The need to follow Anti-Money Laundering (AML) is increasing day by day and it is becoming important to perform AML checks continuously. But even while doing so many businesses end up making mistakes that become costly for them. Continue reading to find out the 8 most common errors they make during AML checks.
- Not Understanding AML Surfing
One of the biggest mistakes they make is not completely understanding what is AML smurfing and how it can bring about problems. Criminals like money launderers use this technique to break down huge transactions into pieces so they can bypass detection systems. There are a number of tiny transactions made instead of making one big one. Understanding the signs of AML smurfing is quite important in order to perform effective AML screening.
- Failure to Implement AML Solutions
Putting money into AML solutions is very important for making the entire process of compliance smoother in order to reduce the chances of errors. When businesses do not have the right tools, they are unable to keep up with the regulatory needs that keep changing from time to time. AML solutions like transaction monitoring, screening customers and even risk assessment are helpful. This is because these solutions make the manual processes automated and also identify suspicious activities quickly. Therefore, it is also important to opt for a solution according to what your business requires.
- Ignoring Customer Due Diligence (CDD)
Customer Due Diligence or CDD is an extremely important part of AML compliance. When businesses do not pay attention to it they become exposed to money laundering like crimes. CDD is all about verifying and confirming the identities of people, looking at their risk profile and also keeping an eye on transactions that may be suspicious. This helps in finding people who carry high risk. When a business does not do CDD, it can get penalized.
- Over-Reliance on Automated Systems
Even though automated AML screening tools can turn out to be helpful, they can at many times lose their effectiveness if there is no human oversight. Therefore, making use of just automated systems can also result in missing out on important warnings. Moreover, they can also raise false positives and may also not be able to detect criminal schemes. It is important for businesses to have staff ready who can look into the alerts generated by AML systems and perform investigations.
- Inconsistent Monitoring
Monitoring transactions on a regular basis is important for recognizing activities that may be suspicious. When businesses are unable to monitor transactions they may actually miss out on important signs of warning. Monitoring should be done at all times keeping in view the risk profile of the business. This helps in checking transactions for unusual patterns that may go undetected if monitoring is not done.
- Failure to Update AML Policies and Procedures
Anti Money Laundering guidelines keep on changing therefore it is important for businesses to develop their strategies accordingly. When they are unable to update AML policies and procedures they are also unable to notice changes which leads to them not complying. AML policies and processes should be checked on a regular basis to make sure they stay effective.
- Poor Communication Between Departments
There should be proper and effective communication between different departments when there is no clear communication, many important details may be missed out on. The departments that are created for AML checks like legal, risk management, etc, should all be on the same page and must collaborate with one another. There should be meetings, updates over emails and even sessions for training so they are up to date with the recent happenings.
- Neglecting to Report Suspicious Activity
When suspicious activities are not reported to the authorities, it can lead to serious problems. There should be reporting done immediately to make sure that there are no activities leading to money laundering. Businesses must report suspicious activities to agencies and higher authorities. This can include different things like extremely high transactions or different identities that may lead to criminal activities like financing of terrorists or even money laundering. When these activities are reported on time the authorities can look into them and help eliminate them.
Way Forward
Taking everything into account, it is extremely important for businesses and financial institutions to avoid these mistakes if they want to make their anti-money laundering compliance efforts more effective. By putting money into properly training employees and making use of smart, automated solutions, crimes like money laundering can be erased to a huge extent. By doing so businesses can protect themselves from examination by authorities, damage to their reputation and even huge financial losses.