensure that they are aware of the alarming consequences of assisting such criminals.
An AML compliance officer should be appointed in every company so that it can be ensured that the organization is complying with global financial regulations. The responsibilities of a compliance officer include:
- Attaching a risk rating on every existing and potential customer, based on the risk level associated with them
- Proper implementation of devised AML compliance policies
- Compliance with international AML standards
- Implementing necessary security measures against financial frauds and crimes
- Detection and timely reporting of suspicious customer transactions
- Create internal controls
- Continuous evaluation of the client’s business activities to assess the risk of AML compliance
Customer AML screening
Once AML policies are devised and an AML compliance officer is appointed, customer AML screening can be carried out. AML providers offer the ability to expedite this process by streamlining AML screening through automated software. This is typically done along with Know Your Customer (KYC) procedures during customer onboarding.