Customer Lifecycle Management and AML Compliance in the Digital World

Customer Lifecycle Management

Customer Lifecycle Management and AML Compliance in the Digital World

Customer Lifecycle Management and AML Compliance in the Digital World

Customer lifecycle management(CLM) has become automated, quick, and efficient in the digital world. This risk assessment environment is different from the traditional scenarios, which were characteristic of a tedious manual process working in isolation and targeting specific functions and limited to particular businesses.
However, regulated entities had to forego this approach and adopt an aggressive risk management approach with acceleration in the digital world and adoption of the digital KYC mechanism.
Customer lifecycle in the digital age has witnessed a rapid transformation. As mentioned earlier, customer lifecycle processes were siloed, labour intensive, needless to say, time-consuming, and prone to errors. The focus is on digital lifecycle management, which connects disparate systems and provides a unified solution to verify customer identity efficiently. CDD – Customer Due Diligence is the primary function that needs to be performed by Financial institutions, Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Assets Service Providers (VASPs).
The traditional customer verification method involved an actual visit to the branch where employees would verify the hard copies of the documents. This process is becoming redundant as mobile transactions have increased drastically. Every process is completed online such as opening bank accounts, getting a loan, creating a fixed deposit, and transferring money. The customer’s verification process has too shifted online, where branch visits are not necessarily required. In a changing business landscape and evolving customer preferences, they need instant gratification, and branch visits are becoming a thing of the past. It has been estimated that the branch visit will be drastically reduced by 36%, and there will be more than a 120% increase in mobile transactions.
Digital KYC and CDD processes will take center stage. It is estimated that by 2022, 60% of the world economy will be digitised. Such unprecedented growth requires robust measures for customer identification and verification. New digital ID systems are being extensively used to mitigate the risks arising in the evolving digitised world. It is necessary to understand how digital ID systems work and help businesses identify any fraudulent financial activity in the garb of legitimate transactions.

Digital ID systems have a few basic components- 

Digital KYC information collection

The deduplication process is carried out, which is a part of identity proofing. It involves collecting attributes and the evidence for the same and features about a single unique identity. The applicants’ details, such as name, age, and gender are checked, and biometrics include fingerprints, iris scans, and facial recognition images. These, along with the government-issued IDs, are verified with the information in the database. With digital verification on the rise, the documents are stored in electronic forms in databases which can be referred to as and when required. It enables to obtain the identity evidence and verification remotely.

Validation

This step verifies if the digital KYC evidence submitted is genuine and accurate. The evidence is validated by checking the information submitted against reliable sources and matching the information in the independent databases/ sources. 

Verification

This step involves confirmation that the validated identity is real and the person is the same who has been identity proofed. 

Authentication

Customer Lifecycle Management
Authentication ensures that the person seeking online/ offline account access is the same person who has been identified and verified earlier. The digital identification process is done when people need access to online activities such as accessing net banking, transferring money online via app, and seeking authorisation to complete the process. Authentication is also required when someone asks for in-person interaction to access the account or conduct other financial activity.
The best part about digital identity verification is that banks and financial institutions do not rely solely on the authenticators/ credentials issued at the time of onboarding in such scenarios. Obviously, at the time of onboarding, after all the KYC, CDD, and EDD processes are completed, the person will possess the credentials issued to them. Still, digital verification also depends on continuous authentication. They rely on data points collected during the online session, such as the IP address, geolocation, etc.

What is CDD?

The CDD process helps reporting entities to combat money laundering and other financial frauds and prevent the financing of terrorism. The process includes collecting customer information and monitoring it throughout the business relationship.  
  • Individual Customer Information: It collects customer information and verifies that the information submitted is accurate and that no false information has been submitted. The customer’s name, address, contact details, photo, occupation, unique ID number, and tax identification number is verified.  
  • Business information: It includes the name of the business, the type, and nature of the company, ultimatebeneficial owners, source of funds, etc.  
  • Risk Assessment: After the verification process is completed, the customers are categorised as low, medium, or high-risk customers. This categorisation is done after considering different factors such as the customer’s identity, location, nature of the business, and identifying PEPs and UBOs. High-risk customers require enhanced due diligence compared to the low or medium-risk profiles. The risk assessment process provides clarity on the due diligence process that needs to be followed to follow the AML compliance process correctly.  
  • Continuous Monitoring: The ongoing monitoring keeps a tab on the customers’ transaction patterns and changes in customer profiles and identifies unusual transactions.  
The CDD process becomes automated and more reliable in a digital landscape with emerging technologies such as Artificial Intelligence and Machine Learning. The introduction of biometrics has also made a massive difference in accuracy levels in identifying customers and has streamlined the process. 

How is the customer lifecycle managed with greater efficiency with tech?

Regulatory compliance and serving customers with excellence have kept businesses on their toes as they need to fulfill both purposes with equal efficiency. They need to follow the AML rules and regulations and meet the evolving customers’ expectations. So, they choose to rely on AML software to instantly identify suspicious activities, which provides timely notifications that alert them in case of any fraudulent/ unusual transaction.
New and emerging technologies are being used in the customer lifecycle management landscape, often referred to as RegTech. They have been in use for a while and focus on solving only a part of the more significant compliance problem rather than serving as a complete solution that can take over the compliance issues and risk assessment scenario and reduce the false positives. However, with better technology and the emergence of advanced AML software, financial institutions have solved compliance issues and safeguarded their reputation from being maligned by unknown risks. It is vital to adopt a risk-based approach as money launderers find innovative ways to launder their illicit money.

AML Compliance in the Digital world

Digital acceleration has changed the course of AML compliance for businesses as they need to brace themselves up to fight financial fraud and provide customers with the best experiences. Digital payments have witnessed exponential growth. So there is increased pressure on the regulated entities to overhaul their client Lifecycle management process. 
Financial and other regulated entities have to mandatory follow the AML compliance requirements. They have to follow the KYC diligently- Know Your Customer, CDD- Customer Due Diligence, and the EDD- Enhanced Due Diligence collect, verify and continuously monitor customer identity, evaluate risk profile and keep themselves AML compliant. Apart from following the AML rules and regulations, financial institutions must focus on enhancing customer experience.

FATF guidelines on Digital ID

The FATF regularly provides guidelines for AML compliance. It is advisable to follow the procedures as it helps reporting entities brace themselves against challenges in a digitally enhanced landscape. Client verification remotely has become a prominent trend in the recent past, especially during pandemic times. 
  • Verify the customer’s identity
  • Understand and verify the type and nature of the business relationship
  • Continuous monitoring.
Where deemed necessary, the reporting entities should perform background checks for criminal records and politically exposed persons and determine the customers’ citizenship. These verification processes depend on the risk profile of the customers or the risk posed by the business transaction. 

Digital KYC- The Way Forward

Digital KYC is an online process that involves video-based KYC. It is a must to have an audio-video-enabled device.  
The reporting entity will remind the person of the online appointment for the KYC process. The customer must ensure that all the required documents are furnished for the KYC process. The institution will send a video link via message or email. The customer, with the help of an interactive online application, completes his Digital KYC. In this process, the application will capture the live video/photo and the documents to complete the verification process. It will ask for age, address, occupation, nature, type of business, political association, etc. That will be verified with the documents submitted for verification.  

Why is AML Training Important?

Employees need to be acquainted with updated knowledge on the software and methods with which they can identify fraudulent transactions and prevent financial frauds such as money laundering. It is not easy to spot fraudulent transactions such as layering, and so the employees need to be provided with technology that can aid them in strict transaction monitoring. 
Digitalization has urged financial organisation to improve their customer identification programs and sync with the evolved customer identification requirements. The digital AML process is automated at every step of the customer verification, right from the customer onboarding process, customer due diligence, risk assessment m identification of UBOs, PEPs, and Enhanced due diligence process- the entire spectrum of the customer verification process.
When digital channels have become a passage for money laundering and financial fraud, it is better to be equipped with advanced technology—emerging technologies such as AI and ML. AML software has built-in technologies that help identify financial scams and reduce false positives. The software helps combat money laundering and empowers financial institutions and other regulated entities to improve AML detection and thwart risks in a digitally accelerated world. 

Benefits of the AML Software

The AML software is a crucial element in the AML compliance strategy. It efficiently collects the customer information- KYC, CDD, and EDD which are the foundation of an efficient AML compliance program. The software stores the data with customer identity verification processes such as KYC- Know Your Customer, CDD- Customer Due Diligence, and EDD- Enhanced Due Diligence. It efficiently verifies the customers’ identity and makes the financial institutions and other regulated entities aware of any fraudulent identity or transaction.
It evaluates the risk of being associated with a customer/ entity. So, the institution can follow appropriate measures while establishing a business relationship and continuously monitor the customer lifecycle. Moreover, the software scans the customers against a sanction list and identifies potential risks. Financial Institutions can extract more information about PEPs- Politically Exposed Persons and the UBOs- Ultimate Beneficial Owners and correctly evaluate the risk of establishing and maintaining customer relationships. 

About the Author

Linkedin

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

What is Placement in Money Laundering?

what-is-placement-in-money-laundering

What is Placement in Money Laundering?

Money laundering is all about hiding the source and nature of the illicit funds to make them appear as if they were obtained from some legitimate activities. The process of money laundering begins with the aim of disguising the original source of the criminal proceeds, and to do so, the illegal funds must be introduced first in the open economy. Placement is the first stage of money laundering where criminals use various methods like gambling, blending of funds, currency smuggling, etc., to introduce proceeds of crime into financial system.

What is Placement in Money Laundering?

A person who has received some ill-gotten gains will surely be on the lookout for measures to clean them in order to use them freely without any stipulations from regulators. So in order to use the funds, the criminal needs to disguise the source of proceeds to appear as the funds to be legitimate.
Money laundering involves a series of transactions to make its detection as difficult as possible. However, money laundering can broadly be classified into three stages. 1. Placement, 2. Layering, and 3. Integration. The placement stage of money laundering involves the physical introduction of cash or other assets derived from criminal activity into the financial system.
The crimes like corruption, fraud, bribery, kidnapping, illegal arms trade, drug trafficking, smuggling, etc., are committed for money. Criminals obtain illegal proceeds, and then they try to find a way for their disposal without attracting the eyes of law enforcement.

Stages of Money Laundering

First: Placement Stage

The money launderer puts unlawful funds into circulation by depositing cash into the bank, executing any transactions to buy any luxury goods or using them in other legitimate businesses. This is the stage where the money launderer gets rid of illegal proceeds by placing them into the legitimate financial system.
The placement stage of money laundering is the most challenging for the launderer as the disposal of illegal proceeds by introducing them into the financial system causes suspicion.

Second: Layering Stage

what-is-placement-in-money-laundering
Layering is the second stage of the three-step process. Under layering, the launderers make numerous transactions to distance the true owner and the source of illegal money, making it harder for the authorities to track. This can typically be as easy as using illegitimate funds to invest in something legitimate so that the funds now appear to be “clean”. Such funds are then transferred to purchase goods and services, making their detection nearly impossible.

Third: Integration Stage

Integration is the final stage of the money-laundering process. It is the stage where the disguised criminal proceeds are returned to and used by the money launderer, with a legitimate appearance given to the criminal proceeds.
When it comes to terrorist financing, integration is accomplished by distributing funds to terrorists and terrorist organizations.

Methods or Examples of placement in money laundering:

  • Smuggling illegitimate cash or liquid monetary instruments.
  • Blending unlawful proceeds with legitimate proceeds, such as illegitimate funds introduced into the cash-intensive grocery business.
  • Repayment of debt using illegal proceeds.
  • Buying stored value cards with illegitimate money.
  • Depositing small amounts into several bank accounts to evade reporting threshold. It is also called smurfing, one of the most common money laundering techniques.
  • Buying foreign currency with illegitimate funds.
  • Cash purchase of a security or insurance.
  • Invoice fraud – over-invoicing or under-invoicing.
However, it is not always the case that criminals resort to the placement stage of money laundering. Criminals can use illegal proceeds for various purposes without resorting to money laundering. Black money can be used to pay salaries to partners in crime, bribery, etc.
The placement stage of money laundering is only relevant if the criminals have to introduce money to the legitimate financial system. If the black money is going to be utilized for other criminal activities, then the placement of funds will not occur.

Businesses prone to the placement of illegal proceeds:

  • Banks and Financial Institutions
  • Insurance Companies
  • Money Exchanges
  • Capital Market
  • Accountants
  • Auditors
  • Trust and Company Service Providers
  • Lawyers
  • Dealers in Precious Metals and Stones
  • Virtual Asset Service Providers
  • Casinos
  • Art and antique dealers
  • Restaurants
  • Hotels
  • Bars
  • Nightclubs
  • Vending machine operators
  • Retail Businesses
  • Luxury goods traders

Strategies for detecting and preventing placement in money laundering

Law enforcement agencies must keep themselves updated with the new money laundering typologies used by criminals to fight money laundering. The AML authorities need to detect money laundering crimes early to prevent them from getting too complex for their detection. The early detection of money laundering at the placement stage would save a country from harmful socio-economic impact.
AI helps institutions detect money laundering activities at the transactional level. AI systems tend to be simplistic and rule-based; a transaction will be flagged as suspicious and require a human-conducted review to determine if it fails to pass a set of rules outlined by the governing authorities. A proper set of AI tools can also minimize the rate of false positives.
The UAE government has significantly tightened measures for money laundering and financing of terrorism. Since it entered countries under increased monitoring set by global watchdog FATF, they have developed enhanced policies and guidelines for different sectors, especially where financial crime rates are relatively high.

How Niyeahma can assist you in detecting and preventing of the placement of illegal funds?

Niyeahma provides AML compliance services to Financial Institutions, Designated Non-Financial Businesses & Professions (DNFBPs) and Virtual Asset Service Providers (VASPs) in the UAE.
Niyeahma can assist you with performing your AML Business Risk Assessment to understand how your business can be exploited during the placement stage of money laundering and customizing the AML/CFT Policies, Procedures, and Controls to mitigate the risk, including imparting necessary training to effectively implement the AML framework.
Get in touch with us to remain compliant with the AML regulations in UAE.

About the Author

Linkedin

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

FAQs About Placement in Money Laundering

Placement is the first stage in which illegal proceeds are introduced into the legitimate financial system.
  • Structuring and smurfing
  • Wire transfer
  • Insurance purchase
  • Gambling
  • Currency smuggling
  • Currency exchange
  • Blending funds
  • Loan repayment
Structuring involves the execution of financial transactions in such a way that the placement of illegal proceeds from a crime does not trigger scrutiny by regulators and law enforcement agencies. Criminals deposit a small sum of cash into a bank to avoid the monetary threshold prescribed by the regulatory bodies.
Structuring and Smurfing are the terms used interchangeably, but they differ from each other. Structuring involves intentionally splitting a large financial transaction into a series of smaller transactions to avoid catching the eyeballs of regulators. Smurfing, however, includes structuring and using different accounts to deposit money into one or multiple financial institutions.
Placement is the first stage of money laundering. Here the black money from a crime is entered into a legitimate financial system.
Placement is the first stage of money laundering, where dirty money gets injected into the legitimate financial system. Layering is the second stage of money laundering, where the source of illegal money is concealed through a series of transactions.
Placement is the most vulnerable stage of money laundering for criminals, as placing large amounts of cash into the legitimate financial system may catch the eyeballs of law enforcement agencies.
Placement is the most vulnerable stage for money launderers as it’s the introduction of illicit funds for the first time into the system. So having an effective red flag indicators list will help mitigate the risks of money laundering in the initial stages itself.
The illegitimate funds, obtained through some criminal activities need to be placed initially into the financial system to commence the money-laundering process. The process of putting the criminal proceeds into the legit financial system is construed as the “placement” stage, from where the money laundering activity begins.

Some common methods used for placement in money laundering.

  • Smuggling illegitimate cash or liquid monetary instruments.
  • Mixing unlawful funds with legal business activities.
  • Repayment of the loan using illegal funds.
  • Buying stored value cards (Debit cards) with illicit money.

What is Layering in Money Laundering?

what-is-layering-in-money-laundering

What is Layering in Money Laundering?

The idea of money laundering is simple in principle. The person who has received some illicit gains or funds will try to ensure they can use these funds freely without people realizing that such proceeds are the results of some criminal activities. To do this exercise, the source of illegal funds is disguised, so make such proceeds appear to have been generated from legitimate sources.

What is Layering in Money Laundering?

Layering is a term that is often used when talking about how criminals use it to prevent the detection of money laundering activities. Layering refers to moving money from one account to another and from one banking and financial institution to add layers of legitimate owners and avoid detection of the actual source of the funds and make it harder for authorities to track the initial source of the money. Layering is a financial crime.

Layering in Money Laundering: Definition

Layering is considered the second stage of money laundering. Layering is defined as the process of adding multiple layers to the proceeds of crime to avoid the detection of its actual source.

There are three Stages in Money Laundering:

1. Placement in Money Laundering

It is the first step when the criminals receive money from unlawful activities. Now they move the money into the legitimate business accounts of the partners-in-crime- the criminals and their family, friends, and associates.
The trick is to break down the large volumes into smaller transactions that won’t attract much attention as the criminals ensure that the transaction remains within the cash limit threshold.
In this way, they can avoid deposit alerts. The standard procedure adopted by the criminals is to move money from these companies and use fake invoices. In this way, the money ultimately is run through the legal system avoiding scrutiny. 
what-is-layering-in-money-laundering

2. Layering in Money Laundering

Layering is the second stage of money laundering wherein illegally obtained funds are placed into the financial system and moved to other banks and financial institutions to distance them from the criminal source. The purpose of layering in money laundering is to make the detection of source of illegal money as difficult as possible.
It is called layering when money launderers buy other liquid investment instruments using the illegally placed funds. Such funds are then transferred to other forms such as negotiable instruments or used to purchase goods and services to make their detection nearly impossible.
It is worthwhile to note over here that structuring and layering in the money laundering mean one and the same thing.
The layering stage of money laundering makes the entire process of detecting money laundering complex, and it’s essential that money laundering is detected at the early stage of layering.

3. Integration in Money Laundering

Integration is the third stage of money laundering. Here the illegitimate funds are integrated into the legitimate economy.
Money launderers buy real estate, stocks, securities, jewellery, precious metals, or other luxury goods to integrate their laundered money into the financial system.
When it comes to terrorist financing, the integration is accomplished by distributing funds to terrorists and terrorist organizations.

What are the common layering techniques used in the money laundering?

Some of the common layering techniques used in money laundering are:
  • Using intermediaries for a complex financial transaction
  • Fund or wire transfers via electronic media to foreign jurisdictions
  • Operating offshore bank accounts where AML compliance requirements are on a lower side
  • Opening of shell companies to layer the transactions in tax haven countries
  • Creation of Trusts to obscure the origin of illicit funds
  • Use of multiple bank accounts and multiple jurisdictions to further complicate the paper trail
  • Use of assets such as real estate and precious metals to hide the movement of money
  • Trade-Based Money Laundering to generate bogus invoices and dummy shipping documents to transfer the funds internationally
Money Laundering is a global concern. It is estimated that 2-5 % of global GDP, which ranges between USD 800 billion to USD 2 trillion, is laundered every year. Criminals try to hide the source of the illegal money used to fund criminal activities such as the trade of banned drugs, human trafficking, kidnapping, extortion, and even purchasing arms and ammunition for terrorism. So, they launder the illegally obtained money, try to run it through the legal, regulated financial system, and use layering to avoid detection.
Criminal activities are on the rise as the criminals are misusing the financial system, taking advantage of the loopholes, and becoming successful in money laundering. It’s essential to report any transactions or account discrepancies and prevent financial crimes.
AML – Anti-money laundering rules and regulations have been implemented to combat money laundering and terrorist activities. These laws require financial institutions and other regulated entities to follow stringent AML compliance processes such as KYC– Know Your Customer, CDD– Customer Due Diligence, EDD- Enhanced Due Diligence, UBO identification, etc. The rules enable the institutions to detect and deter criminals from misusing their organisations to launder money. 
Criminals are using the layering method to hide their black money, which means they keep moving the cash from one account to another and transferring it from one company’s account to another. Check our infographic on stages of money laundering.
By moving the money, it is transferred to several legit accounts, so during an investigation, the names of several account holders crop up, making it harder to locate the origin of the illegal money. It makes identifying the source of the funds difficult for the authorities. 

Measures for Identifying and Preventing the Layering of Illegal Funds

As part of the AML Program, the UAE AML regulations require the entities to follow stringent measures to detect the transactions attempted to artificial layer the criminal proceeds.
These measures include:

Adequate Customer Due Process

  • Robust KYC (Know Your Customer), involving identification and verification of the customer and the UBOs
  • Screening the customers against the sanctions list
  • Identifying the customer’s connect with Politically Exposed Persons (PEP) or nexus with any adverse media related to financial crime
  • Enhanced Due Diligence for customers identified as high-risk

Ongoing Transaction Monitoring

Customer transactions must be monitored on an ongoing basis to detect any red flags indicating possible layering of dirty money.

Documenting the red flags

The possible risk indicators related to the layering stage of the money laundering process must be documented and communicated with the team.

Training the team

It is essential to onboard teams from various business segments to create an unbreakable shield against layering activities. This is possible only when the team is adequately trained in detecting the risk indicators and applying necessary controls.
Comprehensive AML measures empower entities to detect and deter criminals from misusing their organizations to launder money.

Examples of Layering in Money Laundering

Here are a few examples of Layering in Money Laundering:
  • Trade-based Money Laundering
  • Investment in Real Estate through intermediaries or shell companies
  • Entering into complex financial transactions to make to disguise the trail of proceeds of crime
  • Structuring transactions in a way that large amounts of cash can be broken into smaller transactions

Challenges in detecting and combating layering in money laundering

The layering stage in money laundering is arguably the most crucial for the launderers. Illicit funds come out of the dark and blend with legitimate instruments. Launderers conclude these multiple transactions to confuse standard money laundering controls, which institutions primarily establish.
After separation from the original source, the crime proceeds enter into the financial system. The funds are dispersed and disguised to reduce the chances of suspicion or detection from law enforcement agencies. These funds are fragmented into smaller transactions and often transferred overseas to keep the money moving internationally, preventing the authorities from tracking the movement easily.
The possibility of transferring money electronically makes the cross-border movement of funds easy without inviting the attention of the authorities.

How to identify money laundering activities?

There are specific activities in which institutions can monitor and identify money laundering:
  • A huge volume of cash is deposited into different bank accounts.
  • Frequent international transfers.
  • Purchasing & reselling high-value goods such as art and jewellery.
  • Investing in real estate
  • Investing in legitimate companies and using shell companies to layer money – moving money from one account to another.
  • Making multiple transactions in different accounts and financial institutions.

What is structuring in money laundering?

Structuring, also known as layering, is the second stage of money laundering. Structuring is the act of splitting a large financial transaction into a series of smaller transactions to avoid the regulatory threshold prescribed by the AML authorities of the country.
As per UAE AML Laws, all cash transactions in precious metals and stones equal to or exceeding AED 55,000/- need to be reported to the goAML portal maintained by the FIU. In order to avoid this reporting threshold, criminals split their purchases of precious metals, stones, and jewellery items in such a way that they avoid this Dealers in Precious Metals and Stores Report (DPMSR) filing requirements.

Using AI based AML Software to identify layering in money laundering

There are ai powered RegTech AML Software and solutions available which utilise the power of machine learning and big data to detect layering techniques in money laundering. AML Software solutions make it easy to identify red flags in transactions and separate them for further escalation.

AML Compliance: The need of the hour

AML laws in UAE require financial institutions and DNFBPS, VASPs to create a robust AML compliance network and identify money laundering activities to prevent them with timely action. Banks should adopt a proactive approach and rely on technology to get immediate alerts on suspicious accounts and transactions.
Non-financial institutions are also required to identify such financial crimes and report the suspicious activities to the concerned authorities.
International bodies like FATF, MENAFATF, and the Egmont Group of FIUs are working together with law enforcement agencies locally and internationally towards the identification & mitigation of these financial crimes. Many countries have joined hands towards stopping these crimes at large.
Financial and non-financial institutions are required to keep a vigilant eye on additional suspicious activities, which include: Prominent transactions indicating layering in ML/FT
Cash deposits into an account are withdrawn immediately. Criminals ensure that they do not cross the transaction and deposit cash limits. If regular transactions barely fall behind the threshold or add up precisely to the prescribed limit, then it’s a red flag. 
Implementing AML compliance framework, including AML/CFT Policy, Controls & Documentation, Annual AML/ CFT Risk Assessment Report, and AML/ CFT health check-ups will help businesses understand if they are following the proper procedures to detect the layering of the criminal proceeds and prevent money laundering and financing of terrorist activities.

About the Author

Linkedin

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

FAQs About Layering in Money Laundering

The three stages of money laundering are: 1. Placement 2. Layering and 3. Integration
Layering is the second stage of money laundering. What makes layering in money laundering difficult to detect is the way it is broken down into smaller transactions and the conversion of money from one form to another.
Money Launderers transfer money from one account to another and split it into smaller amounts amongst countries, individuals, or businesses is the example of layering in money laundering.
Layering, also known as structuring is the second stage of money laundering.
Layering is the second stage in money laundering. It is a structuring process in which criminally derived funds are legalized and their ownership and source is disguised.
Structuring is the another word for layering.
Several red flags indicate the layering of funds in money laundering. Banking transactions involving large cash deposits into various banks, international bank transfers, investment and resell of jewellery, art, and other high-value items, fund transfer using shell companies, etc., indicates that the funds are being layered to make the detection of their origin as difficult as possible.
The main goal of the layering stage of money laundering is to make the detection of the source of illicit money as difficult as possible.
The main difference is that placement is the first stage in money laundering, and layering is the second stage.

Placement involves the introduction of illicit gains into the financial system to start the money laundering process. But in layering, the launderer tries to make complex transactions after introduction into the financial system to hide its true origin.

Examples of placement involve purchasing antiques, paintings, etc. Examples of layering involve the creation of Trusts to hide the origin of illicit funds, Fund or wire transfers via electronic media, etc.

How employee engagement enhances AML compliance program

Leader of team

How employee engagement enhances AML compliance program

How employee engagement enhances AML compliance program

Compliance with AML rules is mandatory for Financial Institutions, Virtual Asset Service Providers (VASPs) and some Designated Non-Financial Businesses and Professions (DNFBPs). Achieving 100% compliance with the regulatory requirement is possible when your employees are with you. When their goals are the same as the business goals.
Employee engagement in AML compliance is critical to safeguard the business from being exploited by financial criminals.
Let’s look at how employee engagement helps in AML compliance.

What is the significance of AML compliance?

Money laundering and predicate offences are a threat to the global financial system. Efforts to curb these menaces are on, but criminals find new ways to launder money. Fighting these crimes with focused anti-money laundering efforts from all directions and sectors is possible.
International authorities like FATF and others have defined guidelines and best practices for countries to adopt. National regulators have implemented strict AML regulations aligning with these guidelines. These rules include several obligations for the reporting entities, such as:
  • Designing and executing an AML policy, procedures, and controls
  • Conducting AML business risk assessments
  • Carrying out KYC and Customer Due Diligence
  • Transaction monitoring to identify suspicious transactions
  • Frequent AML health checks
  • Filing reports and submitting documents as the relevant supervisory authority requires
Compliance with the above AML compliance requirements is essential due to the following reasons:
  • Complying with AML regulations saves you from the fines and penalties of regulatory authorities owing to non-compliance or negligence.
  • AML requirements call for monitoring your customers and transactions, helping you identify suspicious activities and safeguard your business.
  • AML compliance helps you stay vigilant of financial crimes, reducing your future costs of money spent on recovering from such crimes.
  • When you comply with AML regulations, your customers trust you more with their transactions, improving brand reputation and shareholder value. It also means brand security, business continuity, and long-term success.
  • AML compliance builds a safer, more secure, and more stable financial system, contributing to the country’s economic development.
  • AML provisions help countries tackle different types of financial crimes using KYC and due diligence measures, protecting the vulnerable sections of society from their impact.

What is employee engagement?

Employee engagement means the connection employees feel toward their company, teams, and work. Employees are engaged when:
  • They have a deep, long-term connection with the company.
  • They are productive and make extra effort for the company or job.
  • They connect to the company’s well-being and work toward its goals.
  • They commit to the company’s mission and are happy to contribute to its achievement.
  • They know that the company values their work, and so they do more than what’s expected from them.
  • They are eager to help in any possible way to further the company’s goals.
Leader of team
Engaged employees contribute more to generating better business outcomes by aligning with the company’s objectives. Employees support the company’s goals of reducing the threats of money laundering, terrorism financing, and other financial crimes. Supporting the execution of provisions helps companies fulfil AML regulations.
Companies cannot just engage employees by increasing their well-being or keeping them happy with facilities, pay, and recognition. They need to do more. They must encourage employees’ professional development and support them in their individual goals.
To engage employees, companies must:
  • Inspire them by sharing vision, mission, and goals,
  • Create a positive attitude and work culture at the top levels to inspire the lower levels to imbibe the same,
  • Have an effective onboarding process to set the employees up for growth in their roles,
  • Offer professional development opportunities, including mentorship programs,
  • Appreciate employees’ efforts, acknowledge their contribution, and offer incentives based on performance,
  • Outside-work plans and events create connections between employees,

How does employee engagement help in AML compliance?

The various ways how employee engagement leads to AML compliance include:

Engaged employees take active participation in AML training and awareness programs

Before implementing AML compliance programs, companies create awareness of AML and its importance. They need to create such awareness on:
  • Money laundering and other financial crimes
  • How AML regulations help combat these crimes
  • How to conduct KYC and due diligence
  • What are suspicious transactions, and how to identify them
  • How to do continuous monitoring of transactions
  • How to fulfil national AML regulations
  • In what ways can technology help in AML and how to operate it
  • Making and maintaining records for AML compliance
Along with awareness, companies also train employees on these aspects to ease AML compliance.
Engaged employees feel more motivated to contribute to AML compliance and take an active part in training programs. They understand the long-term, global impact of AML efforts and sincerely support them. With these efforts, you can reduce money laundering and other crime risks.

Engaged employees align with AML goals and objectives

Engaged employees stay aligned with the company’s vision, mission, and values. That means they also align with the AML goals. Such alignment inspires employees and motivates them to do better at their jobs.
Engaged employees take ownership of their work and contribute to AML measures. They consider their moral duty to take every possible step to save the company from threats of financial crimes. Thus, their role in maintaining compliance increases. Employees are more committed to identifying and reporting suspicious activities.

Engaged employees take a more proactive approach

Engaged employees are more favourable toward doing more for the company. They want to do everything possible to save the company’s reputation and avoid fines and penalties. So, they stay committed to making the company compliant with applicable laws.
This is how they also contribute to AML compliance. They spend more time, energy, and effort paying attention to every suspicious transaction. They also ensure that the KYC of customers is proper and up-to-date. They record all details of every transaction to check their relation to illicit activities. Thus, they protect the company against money laundering.

Engaged employees believe in a culture of compliance

To follow all AML requirements, you must create a culture of compliance in your business. All employees must be positive toward achieving AML compliance and contribute effectively. Such positive attitudes and cultures come from the top to lower levels.
Since engaged employees understand the importance of compliance, they can help to create this culture. They can ensure that their colleagues also believe in achieving AML compliance.

Engaged employees detect AML compliance loopholes early

Since engaged employees commit to the company’s beliefs, they are more aligned with the AML compliance process and are keenly interested in its progress.
That is why they are also aware when something is going wrong. They know when a process is not full-proof, someone is not performing their job diligently, or a decision needs to be changed. Thus, you can detect loopholes in AML compliance processes easily.

What are employee engagement strategies to help AML compliance?

Engaged employees aligned to create AML regulations and an internal AML compliance program. They help prevent and mitigate money laundering and other financial crimes. They understand that money laundering is a significant threat and try to stay compliant at every step.
But you must use suitable initiatives to keep them engaged. Strategies you can use for employee engagement include:
  • Create a culture of compliance across the business.
  • Promote open communication between all employees to ensure faster reporting of suspicious transactions.
  • Encourage collaboration between teams and departments to understand AML better and contribute better.
  • Make the employees responsible for AML activities and tasks and measure their performance on these tasks.
  • Provide incentives to employees performing their AML duties diligently and achieving measurable outcomes.
  • Inspire and motivate them by sharing the international AML goals, national focus on AML compliance, and company-wide efforts to reduce money laundering risks.
  • Train them on the necessary AML responsibilities and AML software to perform their duties better and faster.
  • Before training them on achieving AML compliance, explain the significance of AML compliance for the company, country, and world.
  • Show the employees the impact of the company’s AML measures on the outcomes – reduced risks, lesser suspicious transactions, more satisfied customers, etc.
All these efforts can increase employee engagement and contribute to AML compliance.

What is the role of NIYEAHMA in AML compliance?

NIYEAHMA is a distinguished provider of AML consulting services to clients in the UAE. We have redefined the quality of AML services in the market with end-to-end AML consulting. You get customized AML compliance services based on your business needs.
We help clients build a healthy culture of compliance in their business processes. We help create AML policies and impart AML training to the employees to perform their AML responsibilities. We conduct AML business risk assessment to check your money laundering risk exposure.
Our AML consultants’ expertise in KYC and Customer Due Diligence processes enhances your AML compliance efforts and manages the risks. We conduct regular AML health checks of your business to improvise your AML compliance program and prevent money laundering cases. We help you at every step of your AML journey to make it obstacle-free.

About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

Reach Out to Pathik

What Skills Should an AML Compliance Officer Possess?

justice and law concept. Male judge in a courtroom the gavel, w

What Skills Should an AML Compliance Officer Possess?

What Skills Should an AML Compliance Officer Possess?

Every profession and professional requires specific skills, knowledge, and accreditations to operate professionally, and an AML Compliance Officer is not an exception to that. This is quite apparent as professional mistakes can have severe consequences, especially when we are battling against brutal crimes like money laundering and financing terrorist groups or activities. Therefore, such designated officers should meet the fundamental requirements when an organization decides to recruit for this position.
This article discusses the must-have skills for every professional anti-money laundering compliance officer.

What is an AML Officer/MLRO?

An AML Officer or Money Laundering Reporting Officer (MLRO) is responsible for establishing AML Compliance Program to prevent money laundering and assist the organization in complying with the relevant provisions of the Anti-Money Laundering Law.
The AML Officer carries out the AML risk assessment, prepares AML policies, procedures and guidelines and implements the same. The MLRO monitors AML related issues on a day to day basis, evaluates and escalates the matter to the senior management and the legal authorities.

Essential skills of an AML Compliance Officer

Here are a few skills that are must for an AML Compliance Officer to manage his or her duties most effectively and efficiently.

Integrity

Integrity is a vital characteristic for all professionals across the globe. Trusting one’s employees is very crucial for any business organization if the business belongs to a high-risk quotient industry.
Anti-money laundering Compliance Officers should be transparent with other employees of the Company, and there should be utmost trust among the employees within the same organization. All the employees must know each other in order to minimize the overall margin of error. It will keep any internal confusion, doubts, and identity biases at bay.
justice and law concept. Male judge in a courtroom the gavel, w

Industry knowledge

This is the essential thing and goes even without saying. Without adequate industry knowledge, no professional will be able to perform their assigned responsibilities with utmost perfection and efficiency. Anti-money laundering Compliance Officers should also know and follow their own industry well so as to keep themselves updated on developing trends.
The Compliance Officer should also have prior experience and knowledge in developing robust Customer Due Diligence (CDD) processes and identification of risks. He / She shall also have a certain level of authority necessary to take AML/CFT-related decisions independently.
AML Compliance Officers must be aware of the latest developments in the money laundering segment revolving around the concerned industry. With the constantly evolving state of technology, money launderers might find a loophole in the system and apply a new method of executing their ill intentions. An efficient AML Compliance Officer should have an idea about whether the criminals are developing new and powerful tactics or not.

Attention to details

The technologies related to AML regulations are being renewed and upgraded frequently to trace the money laundering and financing of terrorism.
Hence, it requires professionals in the industry to keep themselves updated with the latest changes in order to identify any unusual activity before it is implemented or has any destructive effect on the business or the economy. In addition to that, legal requirements also keep on changing every then and now.
Therefore, to adhere to those rules and regulations, AML Compliance Officer must pay attention to recent updates or upgrades and understand such developments most effectively and efficiently. However, it is essential to note that both technological and legal requirements differ from one jurisdiction to another.

Risk assessment

Risk assessment is an integral part of the entire compliance process. A Compliance Officer is expected to be aware of the risks involved while dealing with finance-based crimes. Employees or professionals working around AML/CFT policy primarily focus on minimizing the risks involved in every possible or doable way.
Anti-money laundering Compliance Officers must consider all the factors that directly or indirectly contribute to risk scoring, as prescribed under their organization’s internal policies and procedures related to AML/CFT.
Considering all of these risk scores, the Compliance Officer will be able to make better and data-driven business decisions. This would also help in gauging the business impact or implications clearly.

Ability to interpret

Anti-money laundering Compliance Officers basically decide whether a particular customer or transaction can be construed as suspicious one the basis of the triggers generated. Data is the only essential element needed for making optimal business decisions. Therefore, the ability to interpret the behavior or indications becomes an integral part of the Compliance Officer’s responsibilities.
There may be plenty of data available to the business organization from different sources, making it challenging to analyze and interpret the data.
However, the Compliance Officers should be adequately trained to determine value from such complex data. While the Compliance Officer is introspecting the voluminous data, extra attention should be accorded to the identification of any unusual transaction or activity, or customer. In addition to that, an AML Compliance Officer must be skilled in drawing logical conclusions from the observations made from the data.

Problem solving

There are pretty high chances that an AML Compliance Officer encounters a lot of problems on a daily basis. Additionally, as the industry is quite volatile, and to keep pace with the same, the Compliance Officer should have a problem-solving approach, with a primary focus on arriving at the appropriate solutions. The financial sector has a high element of risk involved, and hence, the Compliance Officer must have an extravagant problem-solving approach in order to come up with remedial actions or competitive strategies.
It is important to note that practical problem-solving will come up naturally only with analytical and creative thinking, added with experience.
Moreover, Compliance Officers also need to tackle the hardships triggered due to uncertain regulatory changes.

Knowledge about vulnerability

Compliance officers must have knowledge of various policies released by the Government in relation to AML/CFT. This helps detect security vulnerabilities that might arise in the systems without much of hardships or challenges.
In addition, anti-money laundering Compliance Officers are expected to have a clear and better understanding of response regulations, ISO standards, abuse & controlling policies, evaluation & monitoring techniques, and safety standards like performance reporting.

IT knowledge

The use of Anti-money laundering software is quite common among Compliance Officers. Though the Compliance Officer may not be required to operate such software, yet having the basic knowledge is important.
Being aware of the latest business technologies that offer an error-free session allows AML Compliance Officer to successfully perform his responsibilities towards AML/CFT regulations.

Critical thinking

Irrespective of the industries the professionals are indulged in, critical thinking is required by all. Analytical and critical thinking is a vital element for analyzing data and making some competitive strategic decisions.
The fundamental principles required to inculcate creativity in one’s thinking include situational analysis, open-mindedness, brainstorming, providing contexts and conclusions.

Clear and effective communication

Irrespective of the profession or the industry, in order to perform tasks and duties effectively and efficiently, one should have the skill of clear and effective communication. The financial industry is full of uncertainties and involves high levels of risk. Hence, it becomes incredibly crucial to communicate the details with the relevant stakeholders clearly. Even if one tiniest information is not communicated properly or missed out, there may be some irreversible repercussions on the business organization and economy as well.
In addition to that, clear and effective communication is a must for an anti-money laundering Compliance Officer because he is the one who is in touch with almost all the employees of the business enterprise and also has the responsibility to report suspicious transactions to the Financial Intelligence Unit of UAE on behalf of the organization. Therefore, a Compliance Officer is expected to share essential information with the Company’s staff at a specific time to ensure adherence to AML/CFT regulations.

Final words

All the ten skills mentioned above clearly establish the importance of a Compliance Officer in Financial Institutions(FIs), Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Assets Services Providers(VASPs). AML Compliance Officer must possess these skills to ensure the smooth and hassle-free working of the Company and safeguarding it against the vice of money laundering and financing of terrorism.
However, it is very challenging to find a Compliance officer who possesses all such necessary skill sets. Here we may come to your assistance; we can assist you in recruiting such AML compliance officers from our wide range of databases.
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About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

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Customer Identification – A Critical Component of AML Compliance

customer identification

Customer Identification – A Critical Component of AML Compliance

What is Money Laundering?

Money Laundering is the process that hides the origin of illegally obtained money and runs it through banking or any other legit financial institution to make it appear as an income received from legitimate resources. This illicit money is then invested in funding criminal and terrorist activities.

Significance of AML compliance for businesses and financial institutions:

As per AML/CFT legislation in UAE, Financial Institutions, Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Assets Service Providers (VASPs) are required to establish a comprehensive AML/CFT compliance framework. This framework would support the entities in overcoming vulnerabilities related to money laundering, terrorism financing and proliferation financing.

What is Customer Identification?

Financial Institutions have specific procedures to identify and verify customer identities. Customer Identification is one of the basic steps that DNFBPs, and Financial Institutions and VASPs must follow to verify the identity of the prospective customers. It helps identify legitimate businesses, individuals, and institutions so that one may enter into a business relationship with them. In simple words, the customer identification program demonstrates a series of steps that establish the legitimacy of the customer’s identity.
customer identification

Role of customer identification in AML compliance

Customer identification is the most crucial stage while conducting AML compliance. This is the stage where various checks are applied to verify the identity of the potential client and beneficial owner. On the basis of identification documents, a decision is made about whether to conduct business with this prospective client. After this stage, the clients are rated based on the ML/FT risk they pose to the business.

Components of the Customer Identification Program

UAE has adopted a progressive approach to AML compliance. The AML regulations and the guidelines issued by the Supervisory Authorities provide stringent customer identification procedures that DNFBPs, VASPs and Financial Institutions must follow to identify suspicious transactions. This customer identification procedure is also generally referred to as Customer Due Diligence.
Each country can determine how it implements the necessary CDD process by making a law or using other enforceable methods. It is noteworthy that the Financial Action Task Force (FATF) provided recommendations around Customer Identification Program – international guidelines to combat money laundering and terrorist financing.

Steps in Customer Identification

The CDD measures implemented involve the following steps:
  1. Verify Customer Identity: Identifying the customer and customer identity using independent reliable data.
  2. Identify UBOs: Determine the Ultimate Beneficial Owners, verify their identity, which provides a satisfactory answer to the DNFBPs, FIs and VASPs about true ownership. It gives a clear idea about the control exercised on the customer. Read The Complete Guide to UBO Verification.
  3. Purpose of Business: Obtaining information about the customer’s business activities and understanding the objective of the business relationship.
  4. Continuous monitoring: Continuous monitoring and due diligence is done on the business association and thorough examination of transactions is carried out during the business relationship.
All the processes mentioned above apply to all the customers.
As per the AML Laws, DNFBPs, VASPs and Financial Institutions should follow the above-discussed process to strengthen their AML framework. The Compliance Officer must ensure the adherence to the norms of the Customer Identification Program and keep the process in sync with the AML laws and regulations as prevalent in the UAE and the FATF Recommendations.

Technology & AML Compliance

With the help of technology and advanced AML software, organizations can create a close-knit AML framework. A good customer identification program must have written policies to follow. A clear protocol for customer identification weeds out any ambiguity and provides the regulated entities an apparent reference while implementing the customer identification policies. The policy should clearly mention the customer’s requirements while establishing the business relationship. DNFBPs, Financial Institutions and VASPs should be aware of the process listed in the AML rules and regulations to identify unusual patterns and suspicious transactions immediately. It is important to note that continuous monitoring is required to evaluate the risk profile and update the risk assessment process to identify any money laundering instances. AML software is highly beneficial in identifying cases of identity thefts and increasing data security. It helps retain the customers’ trust and protects the institutions’ goodwill in the market.

Strict Verification System

The AML software will introduce an effective customer verification system. It helps prevent identity thefts and verifies the criminals who are trying to hide behind the legal system.
AML training will provide the employees with the correct information and inform them regarding the proper processes to be followed while identifying suspicious activities.
AML software can prevent money laundering. Employees can create risk profiles based on information from multiple sources, such as public records, including information about immigration, current criminal history, and previous legal issues. It also provides information on asset tracking, which verifies if the customers are the real owners of the property they claim to be. On-site inspections can also be conducted if there is any suspicion regarding the details and documents furnished.
An independent audit process is required to fulfill the requirements of the independent anti-money laundering regulatory bodies, which ask for a periodical audit. The CIP will ensure that the organization implements the AML guidelines correctly and adheres to the AML rules and regulations. An independent audit will keep the business on its toes, and it will diligently follow the AML rules and regulations.
UAE follows the recommendations closely by adhering to the CDD and record-keeping processes to identify suspicious accounts and transactions and report suspicious activities.
Creating an effective AML compliance program is crucial for customer identification. The policy with a strict customer identification process identifies and deals with the challenges of the money laundering process and prevents financing of criminal and terrorist activities.

Niyeahma: AML Compliance Consultants

If you need help with AML compliance, you can always trust AML service providers like AML UAE. A reliable consulting firm that offers complete AML solutions – it is a one-stop destination for AML compliance dedicated to the UAE market.
Niyeahma team has the right exposure and the requisite skills, updated knowledge, and training to provide AML and CFT compliance. Get Documentation of AML/ CFT policies, AML training, assistance in Annual AML/ CFT Risk Assessment Report and setting up an In-house AML compliance department, AML software selection and AML/ CFT health check-ups.
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About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.

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TFS Implementation Criteria: Ownership, Control, and Acting on behalf of a Designated Person

TFS-Implementation-Criteria

TFS Implementation Criteria: Ownership, Control, and Acting on behalf of a Designated Person

TFS Implementation Criteria

Targeted Financial Sanctions are restrictions imposed on Designated Persons from the financing of terrorism and proliferation perspective, mandating the business organizations not to make any funds or assets available to such Designated Persons.

Targeted Financial Sanctions Legal Framework in UAE:

Article 16(e) of Federal Decree-Law No. 20 of 2018 (as amended by Federal Decree-Law No. 26 of 2021) requires the prompt application of the directives issued by the UAE’s competent authorities for implementing the decisions of the UN Security Council under Chapter (7) of UN Convention for the Prohibition and Suppression of the Financing of Terrorism and Proliferation of Weapons of Mass Destruction, and other related directives.
UAE Cabinet Decision No. 74 of 2020 establishes the framework regarding Targeted Financial Sanctions (TFS), including the Local Terrorist List and the UN Consolidated List and the procedures to implement TFS.
Any non-compliance with the obligations of Cabinet Decision No. 74 of 2020 or failure to implement procedures to ensure compliance may result in imprisonment for a minimum period of 1 year, up to 7 years, and/or a fine ranging between AED 50,000 and AED 5,000,000. Further, the Supervisory Authorities may impose any other appropriate administrative sanctions, such as issuing a warning letter or canceling the business license for any violation or shortcoming in implementing TFS obligations.

TFS Implementation Criteria 1: Ownership or Majority Interest

While implementing TFS with respect to designated individuals and entities listed on the UAE Local Terrorist List issued by the UAE Cabinet (in line with UNSC 1373) and on the UNSC Consolidated List issued by the United Nations Security Council, it is essential to take into account the following criteria viz., ownership, control and acting on behalf of a Designated Person.
TFS must be implemented on a legal entity if a Designated Person (natural or legal) owns the entity. Suppose the designated individual or entity owns more than 50% of the proprietary rights or has a controlling interest in the entity. In that case, such an entity is considered owned by the Designated Person and is subject to a freezing mechanism.
Criteria-1-Ownership
Criteria-1-Majority-Interest
Since the Designated Individual/Entity owns more than 51% of the non-designated Company A, the funds or other assets of Company A must be frozen immediately.
Since Entity 1 and Person 1 own 24% and 25% shares of Company A, they will not be treated as designated persons, and the freezing mechanism will not be applied to them.
If the Designated Person holds 50% or less of the proprietary rights of a non-designated entity, such an entity is not subjected to the freezing mechanism.
Any funds or other assets due to the designated person’s 31% ownership of proprietary rights in Company A must be subject to a freezing mechanism.
The reporting entities must remain vigilant on the changes in the ownership structures of non-designated entities where the designated person holds 50% or less of the proprietary rights.

TFS implementation Criteria 2: Control

Suppose the Designated Person has control over the non-designated entity despite having a minority interest in such entity. In that case, Financial Institutions (FIs), Virtual Asset Service Providers (VASPs), and Designated Non-Financial Businesses and Professions (DNFBPs) are required to apply freezing measures.
To determine whether the designated person exerts control over the non-designated entity, the following criteria need to be taken into account:
Criteria-2-Control
  1. Check if the Designated Person has the right to appoint or remove a majority of the members of the legal entity’s management,
  2. Check if the Designated Person is appointed solely as a result of the exercise of his voting rights as a majority of the members of the management body of a legal person who has held office during the present and previous financial year,
  3. Check if the Designated Person is, alone, controlling the majority of shareholders’ or members’ voting rights in the legal person, pursuant to an agreement with other shareholders in or members of a legal person,
  4. Check if the Designated Person has the right to exercise a dominant influence over a legal person, pursuant to an agreement entered into with that legal person or to a provision in its Memorandum or Articles of Association, where the law governing that legal person permits its being subject to such agreement or provision,
  5. Check if the Designated Person has the power to exert the right to exercise a dominant influence referred to in point (d) without being the holder of that right,
  6. Check if the Designated Person has the right to use all or part of the assets of that legal person, e.g., managing the business of that legal person on a unified basis while publishing consolidated accounts,
  7. Check if the Designated Person shares jointly and severally the financial liabilities of a legal person or guarantees them,
  8. Check if the Designated Person has a power of attorney or authorized signatory arrangement over a legal person.
In the above scenario, despite holding the minority interest in the non-designated Company A, the freezing measures must be applied without delay as the Designated Individual/Entity exerts control over Company A by holding the majority of the voting rights.

TFS implementation Criteria 3: Acting on behalf or at the Direction of the Designated Person

FIs, DNFBPs, and VASPs must apply TFS measures on individuals and entities holding power of attorney or acting as authorized signatories for designated persons.
In the above scenario, the Designated Person exerts control over Company A through a Power of Attorney issued in favor of a Non-Designated Person. Hence the funds and other assets of Company A must be frozen without any delay as it would be treated as being controlled by the Designated Person via Power of Attorney.

About Niyeahma

AML UAE is an AML consulting firm assisting FIs, VASPs, and DNFBPs in complying with the AML Laws in UAE. Be it goAML registration, AML/CFT Program design and implementation, AML training, or TFS implementation, AML UAE is your one-stop solution for all your compliance worries. With AML UAE, ensure a robust TFS framework and fight the financing of terrorism and proliferation.
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About the Author

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Jyoti Maheshwari

CAMS, ACA

Jyoti has over 9+ years of hands-on experience in regulatory compliance, policymaking, risk management, technology consultancy, and implementation. She holds vast experience with Anti-Money Laundering rules and regulations and helps companies deploy adequate mitigation measures and comply with legal requirements. Jyoti has been instrumental in optimizing business processes, documenting business requirements, preparing FRD, BRD, and SRS, and implementing IT solutions.

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A comprehensive AML Guide for ADGM companies

AML-Guide-for-ADGM-companies

A comprehensive AML Guide for ADGM companies

A comprehensive AML Guide for ADGM companies

The Financial Services Regulatory Authority (FSRA) supervises Abu Dhabi Global Market (ADGM) entities.
FSRA has issued rules and guidelines for implementing AML and Sanctions by ADGM entities to mitigate financial crimes. Though the ADGM’s AML Rulebook considers the Federal AML rules, the regulated entities in ADGM must follow the Rulebook and the Federal AML Law requirements.
This article focuses on the critical AML compliance requirements of entities in ADGM.

Business Risk Assessment and AML Policies, Procedures and Controls

The FSRA-issued AML rulebook mandates the ADGM entities to assess the ML/FT risks their business is exposed to.
While conducting AML business risk assessment, the ADGM entities must identify and analyze the ML/FT risk associated with the below-mentioned risks parameters:
  • Customers
  • Products, services, and transactions
  • Geographic risk
  • Distribution channels
  • Other risk factors such as technology
Basis the results of the AML Business Risk Assessment, adopting the risk-based approach, the entities must establish AML controls, procedures, policies, and systems aligned with the AML regulations to help entities identify, manage, and mitigate the ML/FT risks.
To ensure the effectiveness of the ML/FT mitigation measures, it is important to review ML/FT risk factors impacting the business and update the assessment to identify any new risk scenarios and design relevant controls to manage the increased level of risks.

Customer Risk Assessment and Customer Due Diligence

The entities must assess the customers’ profile, transactions, and business relationships to identify the ML/FT risk such customers pose to the business. Considering various risk parameters, a risk rating should be assigned to the customer, and appropriate Customer Due Diligence measures should be applied before establishing a business relationship.
For performing Customer Risk Assessment, the entities must consider various factors associated with the customer, a few of them illustrated hereunder:

  • Ownership, control structure, and nature of customer
  • Nature of the customer’s business
  • Nature and purpose of the business relationship
  • Nationality and residence of the customer
  • Place of incorporation of the customer who is a legal person.

AML-Guide-for-ADGM-companies
Based on these factors, the risk rating is allocated to each customer – high, medium, or low. For low-risk customers, entities may conduct Simplified or Standard Due Diligence. While for customers identified as high-risk, Enhanced Due Diligence measures must be applied.
Depending on the risk profiling or risk classification of the customer, the ADGM entities must carry out Customer Due Diligence under the following circumstances:
  • Before onboarding a customer or establishing a business relationship
  • Before executing a transaction with an occasional customer for an amount equal to or more than US$15,000
  • When the customer or transaction is suspected to be related to money laundering or financing of terrorism.
  • When there is doubt about the authenticity of documents provided by the customers
As part of the Customer Due Diligence process, the ADGM entities must undertake the following:
  • Identify the customers, their representatives, and beneficial owners and verify their identities,
  • Screen the customer, beneficial owners, and senior managerial persons to check if any of these persons are sanctioned under the UAE local list, UNSC Consolidated List or any other relevant international sanctions list,
  • Understand the nature and purpose of the business relationship,
  • Have systems and controls in place to determine whether the customer, beneficial owners, or senior managerial person is a Politically Exposed Person (PEP),
  • Conduct ongoing monitoring of the business relationships and transactions conducted with the customer to check their consistency with the customer’s business and risk rating
However, when a customer is assigned a high-risk rating, Enhanced Due Diligence (EDD) measures must be applied before establishing a business relationship or executing a transaction with such a customer. Here, the EDD measures would include the following:
  • Get more information to identify the customer and its beneficial owners,
  • Identify and verify the source of wealth and funds of the customer and its beneficial owners,
  • Establishing reasonableness of the purpose of the business relationship,
  • Seek senior management’s approval to start a business relationship with a high-risk customer,
  • Insist on getting the first payment through the customer’s account with the bank subject to similar AML standards,
  • More frequent monitoring of the customer’s profile and transactions.

Money Laundering Reporting Officer (MLRO)

Every ADGM entity must appoint an MLRO to ensure compliance with AML requirements as prescribed under the FSRA-issued AML Rulebook and the AML Federal laws. Such MLROs must be residents of the UAE.
Further, the FSRA must approve the appointment of the MLRO.
If an MLRO leaves the company immediately, a new MLRO must be appointed, or at least a Deputy MLRO must be appointed to manage the AML compliance function temporarily until the appointment of an MLRO. FSRA Rulebook allows the ADGM entities to outsource the MLRO position to a third party.

AML Training and Awareness

FSRA mandates entities to conduct regular training for its employees responsible for AML compliance. Such training and AML awareness sessions must customize be customized basis the entities’ business operations, products/services, transaction complexities, distribution channels, and customers.
ADGM entities must conduct such AML training at least once a year and keep it up-to-date. Further, it is mandatory to record details of such training programs, including their dates, duration, nature, and list of participants.

Reporting Suspicious Activities

Every ADGM entity must have procedures, controls, policies, and systems to detect suspicious activities and report them immediately to the Financial Intelligence Unit (FIU) by filing SAR/STR on the goAML portal.
Frontline employees observing the suspicion must report it to the entity’s MLRO and submit all the details about the activity, customer or transaction involving money laundering or terrorist financing activity. When the MLRO receives an internal STR/SAR from an employee, they must investigate the activity. MLRO must submit an external STR/SAR with the FIU based on the evidence collected.
ADGM entities must maintain a list of ML/FT risk indicators and keep reviewing and updating this list to identify and mitigate the risks effectively.

AML Record Keeping

ADGM entities must maintain AML-related records for a minimum period of six (6) years in electronic format. The records to be maintained include the following:
  • Entities’ AML Business Risk Assessment and the AML framework implemented
  • Documents and information received from customers during KYC and CDD
  • Copies of business correspondence with customers, including transactional details
  • Suspicious activity/transactions reports – internal and external, related investigation records, documents, etc.
  • Records of communication and correspondence with the FIU

AML Annual Return

ADGM entities must fill in all the details in the AML Return Form and submit such AML Annual Return with the FSRA for the year starting from 1st January to 31st December every year. Such AML Annual Return is to be furnished with the authorities before the end of April of the following year.

The key differences between Federal AML Law and the FSRA-issued ADGM AML Rules and Guidance

(a) FSRA AML Rulebook includes the following under the definition of the “Designated Non-Financial Businesses and Professions (DNFBPs), which is not the case under Federal AML Laws:
  • Dealer engaged in trading of any saleable item where the transaction amount equals to or exceeds US$ 15,000 in cash through a single transaction or series of connected transactions.
  • Tax Consulting Firm
(b) FSRA-regulated entities must appoint a Compliance Officer or Money Laundering Reporting Officer who is a resident of the UAE. No such specific condition around residency is mentioned in the Federal AML Law.
(c) The minimum period prescribed for maintaining the AML record is six (6) years for ADGM entities, as compared to five (5) years prescribed under the Federal AML Laws.
(d) AML Annual Return is to be filed by the ADGM entities every year for the period 1st January to 31st December by the end of April of the following year. The AML Annual Return requirement is in addition to the semi-annual report requirement mentioned under Cabinet Decision No. (10) of 2019.

Need expert assistance to comply with ADGM’s AML Rulebook?

The companies in ADGM must follow all these requirements as per the ADGM AML Rulebook. Any non-compliance with these requirements calls for heavy administrative fines. The best way to avoid these fines and penalties is to take the help of a professional AML consultant.
Niyeahma is a leading AML consultant in the UAE. Our comprehensive services help you comply with the relevant AML/CFT requirements and mitigate the threats of money laundering and terrorism financing.
We understand Federal AML laws and ADGM-specific rules to help clients identify and assess their business risk and develop solid and comprehensive AML/CFT policies, procedures, and controls. We can help you set up your in-house AML compliance department and impart AML training to your team, to manage ML/FT compliance competently.
Our strength lies in our solid team of ADGM compliance specialists and experienced and knowledgeable AML professionals. So, leave your AML compliance worries to us, and focus on your core business operations.

About the Author

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Dipali Vora

Associate Company Secretary

Dipali is an Associate member of ICSI and has a Bachelor’s in Commerce and a General Law degree. She has an overall experience of 7 years in the compliance domain, including Anti-Money Laundering, due diligence, secretarial audit, and managing scrutinizer functions. She currently assists clients by advising and helping them navigate through all the legal and regulatory challenges of Anti-Money Laundering Law. She helps companies to develop, implement, and maintain effective AML/CFT and sanctions programs. She knows Anti-money laundering rules and regulations prevailing in GCC countries and specializes in Enterprise-wide risk assessment, Customer Due-diligence, and Risk assessment.

Adverse media and social media checks under AML compliance

Adverse-media-and-social-media-checks-under-AML-compliance

Adverse media and social media checks under AML compliance

Adverse media and social media checks under AML compliance

Customer Due Diligence (CDD) is the most critical element of an AML compliance framework. The purpose of conducting CDD is to collect information about customers and verify their identities and legitimacy around the proposed or executed transactions. Adverse media and social media checks can significantly assist in concluding your search for a customer’s identity and avoiding onboarding the customer involved in money laundering or any criminal activities.
Adverse media means negative news or information about customers in publicly available sources or articles. The media sources may include TV, newspapers, radio, magazines, web articles, blogs, etc. If there is any negative mention of the customer in such media sources, it is adverse media or negative news.
Social media platforms, such as LinkedIn, Facebook, Twitter, etc., contain the customer’s profile, known publicly. Also, such platforms sometimes contain references to negative news about the customer.
Though negative news screening has received very little regulatory attention, it is a critical part of CDD.
As a best practice, companies have incorporated adverse media screening and social media monitoring in their CDD processes. It helps you find your customer’s connections with or involvement in suspicious activities.
This article focuses on understanding its importance in CDD measures.

Regulations on adverse media and social media checks

The Financial Action Task Force (FATF) recommends that organizations include adverse media checks in their AML customer onboarding processes. Further, the AML regulations applicable in UAE also provide that the regulated entities look out for negative news for high-risk customers from reliable, independent sources.
Open media sources should be screened to gather the information around the following to build the customer risk profile effectively:
  • Business Type
  • Nature of business
  • Past criminal investigations
  • Regulatory penalties
Further, social media should be checked to ensure the customer information shared with the company matches the person’s social profile, such as the name the person is socially known by, the name of the employer, location, etc.

Importance of adverse media and social media screening

Building client’s risk profile

Any client can be a threat to your business or reputation. So, before forming a business relationship, you need to know them thoroughly.
Getting information about customers’ details from reliable and independent sources provides you confidence in the details furnished by the customer.
Not only during customer onboarding, but you can also keep a constant check on your customers. Frequent checks allow you to check for any change in the risks. If there is any change in data, you can update the risk profile.
Adverse-media-and-social-media-checks-under-AML-compliance

Protecting oneself against reputational risks, penalties, and fines

Creating a fake profile and hiding the real identity is easier in the ever-evolving digital world. A fake identity is used to cover or carry out illegal transactions. Along with CDD measures, adverse media and social profile screening help you detect customers’ connections with criminal activities. If you turn a blind eye to this process and avoid the information known to the world, you would be exposing yourself to criminal activities, thus, resulting in the imposition of fines or penalties. Thus, you must monitor regular adverse news to avoid risks, AML penalties, and fines.
It helps you detect any suspicious transactions with your customers. It also helps you recognize any characteristics or patterns in a customer’s profile that may lead to suspicious activities in the future. So, you can remove any possible chances of attacks on your reputation due to association with money laundering activities.

Sources for negative news and social profile screening

Companies refer to many official and unofficial data sources for finding information about their clients. You can find insights on the customers from the following data sources:
  • Government databases
  • Newspaper articles
  • Online forums
  • Corporate websites
  • Social media feeds (LinkedIn, Facebook, Twitter, etc.)
  • Blogs
  • Legal prosecutions
  • Research portals and Private databases
You may not trust some of these unstructured data sources. But the onus lies on you to check the credibility and quality of information. You must confirm the information with other sources to check if it is fake, biased, or partial.

Best practices to implement negative news & social media screening

Some of the best practices to adopt to improve your process of collecting adverse media and checking the social profile of your clients are:

Keep your customer data up-to-date and complete

Ensure completeness and correctness of basic demographic information about your customers. Inaccurate and incomplete information serves no purpose while conducting an advanced search on your clients. When checking negative media mentions in a tool, companies use these primary details to match the new-found information. Thus, core customer data has to be complete and accurate to determine the relevancy of the negative news found or the customer’s social presence.

Create a sound negative news & social media screening policy

You cannot just collect their information and conduct adverse media checks when onboarding new customers. You need a well-laid-out policy and methodology for conducting these searches to ensure effectiveness and quality in less time.
You can prepare a standardized template to collect the necessary information and document the same. It must have fields like:
  • Customer details
  • Name of the individual who performed the screening
  • Date and time of the screening
  • Information found, along with source and URLs
  • Context of information
  • Conclusion
  • Possible actions to take.
Basis the research and conclusion, you can recommend relationship termination or filing of suspicious activity report if you suspect the customer’s involvement with money laundering or terrorism financing.

Engage in regular adverse media monitoring

Your job does not end with a one-time screening of adverse media at the time of customer onboarding. You must regularly check your customers’ social profiles and negative remarks on public sources.
There is a possibility that during onboarding, the customer was fair. But they may engage in money laundering or similar financial crimes later in their operations. So, regular adverse media or news checks on your customers are vital.

Invest in an online tool to screen negative news

In some companies, adverse media check is a manual process. But it is time-taking, tedious, and tiresome, sometimes resulting in errors or missing essential information.
Tech solutions and software are in trend that screens numerous news sources worldwide to generate more accurate results. These tools generate negative news for every category of financial crimes and provide the source details of such news.
The paramount need is for the solution to track many media and news sources and generate complete, verifiable information.
Companies have started using AI-based media monitoring solutions. The tool sifts through credible and current media and news to find any material on customers. You can set parameters for a relevant search, analyze the results, and take necessary action.
Thus, your customer onboarding process becomes faster and more trustworthy with an intelligent technology solution.
The technological tool must have the following features and functionalities:
  • Customized alerts
  • Fast research and retrieval of information
  • Comprehensive list of worldwide data sources
  • Supports multiple languages
  • Batch processing
  • Real-time updates and notifications for changes in the risk status of existing customers
  • Access to updated watchlists, Sanctions, and PEPs
  • Intelligent category tagging

How can Niyeahma help you streamline your CDD process with robust negative and social media screening?

You must conduct regular negative media and social media searches to check for any possible connection of customers with financial crimes. Make it a practice before onboarding new customers, during regular monitoring, and in event-triggered exercises. It makes your customer due diligence efficient and effective.
To ensure you do not go wrong with adverse media screening and social media checks, it is best to engage an expert AML services provider – Niyeahma, to set your processes right.
Niyeahma is a leading provider of the following professional services related to AML:
  • Carry out a business risk assessment
  • Develop a customized AML/CFT policy
  • Assist in setting up an in-house AML compliance department and team
  • Conduct AML training for employees
  • Manage KYC and CDD
  • Support in selecting a suitable AML software
  • Assist in regulatory submissions
  • Conduct AML/CFT health checks
Contact us if you need assistance managing your KYC and due diligence processes. We verify your customer’s details, including negative news screening, and share the customer’s risk profile with you. We ensure you precisely know whom you are dealing with to reduce the threats of financial crimes. So, manage or mitigate your risks well with Niyeahma’s team.

About the Author

Linkedin

Dipali Vora

Associate Company Secretary

Dipali is an Associate member of ICSI and has a Bachelor’s in Commerce and a General Law degree. She has an overall experience of 7 years in the compliance domain, including Anti-Money Laundering, due diligence, secretarial audit, and managing scrutinizer functions. She currently assists clients by advising and helping them navigate through all the legal and regulatory challenges of Anti-Money Laundering Law. She helps companies to develop, implement, and maintain effective AML/CFT and sanctions programs. She knows Anti-money laundering rules and regulations prevailing in GCC countries and specializes in Enterprise-wide risk assessment, Customer Due-diligence, and Risk assessment.

AML Transaction Monitoring: A powerful tool to detect financial crimes

Transaction Monitoring

AML Transaction Monitoring: A powerful tool to detect financial crimes

AML Transaction Monitoring: A powerful tool to detect financial crimes

Ever received a call from your bank to confirm if you have conducted a specific high-value transaction? If yes, then that is what transaction monitoring means. They know your routine transactions. If they see one unusual transaction and different from your general banking behaviour, they make a confirmation call.
Financial criminals conduct fraudulent activities by harnessing loopholes in regulations. They create an air of legitimacy around their scheme, company, and transactions.
Transaction monitoring can help detect patterns of suspicious behaviour and financial crimes to and from customers. That is why it is a significant step in companies’ and governments’ AML and CFT programs. With transaction monitoring, you can detect crimes before their occurrence or in their early stages. Timely detection saves you from the repercussions.
This article aims to explain the concept of transaction monitoring, its significance, and the best monitoring practices.

What is AML transaction monitoring?

Transaction monitoring means regularly keeping a close watch on the transactions. It involves checking a customer’s historical transactions, customer’s profile, account details, and interactions. These checks enable the identification of possible customer risks and the prediction of their future behaviour.
You can track the transactions in real-time during their occurrence to block them and prevent fraud. Alternatively, you can check transactions to identify any set patterns after their occurrence. Conduct periodic transaction monitoring to check the customer’s behaviour in terms of irregularities or set patterns.
Thus, financial institutions, as well as DNFBPs, must conduct frequent checks of their transactions.

Significance of AML transaction monitoring

Generally, anti-money laundering regulations in countries include the practice of transaction monitoring. It is mandatory for entities to track suspicious customers, suppliers, or transactions.
Entities have started using transaction monitoring systems to detect suspicious transactions. But it also requires human intelligence and experience to separate fraudulent transactions from non-fraudulent ones.
A constant check on customers’ activities is essential to avoid financial crimes. Transaction monitoring allows entities to adopt a risk-based approach, wherein the monitoring is done based on set rules defined considering the customer’s risk profile developed and the nature of transactions executed by the customer.
Based on the risk profile, you must monitor the customers. For a high-risk client, you need to adopt an advanced level of transaction monitoring.
Transaction Monitoring
Nowadays, criminals have advanced ways of conducting financial crimes in the times of the online, digital world. The complexity of money laundering and terrorist financing has increased, which requires a measure that can spot right from wrong. So, transaction monitoring with the definition of a clear rule is crucial to identifying criminal activities.
Furthermore, the transaction monitoring framework gives confidence to regulators and stakeholders of the organization. It shows the seriousness of entities toward detection of financial crime. It leads to a safe business ecosystem in the country and builds trust between existing and new partners.

Steps to an effective transaction monitoring program

Transaction monitoring is a risk-based approach with the following steps:

1. Risk assessment of your business

Identifying risks your business faces from customers, products and services, and operating environment is critical for your AML compliance. For this, you must conduct a detailed analysis of the industry in which you operate.
Analysis of risk parameters will determine your business’s risk appetite. A deep understanding of the risks you take as an entity and the measures you use to cover these risks is crucial. Also, you get to know what types of customers you will be handling, types and volumes of transactions and related risks thereof.

2. Define red flags of suspicious transactions

To ensure the correct identification of suspicious transactions, you must know what it looks like. For this, you must define the red flags your employees will look for while reviewing transactions or the rules set in the transaction monitoring solution. Some of the red flags can be:
  • Transactions involving large amounts of money,
  • A sudden new transaction unusual for a customer (nowhere like any other transactions done before),
  • Several small transactions of the same type involving one or more accounts/persons in a short time,
  • Inconsistency of the transaction with the customer’s economic profile,
  • The transaction is directed to or from a high-risk country or a jurisdiction featured in the sanction list,
  • Customer’s insistence on having no face-to-face communication always.
You must feed these red flags into the transaction monitoring system to generate alerts when witnessed. The team handling this system receives an alert notification. The entity can conduct a further investigation based on the alert to classify it as suspicious.

3. Create transaction monitoring rules

You must create transaction monitoring rules based on your risk appetite and red flag indicators. The system for transaction monitoring will have to be aligned with these rules to identify suspicious transactions. The rules may be created around the following:
  • The maximum amount of a transaction,
  • Number of unusual transactions from a customer,
  • Number of small transactions, after which the system generates an alert,
  • Transaction directed to or from a high-risk jurisdiction.
The monitoring system analyses the transaction against the set rules. Based on the defined rules, the system should be able to identify the suspicious pattern or characteristic and generate a trigger or alert for the same.

4. Review the generated alerts

You must review these alerts generated for suspicious transactions. The analysts must conduct a manual evaluation to check if the pattern or behaviour is suspicious. To produce a detailed report, they must collect all relevant information for that transaction.
If you find it suspicious, prepare a report of the investigation conducted, which should be shared with the senior management for sign-off. Basis your evaluation, you may even drop the alert, but document the reason.

Best practices of a robust AML transaction monitoring program

Some of the best practices you can adopt for transaction monitoring include:

Remain up-to-date with regulations

Keep an eye on the local and national regulations for combating money laundering and other financial crimes. Compliance with them is essential. With knowledge of all rules and regulations, you can update your red flags, optimize the monitoring rules and identify suspicious transactions efficiently.

Know about your industry and products/services

You must have deep knowledge of your sector and products/services to ensure effective transaction monitoring. Awareness of industry-specific risks, customer demographics, and product/service weaknesses can help create effective monitoring rules.
Furthermore, keep updating your knowledge on these factors. The updated information helps you improvise your transaction monitoring solution and timely capture all money laundering and terrorist financing activities.

Create an exhaustive list of transaction monitoring rules

Consider all the possible red flags for your industry and product/services while creating transaction monitoring rules. These rules must encompass a range of simple and complex scenarios to detect all possible suspected transactions.
Criminals keep updating their crime techniques to take advantage of your operations, processes, products, customers, etc. Similarly, you must frequently update these rules to stay on top of your criminal typologies.

Ensuring quality of AML transaction monitoring

Entities must try to avoid making transaction monitoring an operational, time-bound task. You must consider it as an action against decreasing or eliminating financial crimes. Accordingly, entities must base the employees’ performance on the quality and efficiency of transaction evaluation, not the volume of transactions handled.

Document the AML monitoring scenarios

The transaction monitoring system generates alerts if a transaction is against any rules fed into the system. Then, the analyst evaluates it comprehensively by collecting all related and relevant information.
You must document all this information, analysis, and insights. Documentation helps develop a precise, comprehensive scenario. And documentation of all these scenarios helps create more rules and logic to better your transaction monitoring process.

Do not assume that one size fits all

Do not oversimplify the risk scenarios. Create detailed, to-the-point, granular-level characteristics to identify risky behaviours or patterns of customers or transactions. The clarity in scenarios enables better comparison with the rules to identify suspicious transactions and reduce the possibility of false positives.

Do not have too many risk scenarios

Entities create an exhaustive list of risk scenarios to capture every possible suspicious transaction. But in this process, they forget to remove duplicates and non-contextual scenarios. With such an extensive list of possible risk scenarios, employees’ workload increases, and the quality of alerts decreases. So, while creating scenarios, avoid overlap and add relevant context to each.

Use artificial intelligence in transaction monitoring

Only rules based on logic will not be sufficient for effective transaction monitoring. You must have AI-based transaction monitoring systems to generate more insights and identify red flags that human eyes can overlook. Artificial intelligence can catch any pattern or behaviour that slips through the manual monitoring rules.

About the Author

Linkedin

Dipali Vora

Associate Company Secretary

Dipali is an Associate member of ICSI and has a Bachelor’s in Commerce and a General Law degree. She has an overall experience of 7 years in the compliance domain, including Anti-Money Laundering, due diligence, secretarial audit, and managing scrutinizer functions. She currently assists clients by advising and helping them navigate through all the legal and regulatory challenges of Anti-Money Laundering Law. She helps companies to develop, implement, and maintain effective AML/CFT and sanctions programs. She knows Anti-money laundering rules and regulations prevailing in GCC countries and specializes in Enterprise-wide risk assessment, Customer Due-diligence, and Risk assessment.