Money laundering red flags
Money launderers are looking to exploit weaknesses within current AML practices, so they employ many techniques to hide the proceeds of illicit activities and integrate them within the legitimate financial system.
A few of the red flags which indicate suspicious behavior are:
• Unusual activity on an account
• Purchase in cash of assets, or through opaque business structures
In addition, the movement of large or frequent amounts of money from one country to another with the remitting or receiving country having weaker AML controls and/or enforcement is another indicator that the transaction may require further scrutiny. Ensuring the provenance of the source of funds is part of an effective AML process.
Penalties for financial crime and AML failings in banks over the past two years have amounted to more than US $8.9 billion.
Creating an effective AML program
An effective program needs to incorporate the following elements:
- A risk-based approach (RBA) to AML compliance programs
- The ability to keep abreast of constantly shifting regulations and sanctions in multiple jurisdictions
- Ongoing customer and transactional screening against a proven database of heightened risk individuals and entities
- Thorough and accurate identification of customers and the application of robust but proportionate Know Your Customer (KYC) procedures
- Quantifying risk attached to customers and transactions based on country of origin
- Maintaining up-to-date customer records
- Evaluation and monitoring of risks related to vendors, agents, and other third parties
- Training that provides employees and third parties with a clear understanding of policies and procedures and their practical application, as well as recognizing money laundering behavior
The European Commission is to insert five amendments into the Fourth Anti-Money Laundering Directive and has accelerated transposition into national law by five months to December 2016.
Oversight of anti-money laundering/counterterrorism financing (AML/CTF) compliance programs are increasingly expected from senior management, by regulators worldwide.
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