AML programs, or Anti-money laundering programs, are aimed at improving a company’s ability to detect and deter financial frauds.
AML program requirements generally depend on the domestic and foreign governments that have jurisdiction over an organisation.
In other words, a US-based bank that operates in Europe through branches must abide by both US and EU standards.
But a question arises.
Why are AML programs required, and that too especially in the US? Money laundering is a matter of great concern for US entities, requiring special attention from financial organisations, anti-money laundering groups, regulatory authorities, and the federal government.
Laws and organisations have been set up in the US to tackle financial fraud due to the country’s and its currency’s dominant position in the world.
Nonetheless, numerous factors add to the substantial risk of money laundering in the US:
- Complex economic system
- Ever-changing tech developments
- Close proximity to illegal activities
- Cyber risk threats
- Cross-border illegal exchange of funds
…and more.
Who needs to comply with AML Regulations?
In the US, primarily financial institutions are mandated to comply with AML rules.
What are they required to comply? Financial institutions need to maintain risk-based AML programs.
Financial institutions include:
- Banks
- Money-changing service providers (forex dealers, issuers and sellers of traveller’s checks, and fund transmitters)
- Domestic financial organisations
- US branches of non-domestic financial organisations
- Non-US operations of non-domestic financial organisations (if they are involved in US operations directly or indirectly)
- Financial organisations situated outside the US (if their transactions are processed through a US-based company)
- Other sectors susceptible to risk, like insurance, real estate, gambling institutions, art dealers, virtual assets service providers, credit providers, and securities dealers.
Important AML regulations
The Bank Secrecy Act, enacted in 1970, is the foundation of US AML regulations. As per the law, financial organisations are required to collect, document, and disclose consumer data.
It established the Financial Crimes Enforcement Network (FinCEN) to keep an eye on and look into illegal activities.
💡 Related Blog: What is the difference between AML and KYC
Under this Act, financial organisations must adhere to various reporting requirements. They are required to report any suspicious transactions and high-value forex dealings.
They need to file Currency Transaction Reports (CTRs) mandatorily for cash transactions of more than $10,000 in a single business day.
They also further need to submit Suspicious Activity Reports (SARs) for unusual transactions of more than $5,000 and without a valid purpose, using a special BSA E-Filing System, no later than 30 calendar days after the date when the probability of money laundering was initially seen.
Moreover, the BSA requires financial organisations to put AML processes in place.
These processes encompass internal monitoring, third-party testing, and the designation of an AML officer. The enforcement level depends upon the risk of money laundering and terrorist financing posed by the operations of the organisations.
BSA introduced AML regulations for the first time in the US!
But that doesn’t mean no changes have been implemented since then!
New laws and regulations have been made to expand on the AML frameworks established in the BSA. Some notable examples are Money Laundering Control Act (1986), Annunzio-Wylie Anti-Money Laundering Act (1992), and USA PATRIOT Act (2001).
A newbie in the race? Anti-Money Laundering Act (AMLA) 2020.
Through this act, the Government brought a few changes to the BSA.
The AML requirements mentioned in the BSA (and other laws) were confined to only such companies that have been specifically defined as “financial institutions”.
Under AMLA, the definition of “financial institutions” extends to companies that deal in antiquities, including art dealers.
Criminal activities now also include:
- Intentionally withholding, misleading, or fabricating facts by a PEP (politically exposed person) regarding ownership or control of assets if the transaction involves total assets valued at >= $1 million.
- Knowingly conceal, misrepresent, or falsify information about the source of funds in a transaction involving any entity deemed to be a “primary money laundering concern.”
These activities are punishable with jail up to 10 years, a fine of up to $1 million, or both.
The Act also stiffens punishment for offences mentioned in BSA.
For instance, the introduction of civil fines of up to three times the profit realized or loss averted on repeat offenders. If found guilty of a crime, some “egregious” BSA offenders may be sentenced to jail and fines equivalent to their earnings. A partner, director, officer, or staff member of a financial organisation may face the possibility of having their bonuses withheld through clawbacks if it is discovered that they violated the BSA.
The Corporate Transparency Act (CTA), a part of AMLA mandates that FinCEN create and maintain a beneficial ownership registry of specific domestic and international companies that conduct business in the US.
Before the enactment of AMLA, subpoenas could be issued to foreign banks only when any transaction has been executed via correspondent accounts in the US.
AMLA eliminates these limitations and increases the subpoena authority–subpoenas can now be issued to foreign banks to get info on any account that is under AML inquiry.
How to stay compliant
Being a FATF member nation, the US requires financial organisations to handle AML/CFT risks using a risk-based methodology.
They need to implement “Know Your Customer” (KYC) assessment to verify the identity of customers at the time of onboarding. This process includes collecting names, confirming addresses, certifying dates of birth, verifying tax identification number and scrutinising beneficial ownership information.
Based on the amount of compliance risk that each client represents, they must then apply AML/CFT measures proportionate to that risk. Consequently, businesses could implement more stringent monitoring and screening procedures for their higher-risk clientele which is known as Enhanced Due Diligence.
The EDD process includes robust identity verification procedures, increased AML/CFT inspection, and investigations into the origins of consumer funds.
Companies need to update their clients’ KYC data to make sure it is accurate, current, and matches their actual circumstances.
Unfavourable media screening may be a part of the EDD process, requiring financial institutions to look up news articles mentioning the customer’s participation in negative stories (such as those involving terrorism, funding of terrorism, organized crime, corruption, and tax crime).
What is required for AML verification?
For financial institutions to remain compliant with AML, specific activity checks must be made.
What kind of checks? Keeping track of transaction trends and logging client information.
Ultimately, financial institutions are responsible for putting the instruments necessary for their AML compliance program into place.
We at Signzy empower organisations to detect and prevent money laundering threats without putting a time-consuming procedure on their trustworthy clients.
How? With automated digital identity solutions that include document and biometric verification, reliable identity verification, and fraud detection APIs.
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