The Money Laundering Regulations require certain types of businesses to establish certain anti money laundering (AML) procedures for preventing money laundering.
The businesses are required to set up risk sensitive procedures and policies in order to detect money laundering activities and terrorist financing. For example there is KYC (Know Your Customer) a process of identifying and verifying a client’s identity. Anti money laundering procedures and policies provide for:
- Identifying and analyzing unusually large or complex financial transactions as well as unconventional patterns of transactions with no obvious economic or legal purpose. Identifying activities considered likely to be related to money laundering or where the money is intended for terrorist organizations.
- Determining whether a client is a PEP (Politically Exposed Person). These people hold prominent public positions and present a high risk for involvement in corruption or bribery due to their influential position.
- Customer Due Diligence (CDD) the process of acquiring knowledge about clients and prospective clients in order to verify their identity, nature of their business relationships and the level of risk they present for potential money laundering.
- Establishment of internal systems to receive money laundering reports.
- Keeping a record of client details and Customer Due Diligence plus supporting information about their business relationships etc.
- Establish internal measures for communications, risk assessment, compliance monitoring, management and training on the subject of money laundering. To insure that the policies are in compliance senior management needs to be sufficiently involved.
Appropriate assessment and analysis of clients’ potential risk must be in place – Adequate systems need to be in operation in order to monitor compliance. AML Systems and Regulations Several systems exist for ensuring AML policies are in place and consistently maintained. These systems can help companies to operate according to the AML regulations such as: Customer Due Diligence (CDD) and continual monitoring of customer activities. Report systems and reporting procedures. Internal monitoring within the business of compliance with AML policies. Continual risk assessment of clients and potential clients as well as continued management of AML compliance within the business.
Staff training – in the regulations of AML as well as in the systems in place for reporting these activities. Staff Training in AML Regulations There is no point in the existence of AML policies if they are not implemented and followed. So it is vital that all employees dealing with this issue are trained and made aware of existing policies and regulations regarding money laundering and terrorist financing. New staff should be trained as soon as possible and present staff should be given regular refresher training in how to spot, report and handle irregular transactions which may be part of money laundering activities or financing of terrorism. A comprehensive training program should be part of standard staff training with the aim of creating an environment where effective money laundering prevention is second nature. In this way your business can protect clients and your own business. When determining which staff need training in AML it is important to look beyond those who are directly involve in client work and include whose who deal with business finances; procuring providers on behalf of the business and managing services.
What is KYC (Know Your Customer)?
Know Your Customer is a term used in reference to due diligence activities which financial institutions, banks and regulated companies are required to perform in order to determine that their clients are in fact who they say they are and that the information they have given is true. All companies can use KYC policies to ensure that their potential clients, agencies, consultants and distributors comply with anti corruption regulations. It is becoming increasingly common for banks, insurers and export credit agencies to demand that customers provide information on their anti-corruption due diligence to verify their integrity and rectitude. The purpose of Know Your Customer policies is to understand and know your customer better.
The KYC process entails identifying and verifying the identity of clients through documents and gathering of information. KYC involves collection and analysis of identity information to determine a prediction of future client transaction behavior and the likelihood of the client to commit money laundering; identity theft or terrorist financing. By employing KYC policies you can better develop globally; prevent identity theft; money laundering; financial fraud and terrorist financing.
Who Must Use KYC?
Each financial institution and/or regulated company is responsible for enforcing KYC. Regulations require that these institutions and companies implement KYC procedures. The use of KYC policies will help the companies and institutes to understand their clients and their financial dealings so that they can better monitor transactions and more easily identify and prevent suspicious transactions which could be part of money laundering activities or terrorist financing.
Who is Required to use Anti-Money Laundering Methods?
As a response to the increasing amount of money laundering activities in the financial sector the FATF or Financial Action Task Force on Money Laundering was established at the 1989 G-7 Summit in Paris. The special task force is responsible for investigating money laundering trends and techniques; reviewing money laundering activities which have already taken place at an international or national level and then establishing the necessary measures to combat future attempts at money laundering. In 1990 the FATF issued their Forty Recommendations report which lays out a thorough course of action for combating money laundering.
To fight money laundering on a global scale the Financial Action Task Force on Money Laundering calls on all nations to implement their recommended steps into their national systems. By complying with FATF policies they aim to combat international money laundering and terrorism financing.
As with KYC all regulated companies and financial institutions are responsible for implementing internal AML policies.