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Money Laundering And How To Be AML Compliant

Money Laundering And How To Be AML Compliant
Money laundering has become a critical issue to combat.
According to a 2018 survey, money laundering accounts for roughly  2% to 5% of the global GDP or $1 to $2 trillion dollars annually. 

What Is Money Laundering? 

Money laundering is the process of masking illegal income as legally acquired money by hiding its true source. Money laundering is typically achieved in three steps: placement, layering, and integration. 
● Placement puts the illegal money into a legitimate financial institution like a bank. 
● In Layering, the source of the money is concealed through a number of transactions and bookkeeping tricks. 
● Integration involves the withdrawal of now-laundered money from a legitimate account. 

Who is at risk? 

Mostly small businesses and banks are the targets of organized money laundering plans. This may be due to the assumption that small business owners do not have the time or means to implement proper compliance structures. So how can you protect your business from money laundering? 

• Anti-Money Laundering (AML)

Anti-Money Laundering (AML) is a framework that includes laws, regulations, and procedures designed to protect businesses from money laundering and associated criminal activities. 
Due to an increase in money laundering activities, the Financial Action Task Force (FATF) was established by the G-7 Summit to combat money laundering. The FATF calls upon all countries to execute the essential measures to make their national systems AML compliance. This includes combating money laundering and terrorism financing by implementing AML regulations in accordance with the new FATF Recommendations. 

• AML Compliance Program 

The purpose of this program is to ensure that the institution or business is capable of detecting suspicious activities that are associated with money laundering, tax evasion, terrorist financing, etc. This program should also focus on the risks posed by the activities of clients with which the institution does business.  

• Developing the Program 

There are certain factors that need to be considered when creating an anti-money laundering compliance program. These factors include anti-money laundering laws in their jurisdiction, the risks the institution is exposed to and a combination of suspicious activities that indicate money laundering.

Let’s observe some of the key components to develop an AML Verification program. 

1. Detection of Dubious Activities

The main purpose of this program is to detect any suspicious activity that can indicate money laundering. These activities may include a substantial increase in cash deposits. 

2. Risk Assessment

Risk assessment involves the many types of risks posed by prospective clients and how to mitigate them. This can be done through Know Your Customer (KYC), Customer Due Diligence (CDD), etc.  

3. Internal Controls

Internal Controls are the policies designed to mitigate money laundering and support compliance with AML regulations. 

4. AML Compliance Training Program 

The reason for this training program is to ensure that the employees know about AML, its importance including everyone’s roles and obligations. 

5. Independent Audit

An independent audit involves a meticulous review of the institution’s risk assessment and compliance program by an independent auditor. 

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