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Anti-Money Laundering (AML) Compliance Essentials for Financial Organizations

Cover of Anti-Money Laundering (AML) Compliance Essentials for Financial Organizations Book

Summary of Key Takeaways in This Resource

This is a massive resource, full of everything related to proper AML compliance for financial institutions. If you want to jump down to the section that most applies to you, please use the table of contents to the left.

Let’s get started with the basics.

What is Money Laundering?

Money laundering is the process of hiding, concealing, or otherwise obscuring the true origin of funds generated from illicit activities. The objective of money laundering is to filter illicit funds into the legitimate financial system, so that it can no longer be connected to the unlawful activities that generated it.

Money laundering is often associated with criminal activities, such as drug trafficking, embezzlement, tax evasion, corruption, organized crime, and human trafficking.

The Consequences of Money Laundering: How it Impacts the Global Economy and Society

The effects of money laundering are far-reaching, impacting the financial businesses they are exploiting, the financial services industry, and society as a whole. Money laundering, and criminal activity associated with it, can degrade not only businesses but the national financial systems.

The entire financial system can deteriorate as corruption and crime become rife within a nation. When this occurs, consumers’ trust in financial institutions (FIs) wanes to the detriment of the national economy.

The global economy means that few nations are operating in complete isolation; because of this, nations significantly impacted by money laundering can affect the global economy through international trade.

These are some of the biggest consequences of money laundering worldwide:

  • Reputational damage: Financial institutions - and the financial industry as a whole - must operate under a legal framework and uphold high accountability standards for consumers to have confidence in the system. Failing to meet ethical standards can lead to significant reputational damage to businesses, government agencies, and in turn, the national economy.
  • Destabilized markets: An inflow of illegal cash - while ideal for money launderers - hurts the entire financial market, destabilizing money demand. With massive funds of money being laundered annually, it has a significant impact on the stability of markets within a nation and internationally. This can lead to financial crises and unpredictability in financial markets, making it challenging for central banks to regulate the economy.
  • Decreased government revenue: Since money laundering is all about concealing the proceeds of crime, criminals make strong efforts to avoid taxes as well. This loss of tax revenue leads to significant losses on tax revenue that should have been generated, directly impacting government revenue.
  • Corruption and crime: By nature, money laundering is a criminal activity. Because of this, money laundering efforts are often closely related to other criminal activities. Money laundering is also frequently covered up and enabled by corruption. In the process, the financial services industry is even further eroded.

What is Anti-Money Laundering (AML) Compliance?

Anti-money laundering (AML) compliance refers to processes, policies, and technology that counteract money laundering efforts, keeping illegitimate funds from entering the legitimate financial system. It involves a series of procedures and safeguards that ensure organizations establish clear anti-money laundering guidelines and meet compliance requirements.

Jurisdictions have their own AML laws and regulations, which financial institutions are required to follow. While these regulations vary by region, the general principles are the same, requiring FIs to implement and manage an AML program that detects and prevents money laundering efforts.

It also requires organizations to report suspicious activity, ensuring that potential violations are passed on to the appropriate authorities for further investigation.


Make use of the anti-money laundering compliance checklist for a definitive list of everything organizations should focus on when it comes to compliance

Now that we know what money laundering is - and what anti-money laundering is in the context of compliance - let’s dive right in. First, we’ll look at the main types of money laundering that criminals use.

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Chapter 1: The Types of Money Laundering Used to Defraud Organizations

The overall aim of money laundering is the same - to turn illicit funds into seemingly legitimate currency. That being said, there are many different reasons criminals launder money, and many different ways of doing it.

With so many methods at fraudsters' disposal, it’s challenging to identify all instances of money laundering and adequately prevent it.

Having learned what money laundering is, let’s explore the different types of money laundering methods that launderers use to hide their criminal proceeds.

As noted, criminals use a variety of methods to launder money, especially with the availability of a wide range of financial products, providers, and technology. It’s essential to understand the threats you face, and how to combat each type of money laundering.

Below are 10 common types of money laundering practices to watch out for.

1. Structuring (Smurfing)

Structuring, also referred to as smurfing, is the process of moving a large amount of illicit proceeds by dividing it into smaller transactions to conceal the source of these proceeds. These transactions are often spread out over different accounts to ensure they are not detected.

For example, if a criminal wants to send $50,000 abroad, they’ll break it up into 10 transactions of $5,000 each to avoid it being reported by the regulatory authorities. In some cases, they’ll even spread these out across multiple accounts to further obfuscate the true source. This could be through a group of accomplices, commonly known as ‘money mules.’

Smurfing can be traced if monitored closely. Several small transactions being made at the same time and from the same source account, transactions with values just below the regulatory threshold, or several small deposits being made to international accounts are some of the red flags to help identify this.

While monitoring transactions, paying attention to the transaction values and source accounts is essential, even if the value is below regulatory standards. Customizable, rule-based transaction monitoring allows you to set thresholds to watch for and catch bad actors skirting these minimum thresholds for AML compliance.

2. Cash Smuggling

Cash transportation or courier is a popular way terrorists move funds while avoiding conventional banking systems and the AML/CFT measures established by regulators. It is one of the oldest forms of laundering money. This involves physically transporting the cash from one jurisdiction to another and depositing it in a bank or financial institution.

Cash has the advantage of being less traceable and is, therefore, a weapon of choice for most launderers. As per the Asia Pacific Group Annual Typologies report from 2003-2004, The Bali bombings in 2002 were funded by Al-Qaeda ($30,000) using cash couriers. As legitimate financial institutions have tightened their due diligence process, moving money using cash couriers has become an attractive method to launder money.

Setting a limit to the amount of cash one can courier, tightening national customs regulations, and establishing stricter restrictions on how much money a person can carry with them while traveling is a way to combat this issue.

3. Cash-Intensive Businesses

Certain businesses - by nature of their industries - are cash intensive. Since cash transactions don’t leave a trace of where the money is coming from, these businesses allow fraudsters the opportunity to launder funds more easily.

Such businesses have been the target of launderers as it is easy to claim such cash received as revenue. Examples of such businesses include restaurants, grocery stores, car washes, precious metals or stones, bars, convenience stores, tanning salons, parking lots, or liquor stores.

The best way to tackle this is by establishing procedures and policies while onboarding customers. A risk management framework can help assess the risk profile of certain businesses based on their activities and customers.

Higher-risk businesses should be monitored regularly for suspicious activity such as deposits of large sums of money, geographic locations where they operate, business activity, products or services offered, the kind of customers they have, the frequency of transactions, and their consistency.

4. Shell Companies

A shell company is a business or organization that only exists on paper, has no physical location or staff, but may have a bank account, passive investments, or be the legally recognized owner of property. Shell companies are usually used for tax evasion, tax avoidance, and money laundering.

The Panama Papers scandal exposed the number of shell companies incorporated in jurisdictions like the Cayman Islands, Wyoming, Nevada, and other jurisdictions. The regulatory restrictions in these regions were much more relaxed compared to other places, making them ideal places for criminals to launder money or avoid taxes. These places are often referred to as tax havens, as the nature of their tax systems encourages criminals to exploit the financial system's relaxed stance on money laundering.

This type of money laundering has been prevalent in the past few years, with regulators worldwide now introducing ultimate beneficial ownership (UBO) authentication. An ultimate beneficial owner is defined as the natural person(s) who owns or has control over a business, as well as the natural person(s) acting on their behalf in a transaction. It also involves individuals with the ultimate word in a legal entity or organization.

Identifying a UBO of a company has become an important part of a company’s KYC and due diligence process. Once a company is onboarded, it is imperative to conduct ongoing monitoring to ensure no transactions are made to risky jurisdictions or large unexplainable transfers. Non-compliance with disclosing the beneficiary structure can result in severe reputational and financial damage to the organization or person concerned.

Legislations such as the Dodd-Frank Act, EU’s 6AMLD, FinCEN final rule, and FATCA have emphasized the importance of authenticating UBO as a part of a successful compliance program.

5. Trade-Based Laundering

Trade-based money laundering (TBML) is the process of conducting international trade transactions to conceal the proceeds of crime and move cash to cover up its illegal sources. TBML involves misusing different kinds of offshore trade processes and the import and export of goods in question.

Usually, these methods involve misappropriation of invoices, quality of the products, and shipment quantities. Businesses must work to improve their AML/KYC procedures in trade finance and correspondent banking to fight trade-based money laundering. Unfortunately, due to the nature of those industries, many businesses find it difficult to change or adapt their AML processes successfully.

The difficulty in identifying trade-based money laundering is increased by the fact that it frequently blends in with legal trade activity and is spread over several jurisdictions and organizations. The more effectively individual businesses can work to prevent it, the more extensive the regulatory approach on TBML should be.

Some of the red flags to look for in such situations are:

  • Inconsistency with trading activity and their stated line of business, for example, a textile business trading cars
  • Newly formed incorporations that make high-value transactions
  • Falsified invoices and trade documents
  • Deals involving several external or third party entities
  • Making purchases beyond the company’s financial worth
  • Trading in high-risk countries with minimum due diligence processes

6. Gambling

Criminals have been using online and offline gambling as a method to launder money for a long time now. Casinos are often categorized as a high-risk industry in financial institutions because of how convenient it is for criminals to launder illicit proceeds and place it into the legitimate financial system.

Due to the enormous quantities of money that pass through internet casinos every day, there has also been a substantial increase in the amount of money that is being routed via these establishments.

One of the most common ways launderers use this method is by depositing a huge amount into a betting account and then making a series of dummy bets in different accounts to eventually cash out all that money. This has become an increasingly common practice with many unlicensed websites launched daily with little to no KYC restrictions. 

The online gambling market will be worth more than $92.3 billion by next year, making it even more difficult for authorities to eradicate money laundering. Casino owners, both online and offline, must ensure customer verification through strict KYC and due diligence procedures and policies set within their organizations.

7. Virtual Gaming

Gamers were estimated to spend $180 billion on games in 2020, making the gaming industry a very lucrative industry. When purchasing a game in an online video game, the player must enter their credit card details into the system. Through these accounts, criminals can steal this information to carry out illegal activities, exploiting virtual currency in online games to move illicit funds.

Making several little transactions is another technique that fraudsters frequently use. Games allow for in-game purchases for typically small amounts of money, also referred to as ‘microtransactions.’

Criminals convert their illicit proceeds to in-game currency, by making changes to the game character or purchases on the gaming portal only to later sell it for in-game virtual currency, through small transactions.

Even though each transaction is small, the total revenue is ridiculously high. Games like Fortnite saw sales of over $1 billion in microtransactions. Given how knowledgeable and skilled criminals are nowadays, it is undoubtedly challenging to counter such efforts at money laundering, but focusing on and following such patterns would be the most effective strategy to eliminate this problem.

Regulating the gaming and gambling industry would reduce the likelihood of money laundering. In lieu of these changes, organizations can mitigate risk by developing risk profiles for customers, examining transactions (and other user activity), and fostering a risk-based approach to money laundering.

Following a risk-based approach also helps build a strong compliance framework within the organization, cutting down on suspicious activity.

8. Transaction Laundering

In simple terms, transaction laundering is the action where one merchant processes payment card transactions on behalf of another merchant. In a transaction laundering scheme, two websites would be used.

The first website deals with illegal products such as counterfeit goods, drugs, weapons, and forged documents, while a second merchant account (that appears to be running a legitimate business) completes the sale instead of the original seller's merchant account. The second eCommerce website functions mostly as a gateway to a merchant account and services for credit card processing and exists only on the internet.

As it relates to a good or service, such as the sale of a book or payment for online poker, the charge on the buyer's credit card appears legitimate. Whereas, in actuality, the sale of an illicit good or service is involved in the transaction. This is also known as ‘factoring’ and is a type of credit card money laundering.

The complexity of transaction laundering and the different people associated with it can make it very difficult to detect, especially because it is now so easy for anyone to create a website. The growing use of credit cards, small businesses, and technological advancement is a convenient pathway for criminals to commit this crime.

Transaction laundering can be conducted in many other ways, such as using someone else’s card credentials to conduct illicit operations, teaming up with illegal merchants for a fee in exchange for letting them use your website or platform, or creating a fake website just to harvest someone’s credit card details.

Transaction laundering comes under the purview of financial crimes as per the FinCEN in the U.S., and the greatest challenge they have faced is not being able to establish a framework to impose stricter regulations on card transactions because of how untraceable such crimes can be. In the 4th AML Directive, the European Union imposed a rule to monitor transactions and business relationships.

Regulators find detecting transaction laundering difficult because they appear to be lawful activities and transactions. Apart from monitoring transactions and beneficial owners, it would be worth investigating suspicious-looking websites and their payment chains to compare the payments and volume of business conducted.

9. Bank Capture

In this scenario, criminals or money launderers purchase a majority stake in a bank and then move illicit funds using the bank without any scrutiny. This is more commonly done in countries with inadequate anti-money laundering regulations and laws. Legitimate organizations that partner with these institutions could face serious financial risk as a result and may be held accountable.

This money laundering method is common in risky jurisdictions with a history of money laundering and tax havens. Conducting enhanced due diligence on customers who have links to risky jurisdictions or in countries with a poor regulatory system is an important component of minimizing risks of money laundering or financial crime.

10. Tax Evasion

Tax evasion is a type of money laundering where the criminal uses havens or different methods to try and evade payment. This violates the law. People who are found engaging in tax evasion often face criminal charges. Ever since the financial crisis in 2007, several reported cases of tax evasion have been reported.

A country is considered a ‘tax haven’ if it uses taxes of foreigners or foreign businesses to its advantage in order to reduce its own tax burden. The Cayman Islands, Panama, Barbados, and the Bahamas are some examples of commonly used tax havens.

The Panama Papers exposed 214,000 tax havens involving wealthy people, public officials, and entities from 200 nations. Harald Joachim von der Goltz was one such individual. Being a US resident, he set up several shell corporations worldwide and hid his beneficial ownership to evade taxes. He was arrested for fraud following the reveal.

How can we monitor such individuals? Tax receipts and activities are often used as evidence to track an individual’s financial history and source of income. The best way to identify red flags is by conducting a risk assessment to classify those who conduct business activities and transactions in risky jurisdictions, based on their profiles. Unverified sources of funds, unsubstantiated business activities, and very little or vague information regarding beneficial owners are some of the red flags to look out for.

Procedures should be established within the organization to report any suspicions of tax evasion by encouraging and training employees. This will also help the company cultivate a compliance culture while staying compliant with regulatory obligations.

As online financial services continue to grow in popularity, they disrupt traditional banking norms. To adapt to these changes, new financial instruments are regularly being introduced by governments around the world.

As these services grow, criminals will find new ways of exploiting these services. As Fintechs like Neobanks are new, fraudsters will look to exploit them before they can develop robust compliance measures to prevent money laundering. 

As a result, becoming familiar with AML procedures is essential. Strengthening anti-money laundering controls within the institution by investing in compliance resources and good tools such as Regtech software for transaction monitoring, KYC and Sanctions, or PEP screening is a great step towards eliminating money laundering risks.

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Chapter 2: The 3 Stages of Money Laundering Explained

There are many different ways that money laundering can occur, ranging from highly complicated methods to the simplest arrangements. While there are many types of money laundering methods, there are three stages that take place in all cases. For criminals to be able to use the proceeds of crime freely, they first need to obfuscate the source of funds. To do that, money must pass through three phases.

Risk and compliance teams use anti-money laundering controls to prevent money laundering from occurring at the different stages of this process. To help you understand the 3 stages of money laundering - and how you can prevent it - we’ll cover each stage in detail in this section.

What are the Money Laundering Stages?

Money laundering stages are the phases that criminals go through to conceal the original source of funds. This process is used to take funds that were unlawfully obtained, conceal their source of origin, and integrate money back into the legitimate financial system. With the money ‘cleaned,’ it can then be used the same as legal funds.

The 3 Stages of Money Laundering Explained

To get money that has been laundered into the legitimate financial system, there are 3 stages in the money laundering process.

To help you understand the stages - and be able to identify them more readily - we explain each below:

  • Placement: The financial system is exposed to ‘dirty money’ during the initial placement stage of money laundering. In this stage, illicit funds are funneled into the financial system (through transactions, transfers, and purchases).
  • Layering: The layering stage begins after the money has entered the financial system, during which the launderer moves the money around to disassociate it from its source and conceal the money trail.
  • Integration: Money laundering concludes with integrating the proceeds into the legitimate economy, allowing fraudsters to spend without fear of detection.

These are the three stages used to clean illicit funds. Let’s take a deep dive into each stage and understand how money launderers put their criminal proceeds back into the legitimate financial system.

Stage 1. Placement

In this first phase, ‘dirty money’ is introduced into the financial system when it’s moved into a legitimate source of funds. The goal is to filter illicit funds back into the legitimate financial system, so that its source can be disguised. 

This is frequently done by dividing large quantities of money into smaller sums, which are harder to detect. Money can be placed directly into a bank account or used to purchase financial instruments like checks or money orders. Money can also be funneled into businesses, such as casinos or cash-intensive businesses, where it’s easy to disguise the origin of funds.

Strategies may include:

  • Disguised deposits: Criminals make deposits to a single or several accounts over a period of time, intending to elude the financial institution of the true origin of these funds. This can be done by breaking funds into smaller amounts, and depositing them into a variety of accounts. The funds will later be transferred to accounts that the criminals own.
  • Blending of funds: Criminals mix illicit funds with legitimate funds, making it difficult to decipher the difference. This can be achieved by funneling illegitimate funds into cash-intensive businesses that allow criminals to blend cash.
  • Cash smuggling: Criminals physically move money internationally, muling money across borders. Money is then funneled into the foreign financial system, and then transferred back to domestic accounts.
  • Foreign exchange: Criminals trade or purchase foreign currency using illegitimate funds. This can be done in countries with less strict AML policies, where regulations can easily be skirted.
  • Using financial instruments: Criminals purchase financial services, such as money orders, traveler’s checks, or postal orders. These products are then used to deposit the funds into other accounts, adding an additional layer of history to the funds, and obscuring the true source of the funds in the process.
  • Purchasing assets: Criminals purchase assets using the proceeds of crime, which they later sell back, receiving legitimate funds. Typically, criminals use high-value assets (such as real estate, vehicles, artwork, or precious metals) to launder larger sums of money, but they can also use smaller asset purchases to achieve the same result.

Stage 2. Layering

In the layering phase, also referred to as structuring, the seemingly legitimate funds are moved around to disguise the original source of the funds. The primary objective of this stage is to obfuscate the true source of funds and confuse authorities about the true origin of the money. 

Once this stage is complete, the money will have a seemingly legitimate history, disguising it as legitimate.

This is often achieved by conducting a variety of transactions, transfers, and purchases. Adept money launderers use complex means of layering funds, buying financial products, investing funds into securities, property, and other assets, and then converting funds back into cash in a criminal's account.

Strategies may include:

  • Electronic transfers: Criminals will perform a series of transactions, moving money between a series of accounts. This can be done using both personal and business accounts, making it harder to trace the original source of funds.
  • Purchasing financial instruments: Criminals buy financial products and services, such as money orders, stocks and bonds, and even life insurance products. These are later converted back into cash - or used to make purchases in the integration stage, disguising the source of the funds.
  • Buying and selling assets: Criminals convert money into assets, such as property and investments. The assets can later be converted back to cash, which appears to be entirely legitimate in nature.
  • International transactions: Criminals use foreign currencies, exchanges, and accounts to transfer funds or make trades (via stocks or bonds). The intent is to obscure the source of funds by moving funds through various jurisdictions, making it more difficult to trace their true source.
  • Using business transactions: Criminals use standard business transactions to hide the origin of funds. This can be achieved through payments for products or services, structuring private loans to other companies, and other means that allow them to make the transactions look credible.
  • Cryptocurrency trading: Criminals trade cryptocurrency (and other virtual currencies) due to the perceived anonymity associated with these types of funds. Criminals trade these funds across different platforms, layering the funds and obscuring the history of the funds.

Stage 3. Integration

Money laundering culminates with the integration of the proceeds into the legitimate economy. The money is routed back into the criminal's registered bank accounts, where it can be spent freely.

This often entails a slew of minor transactions, just like earlier stages. The criminal may invest in real estate, luxurious items, or commercial endeavors in order to use the money to make purchases without drawing the attention of law enforcement or the tax authorities.

In many cases, criminals accept a small amount of shrinkage on the original value that was ‘placed’ in the system in the first stage. Fraudsters see this as the cost of ‘cleaning’ the illegal funds.

Strategies may include:

  • Transfers back to legitimate accounts: Criminals transfer funds back to their legitimate accounts. This can be done through bank transfers, payment of dividends to shareholders, or through the issuance of a loan (that will never be paid back).
  • Selling assets: Criminals sell off assets from the ‘layering’ stage, converting them into legitimate funds within the financial system. The funds now appear to be legitimately sourced, having entered the system through an apparently legitimate transaction.
  • Fake salaries: Criminals establish false salaries (sometimes even using fake payroll systems) for non-existent employees, allowing the criminal to receive the funds in a manner that seems legitimate and will not raise suspicions.

These are the three stages used to clean illicit funds. Let’s take a deep dive into each stage and understand how money launderers put their criminal proceeds back into the legitimate financial system.

Chapter 3: How to Combat Money Laundering + Real-Life Examples to Learn From

Despite having a clear picture of how money laundering occurs, it’s still a consistent challenge to effectively detect, prevent, and combat it. Below, we cover some of the best practices for anti-money laundering, helping organizations root it out.

6 Ways to Combat Money Laundering

1. Establish AML Compliance Policies

It is essential to establish compliance policies to strengthen the AML framework within an organization. The company's anti-money laundering procedures should be outlined within a compliance policy, and made accessible to all team members. 

Financial institutions implement anti-money laundering policies in an attempt to prevent revenue from unlawful operations. Within every company, adherence to these regulations is required to be able to form a culture of compliance.

2. Prioritize KYC Processes

Verifying a customer’s identity through KYC procedures is required under AML regulations. This is often the first AML protection in a customer’s lifecycle, as it occurs at customer onboarding. It’s critical to have a high-quality KYC system in place to authenticate customer information and determine if customers are who they claim to be. 

This process is executed using a variety of methods, including identification documents, fingerprint and facial recognition software, and financial statements. Overall, streamlining your customer verification procedures can help you comply with the regulations and root out suspicious accounts.

3. Detect Suspicious Patterns

One of the most important ways to spot red flags is by monitoring transaction patterns.

Transactions to offshore accounts, lots of small-value transactions to the same account, and regular transfers to risky or sanctioned jurisdictions are some of the patterns to consider while conducting ongoing monitoring.

This should be made essential for PEPs and sanctioned entities. Companies can now analyze and detect patterns through existing data and establish a client model to investigate any suspicions.

4. Using Technology to Detect Suspicious Activity

While there are ways of screening for suspicious activity manually, it’s much easier (and teams can do a better job) with a compliance system like Regtech software.

These tools support risk and compliance professionals with transaction monitoring, suspicious activity reporting, and compliance with regulatory requirements.

Data breaches, cyberattacks, money laundering, and other fraudulent activities have grown due to advances in digital products.

Regtech reduces the risk to a company's compliance team by providing data on money laundering operations carried out online - activities that a traditional compliance team may not be aware of due to the growth of underground marketplaces online.

5. Training Team Members

When it comes to preventing money laundering, having the right team is crucial. Training is essential, and organizations may consider hiring a compliance officer to train staff, communicate with stakeholders to notify them regarding any suspicious activity, and take the necessary steps when there is even the slightest indication of a financial crime taking place.

Additionally, it's vital to have someone in charge of staying updated with regulations, news, and technology advancements, as well as managing the suspicious activity detection process. At the most fundamental level, you must ensure that your staff members are knowledgeable about the laws and can identify and respond to transactions and other activities that might be linked with money laundering.

6. Take a Risk-Based Approach

Taking a risk-based approach is all about understanding your organization's risks and putting controls in place based on their potential impact. This allows financial organizations to prioritize their efforts based on the actual threat they face.

In many compliance-related areas, regulators are moving away from prescriptive measures and toward a risk-based approach. This approach changes from one customer to another based on their risk score.

It helps determine a customer’s risk profile and implement risk controls accordingly rather than following a one-size-fits-all approach.

5 Real-Life Examples of Money Laundering Cases to Learn From

While criminals actually committing money laundering face the worst penalties, negligence on behalf of the financial institutions does not exempt them from fines or penalties. Banks, exchanges, and other FIs that fail to adequately prevent (and report) money laundering are still subject to punishment.

To avoid being confronted with serious money laundering risks and penalties, financial institutions, including banks and other entities at risk of money laundering, must comply with AML regulations.

To help you understand the scope of failing to meet AML regulations, we cover some real-world examples of money laundering cases:

1. Wachovia Bank 

In 2010, it was revealed that Wachovia Bank had permitted Mexican drug cartels to transfer nearly $390 billion through its banks between 2004 and 2007, using wire transfers, traveler’s checks, and bulk cash shipments. 

The cartels could smuggle U.S. dollars from drug sales in the United States back to Mexico, where the funds were deposited into Mexican bank accounts. With looser AML regulations, this was met with little resistance at the Mexican banks.

Money was then transferred to Wachovia bank accounts in the United States. Inadequate anti-money laundering checks regarding the source of funds meant that this was never caught.

In this case, not only was the bank negligent with its KYC onboarding process, but it also failed to prioritize monitoring the source of funds for various transactions that should have been flagged as suspicious. Having transaction monitoring that identifies patterns (and anomalies) in user behavior could have alerted the bank to these issues.

2. Standard Chartered 

Standard Chartered’s problems began in 2004, when the Federal Reserve and the New York regulator called out inadequate AML practices. Despite promising to make adjustments to their AML practices, things only got worse. The New York branch continued to do business with Iran (breaking sanctions in the process). 

This caught up with Standard Chartered in 2012, when they were found to be in violation of anti-money laundering regulations.

The bank was fined $1.1 billion by the U.S. and foreign regulators. Again, the bank failed to make proper adjustments to their anti-money laundering program. In 2019, they were again found to have broken sanctions between 2008 and 2014. The New York State Department of Financial Services found that Standard Chartered had processed illegal transactions from Iran, Libya, Sudan, Burma, and Cuba, totaling $600 million.

Things only got worse, with the bank ignoring - and breaking - regulations barring them from doing business in Iran. This violation of sanctions led to $265 billion being laundered. In 2012, Standard Chartered was penalized to the tune of $670 million. However, the bank still didn’t properly fix their AML processes. This breach led to a $1.1 billion in fines from both U.S. and U.K. governments.

It’s the responsibility of financial institutions to conduct adequate sanctions and PEP screenings to ensure AML regulations are followed. It’s critical that compliance professionals are well-acquainted with sanctioned jurisdictions and organizations to ensure the organization is compliant with AML regulations.

Banks should also conduct periodic internal audits to discover any gaps or weak controls within their anti-money laundering compliance systems to eliminate any risks.


In the 1990s, HSBC conducted business with a number of countries on the international sanctions list, including Iran, Cuba, Burma, Libya, and Sudan. The HSBC group learned of this practice, which involved the banks concealing the origin of funds to circumvent AML regulations, in 2000.

Shockingly, rather than clamping down on this, HSBC allowed this practice to continue until 2006. At this time, the bank also clawed back its anti-money laundering program, exposing them to more risk.

Mexican drug cartels took advantage of these lax restrictions, using it to launder money through the banks between 2006 and 2010. Investigators found that lax AML controls at HSBC enabled the bank to act as the main conduit for the money laundering of two major drug cartels in Mexico and Colombia.

Collectively, HSBC facilitated $881 million in transactions using wire transfers and currency exchanges. This led to fines of $1.9 billion for the bank, and required 5 years of independent monitoring to ensure they maintained adequate AML controls.

This again failed to do the job. In 2017, the bank again admitted to having inadequate anti-money laundering controls. While the U.S. regulators didn’t penalize the bank, in 2021, the U.K. fined HSBC $85 million for anti-money laundering shortcomings.

This case is another example of anti-money laundering failings due to a weak AML compliance program. Apart from strengthening due diligence procedures and ongoing monitoring requirements, a great way to make sure an organization is compliant is by training and educating employees.

Employees across all departments should be able to understand the importance of why AML controls are required, what they can do to prevent this, spot red flags, and the escalation or reporting requirements to help curb such issues.

4. Danske Bank

In 2007, Danske Bank acquired Sampo Bank. While the rest of this acquisition went smoothly, one branch, in particular, led to problems. Russia’s central bank raised concerns about suspicious activity at the Estonian branch, alerting both Danish and Estonian authorities.

The concerns stemmed from what appeared to be transfers from Russian shell companies that were laundering money and evading taxes. Despite these warnings, no immediate action was taken by the Estonian branch.

After a whistleblower within the company spoke up in 2013, an internal Danske investigation was finally prompted. This eventually found that more than 99% of the branch's customers were suspicious.

It also determined that the bank had conducted transactions totaling $230 billion over a nearly 7-year period.

The Danish government launched an investigation of its own, which led to executives being charged with crimes. While the investigation is ongoing, Danske Bank is facing serious fines for failing to have - and follow - adequate AML procedures.

In part, this is not just a case of inadequate AML policies, but an intentional breach of these policies for individual gain. It’s critical to have an AML program that is well established at the organization, and that can ensure compliance of all members of an organization.

The program must hold all members accountable, and be designed so it’s nearly impossible for individuals to intentionally evade required practices.

5. Westpac

In one of the largest Australian cases of money laundering, Westpac permitted 23 million breaches of anti-money laundering and counter-terrorism funding rules. That’s actual instances of breaches, and not the total value, which amounted to nearly $11 billion.

They failed to report and keep records for international transfers, some of which were linked to child exploitation in southeast Asia. In 2020, Westpac was fined $920 million (AU$1.3 billion).

Had Westpac employed sufficient customer onboarding, with strict KYC and due diligence procedures, this may have been prevented.

Additionally, high-quality transaction monitoring could have identified suspicious transactions, especially when made internationally. By detecting anomalies, these transactions could have been flagged as suspicious, stopping this activity from persisting.

Ultimately, the more methods you can use to prevent money laundering the more you’ll be able to stamp it out. Anti-money laundering regulations help regulate rules - and procedures - for the AML compliance team; to help organizations stay on top of all applicable regulations that need to be followed, we cover them in the next section.

Chapter 4: Anti-Money Laundering Regulations Financial Organizations Should Know (and Follow!)

Anti-money laundering regulations are constantly changing to keep pace with complex and consistently evolving money laundering schemes. It’s essential for ensuring FIs meet compliance requirements and adequately protect consumers - as well as the entire organization.

Specific regulations vary based on jurisdiction, but the general principles remain the same. That being said, it’s imperative that organizations understand the rules that apply in the jurisdictions they are operating in. In this chapter, we’ll explore what AML regulations are, why they are critical to follow, and how to comply with regulations.

What Are AML Regulations and Why Are They Important?

It’s essential for ensuring FIs meet compliance requirements and adequately protect consumers - as well as the entire Anti-money laundering regulations are a set of rules that govern the procedures and responsibilities of financial institutions. They establish guidelines for FIs to follow when it comes to preventing financial crime and terrorism financing.

Commonly, AML regulations are associated with customer onboarding, as identity verification is important when starting a new business relationship. However, it is much broader than that, and involves screening and monitoring transactions and user activity for potential money laundering constantly and vigilantly.

First and foremost, AML regulations are required by law. While there are many other benefits and reasons to have an effective compliance program and procedures, failing to conduct AML procedures can lead to hefty fines and penalties, and even result in criminal punishment. Beyond the legal requirements, AML regulations keep the organization - and its users - safe and secure from criminal activity.

Despite FIs operating globally, often between jurisdictions, there is no universal standard for AML regulations, although there are some widely accepted policies and practices.

Each jurisdiction has its own specific AML regulations that FIs are required to follow, with their own regulatory bodies responsible for supervision and enforcement. It can be challenging for organizations to ensure they follow all applicable laws, especially if that business operates in various jurisdictions.

For example, in the United States, the main regulatory authorities are the Financial Crimes Enforcement Network (FinCEN), the Financial Industry Regulatory Authority (FINRA), and the Office of Foreign Assets Control (OFAC). These entities are responsible for monitoring, supervising, and enforcing specific laws related to AML, including the Bank Secrecy Act (BSA), the Anti-Money Laundering Act (AMLA) of 2020, and the USA PATRIOT Act.

Specific regulations vary based on jurisdiction, but the general principles remain the same. That being said, it’s imperative that organizations understand the rules that apply in the jurisdictions they are operating in.

In this chapter, we’ll explore what AML regulations are, why they are critical to follow, and how to comply with regulations. Anti-money laundering regulations are constantly changing to keep pace with complex and consistently evolving money laundering schemes.

How to Comply with AML Regulations

There are different AML requirements in each jurisdiction, and we won't include prescriptive rules for each. Instead, this section will look at best practices that are universally applicable.

CFT/AML regulations require banks and financial institutions to use risk-based approaches and implement compliance measures that include the following:

1. Establish an AML Program

It is an organization's responsibility to develop and implement an AML/CFT program that matches the risks associated with the customer base and business sector they operate in. A written policy and procedure program that outlines the firm's approach to the additional steps outlined in this chapter is essential.

2. Identification of Customer (KYC Process)

A KYC process ensures that only legitimate individuals and organizations are transacted with by companies. Verifying your customers' identities, assessing their risk levels, and determining the nature of your business relationship are all part of the KYC process.

It's essential to remember that KYC is an ongoing process, not a one-time event. It is important to review and update KYC information periodically to ensure it is accurate.

3. Keep Accurate Records and Reports

Companies are required to maintain detailed records about their customers and report certain transactions and financial activities to the FIUs in accordance with applicable regulations.

The minimum period of time after the termination of a business relationship with a customer for maintaining customer data varies across jurisdictions.

For example, under some jurisdictions, the period is five years, while in others, it is seven years.

4. Hire a Competent Compliance Officer (or Service)

Who is in charge of the program?

It is necessary to designate one person as the system owner so that they are responsible for following processes, updating reports, ensuring training is correct, and ensuring that the system functions smoothly.

In addition to reputational risk, a lot is at stake when the program succeeds. Therefore, a senior-level representative with the power to influence the company is ideal.

5. Training Employees 

You must ensure that each employee who deals with customers or transactions understands your company's policies and procedures. Legal requirements must be well understood, as well as the techniques used by money launderers. Checks should be conducted and suspicious activities should be reported to the authorities.

The importance of training cannot be overstated. Maintain the program's quality by offering refresher programs for staff to ensure they are up-to-date.

Even though the five methods above are ideal for laying the foundation for your compliance program, professional compliance officers do something to ensure that dishonest customers do not gain access to the business.

KYC onboardings are reviewed by Compliance Officers periodically to confirm that onboarded customers are who they claim to be and to review their transactional history to identify fraudulent patterns.


Taking advantage of digital AML solutions can go a long way toward saving time and simplifying the various steps involved in achieving AML compliance. Whether you're looking to onboard customers worldwide or monitor their transactional behavior, Unit21 will provide a frictionless and customized experience while detecting any signs of suspicious activity during the onboarding process.

Chapter 5: AML Penalties, Fines, and Sanctions

Throughout the world and within the United States, money laundering is the most common form of financial crime.

The criminal liability for an alleged money laundering activity can vary greatly depending on the nature of the activity, and it is possible for individuals, companies, and other institutions in the case of severe money laundering activities to face jail time if the activities are presumed to be malicious and deliberate.

Violating specific regulations can still be a serious offense, even if there is no malicious intent involved. Money laundering is a very grave issue that the Federal Government and other financial regulators take very seriously, along with funding terrorism and financial fraud.

Money laundering has become one of the most pressing global crimes today, and this section discusses how your organization can remain in good standing with international organizations.

What are Sanctions, Fines, and Penalties in AML?

Financial organizations that are in violation of AML regulations are subject to civil and criminal penalties, ranging from simple fines to jail time. In extreme cases, financial service organizations, countries, and individuals can be sanctioned, which essentially bars FIs from doing business with them.

Organizations are required to monitor sanctions lists and can be fined and penalized for conducting business with countries or businesses that have been sanctioned.

Ultimately, fines, penalties, and sanctions are designed to ensure the ethical and legal standards of the financial industry are upheld. They hold individuals, financial institutions, and countries accountable and protect consumers within the financial services industry.

Regulatory measures against money laundering are aimed at preventing businesses, institutions, and even countries from committing money laundering and terrorist financing. There are global and local regulatory bodies established to prevent money laundering, and each country has different AML penalties and fines. 

The anti-money laundering fines for non-compliance are quite harsh, including but not limited to a monetary fine, loss of credit rating or damaged reputation, temporary or permanent closure of business, and other legal consequences.

With ever-changing AML trends and increasing regulatory crackdowns that follow, it’s essential for FIs to keep pace with AML compliance regulations to avoid legal consequences. In a later chapter, we explore how FIs can build a compliance program that stays compliant - and avoids hefty fines and penalties for violations.

AML Fines, Penalties, and Sanctions to Watch Out For

Governments establish AML compliance regulations that individuals and entities under their jurisdiction must follow. They also carry out regulatory oversight and practical enforcement actions when necessary.

Breaches or violations of these AML regulations can have severe legal, monetary, and reputational consequences for the organizations involved, including punitive fines, criminal proceedings, or sanctioning. 

Sanctioned individuals and entities are placed on blacklists or greylists, marking them as high-risk entities. It’s the responsibility of FIs to ensure they are protecting against sanctioned individuals and entities on their platform.

Given the significance of compliance with the AML sanctions regime, FIs must understand their compliance obligations and the sanctions applicable to their business jurisdiction. Compliance with these obligations is necessary to avoid AML fines and penalties.

Anti-money laundering sanctions violations are a serious threat to national security and foreign relations, and to avoid repercussions, governments impose monetary AML fines and penalties on criminal offenders.

To help you ensure you aren’t exposed to any anti-money laundering fines and penalties, we cover the main acts to understand and adhere to.

1. Bank Secrecy Act

Jurisdiction: United States

The Bank Secrecy Act (BSA) of 1970 is the most significant U.S. law in fighting and preventing money laundering in the United States, and applies to all U.S. financial institutions. The BSA establishes and imposes compliance obligations on FIs within the US, including the provision of documentation (such as currency transaction reports and suspicious transaction reports) to regulators, and implementing a risk-based AML compliance program.

Pursuant to the BSA, AML penalties may be imposed against a financial institution, business, or any of its partners, directors, officers, or employees. Anti-money laundering penalties vary based on the type of breach or violation and the enforcement authority investigating the case.

BSA-related AML criminal penalties include a fine of no more than $250,000, imprisonment for no more than five years, or both. However, if the violation is part of a pattern of any illegal activity involving more than $100,000 in a twelve-month period and involves the violation of another US criminal law, the fine can be up to $500,000, imprisonment for up to ten years, or both.

The maximum BSA-related civil penalties vary significantly. For example, federal banking regulators have the authority to impose anti-money laundering penalties from $5000 per violation to $1,000,000, or 1% of the assets of a financial institution, whichever is greater, for every day that the violation occurs.

These anti-money laundering penalties are primarily assessed for AML compliance program deficiencies, failures to file SARs, or in combination with other BSA violations.

2. Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act

Jurisdiction: United States

The USA PATRIOT Act was enacted in response to the attacks of September 11, 2001, and became a law in less than two months after those attacks. The PATRIOT Act is intended to deter and punish terrorist acts in the United States (and around the world) and to enhance law enforcement investigatory tools and powers.

In an effort to clamp down on terrorist funding, this act also introduced measures to target financial crime associated with money laundering and terrorism financing, requiring all banks and financial institutions in the United States to understand their AML compliance obligations pursuant to the USA Patriot Act.

Accordingly, U.S. financial institutions must build their AML compliance program following the requirements given under the USA PATRIOT Act. To adhere to this, FIs must:

  • Establish AML policies, procedures, and internal controls
  • Appoint an AML compliance officer
  • Establish ongoing AML training for employees
  • Perform independent audits of the AML program

The USA PATRIOT Act also impacted existing laws and regulations, specifically, the Money Laundering Control Act of 1986 and the Bank Secrecy Act (BSA) of 1970. FIs that violate or breach the USA PATRIOT Act face fines of either $1 million or double the value of the transaction (whichever is greater).

3. Office of Foreign Assets Control (OFAC)

Jurisdiction: United States

The Office of Foreign Asset Control (OFAC) is the financial intelligence and enforcement agency of the U.S. Treasury Department. It is responsible for administering and enforcing U.S. sanctions. All financial institutions within the U.S. must abide by the OFAC sanctions and relevant regulations.

OFAC considers violations or breaches of the AML sanctions regulations to be a critical threat to national security and foreign relations, and any party in breach of the OFAC sanctions can face serious legal consequences and enforcement actions (unless a proper exemption license is obtained from the U.S. Treasury).

AML penalties and fines can reach $20 million, depending on the type of offense, and imprisonment can be as long as 30 years.

Starting in 2020, those in violation of the Trading with the Enemy Act will be subject to anti-money laundering fines of around $90,000 per violation. Those violating the International Emergency Economic Powers Acts may be punished with $308,000.

Accordingly, violating the Foreign Narcotics Kingpin Designation Act costs approximately $1.5 million per violation. Depending on the crime and previous convictions, punishments can be severe.

4. EU Anti-Money Laundering Directives (AMLDs)

Jurisdiction: European Union

Since 2015, the EU has adopted an advanced regulatory framework for combating money laundering. Since then, they’ve employed a series of Anti-Money Laundering Directives (AMLDs), which establish regulatory requirements that EU member states must follow.

While each member state is responsible for implementing the policies into their legal system in their own way, they are required to meet the minimum standards the EU AMLDs establish.

As of today, six further directives have been issued, and the latest sixth directive (also referred to as 6AMLD) was implemented in June 2021.

The 6AMLD aims to empower financial institutions and authorities to do more in the fight against money laundering and terrorism financing by strengthening AML criminal penalties across the bloc, clarifying certain regulatory details, and expanding the scope of existing legislation.

6AMLD extended criminal liability to legal persons and introduced a list of the 22 predicate offenses that constitute money laundering, including environmental crime and cyber crime money laundering, requiring financial institutions to establish safe KYC procedures to identify them.

In addition, the minimum penalty for crimes related to money laundering increased from one to four years in prison. Simultaneously, economic sanctions increased to 5 million euros (and their equivalents in other currencies).

The 6th EU AMLD also encouraged authorities to impose stringent AML sanctions. Financial institutions should develop an understanding of the extended scope that 6AMLD has brought, including new predicate offenses that must be monitored to avoid AML penalties.

5. Proceeds of Crime Act

Jurisdiction: United Kingdom

Money laundering offenses are defined by the Proceeds of Crime Act (POCA), the primary AML regulation in the UK implemented in 2002. Money laundering activities include facilitating money laundering, as well as acquiring and distributing criminal proceeds.

POCA stipulates that all banks and financial institutions shall put in place appropriate anti-money laundering controls to detect money laundering activities.

These controls must include measures to ensure that customer due diligence is performed, transactions are monitored, and suspicious activity is reported to the appropriate authorities.

6. The Terrorism Act

Jurisdiction: United Kingdom

Governments establish AML compliance regulations that individuals and entities under their jurisdiction must follow. They also carry out regulatory oversight and practical enforcement actions when necessary.

Breaches or violations of these AML regulations can have severe legal, monetary, and reputational consequences for the organizations involved, including punitive fines, criminal proceedings, or sanctioning. 

Sanctioned individuals and entities are placed on blacklists or greylists, marking them as high-risk entities. It’s the responsibility of FIs to ensure they are protecting against sanctioned individuals and entities on their platform.

Given the significance of compliance with the AML sanctions regime, FIs must understand their compliance obligations and the sanctions applicable to their business jurisdiction. Compliance with these obligations is necessary to avoid AML fines and penalties.

Anti-money laundering sanctions violations are a serious threat to national security and foreign relations, and to avoid repercussions, governments impose monetary AML fines and penalties on criminal offenders.

To help you ensure you aren’t exposed to any anti-money laundering fines and penalties, we cover the main acts to understand and adhere to.

7. UK AML Regulations 2017

Jurisdiction: United Kingdom

After POCA and the Terrorism Act, the next vital legislation that prevents money laundering and terrorist financing is the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

There has been a transposition of the obligations from the EU's 5th AMLD through the MLR 2017, which tightens controls in the private sector as well as increases the requirement for firms to implement a written assessment of their AML/CFT risks.

8. Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)

Jurisdiction: Canada

Canada's AML/CFT legislation is set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). This act was established to combat the laundering of illegal proceeds and the financing of terrorist activities.

A sound and comprehensive compliance program that complies with the PCMLTFA and other relevant regulations is essential to ensure you are able to comply with the requirements of the country in terms of record-keeping, reporting, customer identification, and KYC as outlined in the legislation. As a reporting entity, you are subject to the PCMLTA. 

The types of entities included here include financial institutions, credit unions, banks, life insurance companies, loan companies, securities dealers, foreign exchange dealers, money services businesses, casinos, real estate companies, and real estate brokers and developers.

Access the State of Fraud and AML 2022 Report Now

8 Notable Examples of AML Fines and Penalties

The act of laundering money is often connected to a number of other common financial crimes, such as tax evasion, asset inflation, drug trafficking, and others. The increasingly complex global financial networks will also be exploited by criminals.

The local government, federal government, and international organizations are capable of monitoring and prosecuting money laundering schemes, depending on the activities' size, scope, and location.

There are plenty of cases where money laundering schemes persist for years before anyone is prosecuted. However, many money launderers do ultimately get caught.

Typically, FIs are fined or penalized for AML failings based on inadequacies in their AML framework, governance, and policies. If AML requirements are not followed, penalties can be severe and prison time may be imposed.

Businesses all over the world suffer reputational damage and harsh penalties as a result of insufficient AML compliance each year.

There are a number of reasons why regulatory bodies punish banks, Fintechs, and other FIs, but here are a few of the main ones:

  • An inadequate culture of compliance, values, norms, and ethics
  • Suspicious activity reporting failures
  • KYC, PEP, and CDD risks are not sufficiently assessed
  • AML control vulnerabilities
  • Inadequate gathering of transaction information

To illustrate the true consequences of AML failings, we cover real-life examples of AML fines and penalties that have been issued below.

1. Capital One

The Financial Crimes Enforcement Network (FinCEN) penalized Capital One to the tune of $390 million for deliberate and careless violations of the Bank Secrecy Act in relation to Check Cashing Group.

Capital One admitted that between 2008 and 2014 they willfully failed to file thousands of SARs on time (more than 20,000 transactions totaling more than $160 million), and, they negligently failed to file thousands of CTRs (more than 50,000 transactions totaling more than $16 billion).

Any designated person who knows, suspects, or has grounds to suspect a client of money laundering or terrorist financing is required to make suspicious transaction reports (STRs).

Filings also need to be done within the allotted time frame to ensure no penalties follow. Organizations using Unit21's transaction monitoring solution can monitor customer transactions and use case management to file regulatory reports efficiently.

2. Deutsche Bank

The German-based Deutsche Bank, which provides financial services worldwide, was fined $130 million by the SEC for violating the Foreign Corrupt Practices Act and a commodities fraud scheme. During the investigation, the US Securities and Exchange Commission (SEC) discovered that millions of dollars had been funneled through Deutsche Bank through crimes of bribery and fraud.

Whenever an employee or associated person becomes aware of irregularities that may be considered bribery or money laundering, they must report this to the senior compliance manager. As a result, bad publicity and high penalties can be avoided.

3. BitMEX

After falling short of anti-money laundering (AML) standards and engaging in cryptocurrency trading without regulatory authorization, BitMEX agreed to pay $100 million in fines as part of a settlement agreement with the Financial Crimes Enforcement Network (FinCEN) and the Commodity Futures Trading Commission (CFTC).

If a company facilitates transactions in the cryptocurrency market, it is imperative that the company registers itself with FinCEN for the purpose of obtaining a license to facilitate the transaction, just like any other market intermediary, and to implement a strong anti-money laundering compliance program.


According to the British Financial Conduct Authority (FCA), HSBC was fined $85 million (£64 million) as a result of several failures in the bank's transaction monitoring systems, which were the backbone of the bank's AML processes from March 2010 to March 2018.

There are severe consequences for failing to comply with SAR regulations. These penalties include civil and criminal penalties, such as fines and regulatory restrictions, as well as the loss of a bank's charter as a result.

When you fail to file a SAR after discovering information about money laundering based on a disclosure under these circumstances, you may commit an offense under:

  • Section 330 POCA – if you're in a regulated industry
  • Sections 337 or 338 POCA – for non-regulated industry

These are known as 'failure to disclose' offenses, and essentially amount to the neglect of a company's AML obligations.

5. NatWest case

In accordance with the AML laws of the United Kingdom, state-backed NatWest, formerly the Royal Bank of Scotland, is the first British bank to be fined by the Financial Conduct Authority (FCA) for failing to prevent money laundering under the guidelines of the AML laws.

As a result of the bank's failure to detect and prevent an act of money laundering amounting to £365 million committed by a customer of the bank, it was fined a total of £265 million.

Strong controls must be in place within financial organizations to ensure that transactions are monitored and screened for suspicious transactions and handled appropriately.

These failures can sometimes lead to money laundering breaches when combined with serious system failures, such as treating cash deposits as checks. Organizations can save a lot of trouble by implementing integrated transaction monitoring and fraud detection solutions.

6. N26

During 2019 and 2020, N26 was penalized $5 million for failing to file a high number of suspicious transaction reports. N26 had already been cautioned by BaFin and assigned a special commissioner to oversee compliance with KYC and AML rules.

Whenever a reporting entity suspects or has reasonable grounds to suspect that funds are related to criminal activity or are the proceeds of terrorist financing, the Financial Intelligence Unit (FIU) must be notified promptly; as soon as possible but not later than 3 days after the suspicion is raised.

Reporting entities must possess systems for ensuring that reports are made on a timely basis to comply with legal requirements. There are circumstances in which legal requirements or regulatory requirements mandate reporting suspicious activity once a suspicion has been formed. 

That is, once a suspicion has been formed, a report must be filed, and therefore a risk-based approach to reporting suspicious activity under these circumstances would not be applicable.

7. USAA Federal Savings Bank

The Financial Crimes Enforcement Network (FinCEN) conducted a civil enforcement investigation and imposed a Civil Money Penalty of $140 million against USAA Federal Savings Bank (USAA FSB) in March 2022. The BSA determined that regulations were violated with willful intent.

From at least January 2016 through April 2021, USAA FSB willfully failed to implement and maintain an anti-money laundering (AML) program that met the minimum BSA requirements.

Aside from this, USAA FSB conceded that it willfully failed to report thousands of suspicious transactions involving its customers' financial activity to FinCEN promptly and accurately, including customers using personal accounts for apparent criminal activity.

8. MidFirst Bank

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a Finding of Violation (FOV) to MidFirst Bank (MidFirst) on July 21, 2022, for violations of the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR).

MidFirst violated OFAC regulations by maintaining accounts for and processing 34 payments on behalf of two individuals on the Specially Designated Nationals and Blocked Persons list (the "SDN List").

MidFirst misunderstood the vendor's frequency of screening new names added to the SDN List against its existing customer base, resulting in violations. Rather than a civil monetary penalty, OFAC determined that a FOV was the appropriate administrative action.

The FOV emphasizes the importance of ensuring financial institutions take a risk-based approach to sanctions compliance, including when implementing sanctions screening tools, as well as the importance of ensuring that outsourced sanctions compliance services are compatible with the institution's assessment of sanctions risks.

Best Practices for Avoiding AML Fines and Penalties

Regardless of whether an organization has any material knowledge of money laundering or money laundering-related activity, the federal government expects financial institutions to conduct a basic level of due diligence. Failure to meet these standards can result in significant AML fines or even harsher penalties in some cases.

Here are a few tips for improving your compliance program:

Risk-Based Approach to Sanctions Compliance

To develop sanctions compliance programs that comply with OFAC regulations, financial institutions need to be proactive and take a risk-based approach. Regarding sanctions screening, there is no one-size-fits-all solution.

The risk profile of each financial institution may affect the risk tolerance and approach to sanctions compliance.

A financial institution's assessment of its sanctions risk should determine how frequently it screens and reviews existing customers and accounts. A risk-based approach to sanctions compliance is a key component of this.

Risk Assessment and Reviews of Systems and Processes

Financial institutions should assess the risks and benefits of the systems and tools in place and should ensure that adequate controls and reviews are in place over the existing systems.

This is extremely important, as the ultimate responsibility for compliance with the AML regulations lies on management, whether the systems and tools are developed internally or outsourced.

Investing in Staff Training

Financial institutions should ensure that their employees possess the appropriate qualifications, knowledge, awareness, and understanding of anti-money laundering laws, regulations, and applicable financial sanctions. 

This is especially true of the compliance officer involved in developing and implementing compliance systems, processes, and controls. Investing in capacity building and training of employees is key, as FIs are still susceptible to fines and penalties for non-compliance, whether intentional or negligent.

AML compliance has become more challenging over time as regulations have become more stringent. Financial institutions have faced harsh fines where compliance programs have been deficient.

Criminals are constantly finding new methods and schemes to get away with money laundering, forcing AML regulations to evolve regularly to keep up. Financial institutions will need to make significant investments in reviewing and improving their AML compliance program, ensuring they adapt to tackle the newest AML trends facing their business.

Given the legal significance of the anti-money laundering requirements, it’s essential for financial institutions to establish a compliance program, understand the requirements they have to adhere to, and establish adequate training to avoid fines and penalties related to anti-money laundering policies.

Chapter 6: Types of AML Software & Solutions to Consider

The same risk and compliance standards are applicable to small banks and financial institutions, emerging neobanks, cryptocurrency exchanges, and other enterprises in the financial services industry.

This has fueled the need for dynamic and lean AML technology, which refers to the automated systems used by financial institutions to monitor customer information and detect abnormal transactions.

Let’s explore the main types of AML solutions that FIs use to perfect their anti-money laundering efforts and operations.

What is Anti-Money Laundering (AML) Software?

Anti-money laundering software is a valuable solution for financial institutions in the battle against financial crime. It includes technologies that are designed to automate, streamline, and optimize mundane compliance tasks to help organizations comply with required AML regulations.

All financial institutions face money laundering risks and are required by law to manage regulatory compliance. In today’s rapidly evolving environment, traditional, manual methods of combating money laundering aren’t sufficient.

Modern FIs, especially Fintechs, leverage artificial intelligence and data science to optimize their AML operations and management, leading to quicker, more agile, and more accurate performance of AML requirements.

The adoption of AML software should be included in a broader AML compliance framework and executed as part of a risk-based approach tailored to the specific requirements of a financial institution.

Software may be used to trace and detect massive amounts of unusual activity involving valuable assets as well as smaller, individual transactions.

How Does AML Compliance Software Help?

Traditional and manual procedures are no longer useful in today's environment while attempting to combat financial crimes. Every day, criminals come up with new ways to launder money. 

Financial crimes continue to be a risk to companies that use manual and traditional procedures. With steep penalties for failing to comply with AML regulations, it’s critical to have a solution to help teams stay abreast of all regulations they need to follow.

Given the complexity of the legal and regulatory frameworks, anti-money laundering software is often a critical and essential part of its AML strategy. Nearly all legislations impose substantial regulatory obligations, demanding external audit procedures, and reporting requirements. 

Accurate customer authentication and due diligence procedures are mandated under the US Bank Secrecy Act, the UK's Money Laundering Regulations (2007), the EU's Anti-Money Laundering Directive (2017), and other statutes that safeguard financial institutions.

Recent cases of money laundering, like Danske Bank’s recent $2.1 billion settlement, demonstrate the impact AML failures can have on a financial institution. It’s important to note that regardless of intent, inadequate AML controls due to neglect still leave FIs exposed to serious liability, leading to substantial fines and even criminal culpability.

A traditional approach to managing and monitoring AML regulations can weaken AML compliance programs and leave them vulnerable to failure.

AML software that leverages KYC processes and high-quality transaction monitoring can help organizations verify customers, flag suspicious transactions and behavior, screen sanctions and PEP lists, and even mitigate false positives; plus, they can do it faster and more effectively than manual processes.

While AML compliance software helps organizations manage their AML program, there are a number of specific tools that perform different functions. To help FIs choose a solution that will help them optimize their AML compliance operations, we explore the different AML compliance tools in detail.

8 Types of AML Software: Top Features to Look For

There are a variety of tools and solutions available for compliance operations to run accurately and efficiently. We cover the different tools that organizations require for this in detail below.

1. Identity Verification

Who uses this: Analysts

Identify verification tools authenticate customer information (whether that be an individual or a business). They collect the customer’s name, location, and other identifying information, as well as understand the nature of the business relationship.

Typically, they leverage KYC or KYB databases to ensure that they know a customer is who they say they are before engaging in a relationship with the customer.

As per regulatory requirements, businesses must take the necessary procedures to determine and verify each customer's unique money laundering and terrorist financing risks.

In order to ensure the KYC process is thorough, due diligence is performed on the perceived level of risk or new customers using one (or both) of the methods below:

  • Customer Due Diligence (CDD): CDD is the fundamental process of obtaining information on potential customers to create a comprehensive picture of their identity and risk level.
  • Enhanced Due Diligence (EDD): When a consumer is identified as high-risk under CDD, an additional level of investigation, called EDD is carried out. EDD pays closer attention to prospective clients who are more likely to engage in financial crime, such as money laundering or supporting terrorism, given the nature of their business activities.

Digital identity verification can be used by businesses to quickly identify and verify their customers. Biometric or facial recognition, digital forms of identification, and other methods such as liveness checks, one-time passcode authentication, or database checks are some of the few ways to enable the verification of digital identities.

In-person customer verification is practically impossible with international customers. Digital identity verification helps secure your company and comply with regulations.

Criminals are very creative and adept at leveraging digital avenues to commit money laundering. High-quality ID verification methods, such as KYC procedures and biometrics, can root out malicious actors and stop them from entering your product ecosystem in the first place.

2. Transaction Monitoring

Who uses this: Analysts | Investigators

Despite doing your best to verify customer identities at the point of onboarding, criminals can still get through the cracks. To effectively combat the illegal laundering of funds, transaction monitoring is an essential element of AML procedures.

Transaction monitoring can detect suspicious activity and anomalies in user behavior, flagging these cases for further investigation. This is done with finely tuned rules that generate alerts for behavior that doesn’t align with the user's past behavior or behavior that may be indicative of money laundering.

A staple in AML compliance, transaction monitoring software offers real-time screening of transitions, allowing AML teams to react quickly when suspicious activity occurs.

These incidents can then be quickly escalated to the appropriate authority for further investigation. In some cases, transaction monitoring can even stop illicit transactions from occurring in the first place, halting them in their tracks.

3. Case Management

Who uses this: Analysts | Investigators

Once suspicious transactions or users are identified, they need to be investigated and (when warranted) reported to the appropriate authorities. After an alert has been generated, each case needs to be managed, ensuring it gets properly investigated and is reported on time.

AML case management is typically the final - albeit long - stage of any successful AML program. It usually marks the final touchpoint an organization has with the case, as legal authorities will then take action based on the filing.

Analysts are required to review and investigate the incident of suspicious activity and then complete and file a suspicious activity report to authorities.

Traditionally, case management is a time-consuming, manual process that involves prioritizing cases, investigating the activity in detail, and then filling out and filing a report.

Fortunately, AML case management software automates much of this process for organizations, streamlining the production and filing of reports. Some of the best solutions will automate report filing, freeing up significant time for risk and compliance teams to do more useful tasks - like investigating cases.

While this workflow may vary slightly for certain industries, most financial institutions must follow a relatively similar process. The best case management software helps provide a simple, seamless system for handling, investigating, and reporting cases of illegal activity.

4. Sanctions and PEP Screening

Who uses this: Analysts | Investigators

Financial institutions are restricted from doing business with certain high-risk clients and organizations that are kept on ‘blacklists’ by some jurisdictions, such as the Specially Designated Nationals List of the United States.

Sanctions and PEP screening is a vital step in minimizing the risks of conducting business with individuals tied to bribery and political corruption or those who are based in a sanctioned jurisdiction.

Anti-money laundering software cuts out any manual work in this process by immediately identifying and flagging a blacklisted entity. These checks are intended to prevent financial crime and anyone garnering adverse media attention.

5. Risk Assessment & Management

Who uses this: Analysts | Investigators | Managers

Identification, assessment, and prioritization of risks is the first step in risk management, which is followed by a coordinated and cost-effective utilization of resources aimed at minimizing the probability or impact of unfavorable events.

Risk management often entails maintaining a record of all the risks a business faces, assessing these regularly, scoring these risks to determine which threats to prioritize, and creating a risk-mitigation plan to eliminate or minimize each threat.

Once data is compiled and evaluated by compliance analysts, a compliance manager oversees the organization's risk management program, detecting risks that could impact the organization's reputation, safety, and financial success. The team then creates measures to reduce or mitigate any unfavorable outcomes.

Organizations in the financial industry require integrated solutions for greater risk insights and decision-making. AML software can help teams develop an effective risk management strategy, identify the biggest threats, and consolidate all this information in a unified dashboard for easy analysis.

6. Suspicious Activity Reporting

Who uses this: Analysts | Investigators

Every time there is a suspected case of money laundering or fraud, financial institutions and those associated with the organization are mandated to file a Suspicious Activity Report (SAR) with the proper regulatory authority. In the U.S., this is usually the Financial Crimes Enforcement Network (FinCEN).

These reports are instruments that ensure suspicious activity is properly investigated and stamped out, and are required for transactions and behavior that could be indicative of criminal conduct, may be a threat to public safety, or appear unusual in nature.

Determining what amounts to suspicious activity varies in different countries and regions, but there are typically clear guidelines within jurisdictions about what activity should lead to a SAR.

Suspicious Activity Reports (SARs) are required to be filed under AML regulations, and failure to do so can result in hefty fines and penalties. While these can be done manually, they are often one of the more time-consuming processes in case management (and certainly one of the most boring and repetitive). 

Fortunately, case management solutions that automate SAR filing to regulatory authorities like FinCEN and goAML take a lot of the manual work out of this, producing and filing SARs on your behalf. This frees up staff time for more important tasks, like investigating cases.

7. Investigation Optimization

Who uses this: Analysts | Investigators

An AML investigation is a formal investigation of suspicious activities, meant to ascertain whether a customer (whether they’re an individual or an entity) is using the financial institution to launder money.

Investigation optimization facilitates the implementation of focused AML and anti-fraud initiatives, minimizing turnaround times and improving task performance.

These solutions not only make investigations themselves easier through the use of unified dashboards, consolidated information, and advanced analytics features, but they also aid with alert prioritization so teams use their time effectively.

Consequently, false positives can be reduced without any valuable data being lost. A business can find solutions very efficiently with more targeted alerts.

Though false positives cannot be eliminated entirely, minimizing their frequency can assist in boosting performance, building team morale, and cutting operational expenses, all of which substantially affect revenue.

The best risk and compliance teams accomplish this using transaction monitoring software that enables rule testing prior to implementation.

8. Alert Scoring

Who uses this: Analysts | Investigators

One of the biggest challenges risk and compliance teams face is improving efficiency. It’s often challenging to marshall resources effectively to root out the biggest threats.

Alert scoring provides a quantitative value (on a scale of 0 to 100) for each incident of suspicious activity, allowing fraud and AML investigators to instantly comprehend the threat level of a case. This system essentially provides a simple means of ranking - and prioritizing - the highest-risk alerts.

More advanced tools use AI and machine learning that allows the system to leverage previous alerts to better predict risk scores, and therefore improve the efficiency of the alert generation system. 

Having a user-friendly UX that clearly indicates which alerts need to be prioritized makes it easier for fraud and AML agents to perform their roles, requiring less training and experience to do their jobs.

Alert scoring can even allow organizations to manage cases more efficiently across the team, ensuring lower-risk cases are given to newer analysts while escalating more complicated, high-risk cases to more experienced team members.

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Criteria to Consider When Purchasing AML Software

AML violations can have serious consequences for financial institutions, including severe fines and penalties, criminal liability, and reputational damage. When choosing an AML software, the selection process should be thorough, taking into account the consequences for the financial institution and individuals involved.

It’s imperative that a solution meets regulatory requirements, can adapt to the organization’s various and changing demands, and can adequately protect the organization (and its customers) from money laundering threats.

Below, we cover the main criteria to consider before making a final decision.


Why it Matters

User Interface

The system should have an intuitive, easy-to-use interface that empowers teams to manage cases and perform investigations faster, even with little technical background or experience.


The software should automate a variety of repetitive and mundane tasks, saving time and internal resources. Most tools will streamline customer onboarding and case management.

Operational Efficiency

The system is intended to optimize AML compliance procedures by enabling efficient performance while using the solution.

Easy Setup & Integration

The solution must be easy to set up and integrate with systems the organization is already using. The longer it takes for teams to get the system up and running, the longer they are exposed to money laundering threats.

Regions Covered

Since AML regulations are specific to the jurisdiction FIs operate in, it’s imperative that the solution organizations are considering is optimized to perform in the regions they do business.

Vendor Support & Updates

An AML solution should be regularly updated and maintained so that it’s always operating at peak performance. Without consistent - and timely - updates, the FIs will fall behind and struggle to keep up with AML regulations.

Customer Service

It is essential to choose a solution with a vendor that is easy to work with, and that will offer adequate support. This is especially true when it comes to technical assistance and operational training.

AML violations can have serious consequences for financial institutions, including severe fines and penalties, criminal liability, and reputational damage. When choosing an AML software, the selection process should be thorough, taking into account the consequences for the financial institution and individuals involved.

It’s imperative that a solution meets regulatory requirements, can adapt to the organization’s various and changing demands, and can adequately protect the organization (and its customers) from money laundering threats.

Below, we cover the main criteria to consider before making a final decision.

Chapter 7: Building a Successful AML Compliance Team

An organization's AML compliance efforts are only as good as the teams behind them.

An organization with a strong culture of AML compliance can identify compliance inconsistencies early, minimize risks, and provide effective solutions. Assembling a top-notch compliance team is essential toestablishing an effective compliance programwithin an organization.

When there is a clear understanding of risk responsibilities across the entire organization, businesses are far more successful at implementing AML measures.

In this section, we explore how to build a top-notch AML team to help you effectively combat money laundering.

Let’s look at the five main steps to building an AML compliance team.

5 Steps to Build Your AML Compliance Team

An ethics-based approach that values culture is replacing the ‘tick box’ mindset that once defined compliance. The compliance team does not operate in a silo, and they need to be integrated with the needs and responsibilities of the organization as a whole, understanding what the product development, sales, and marketing teams' goals are. Most importantly, they must clearly understand how compliance affects other business departments and work closely with those teams from the start.

To achieve this, compliance teams need to be aware of the difficulties the organization faces so they can make compliance meaningful across the organization’s various functions by customizing standards, communication, and policies. Below, we look at the main steps for building a highly integrated, effective AML compliance team.

1. Designate a BSA Compliance Officer

The Bank Secrecy Act Compliance Officer (BSA CO) serves as the link between senior management and the compliance team, ensuring the executive's vision is carried out. They are primarily responsible for overseeing their institutions’ anti-money laundering compliance programs, policies, and operations.

Financial institutions must legally appoint a BSA CO under compliance regulations in almost every jurisdiction. Failing to have a BSA CO can lead to fines, compliance inconsistencies, and loss of goodwill.

Typically, BSA COs have prior experience with AML compliance at financial institutions and bring with them experience and expertise that enables them to make high-level decisions about regulatory compliance within the organization.

2. Hire Compliance Officers for Investigation + Filing

The Chief Compliance Officer can’t do it alone; they need a team of compliance officers responsible for analyzing, investigating, and reporting suspicious activity. They must be well-versed in KYC procedures, customer due diligence, transaction monitoring, and regulatory reporting.

Compliance officers report directly to the CCO. Without experienced and properly trained COs, companies risk breaking applicable laws and regulations.

It’s essential that COs can monitor and drive compliance management, file suspicious activity reports, investigate anomalies, and ensure guidelines outlined by the CCO and senior management are followed.

Hiring a team with experienced and diverse members is beneficial for the organization as they add value to the company with the help of their individual skills or strengths.

3. Build Out Your Compliance Engineering Team

Building a compliance engineering team is an option if you plan to create an in-house AML solution.

Their responsibilities include improving controls for internal security, performing regular security-related checks, reporting on the effectiveness of controls, and responding to ad-hoc external queries related to security.

Compliance engineers must understand the technical implementation details necessary to assess general and situational risks. They should clearly understand cloud infrastructure and ISO standards that keep the organization safe and secure according to IT security guidelines.

However, companies often replace an in-house solution with a vendor like Unit21. This occurs because compliance engineering resources are expensive and in-house builds are typically challenging to optimize quickly.

While there are pros and cons to each option, every organization is different and has varied reasons for choosing one way or the other. To truly understand if you can build vs. buy your compliance solution, we cover all the steps required in this separate article.

4. Align Your Team Around Your Compliance Program

Team members should respect, trust, and encourage each other. This entails considering how each colleague's skills and expertise will mix well. When issues arise, a wide range of different perspectives and ideas will be advantageous, as these insights can determine the best path forward.

The team should be able to work well together while also being able to challenge each other when required, advocating for updates according to their duties and responsibilities.

To establish accountability for the program and each individual, everyone must know what is required of them. Expectations that are clearly communicated lead to a sense of camaraderie and trust, resulting in better performance and a culture of collaboration.

5. Train Your Team and Get Started!

By providing staff with compliance training, the company can ensure they are aware of all the internal and external regulations and laws that affect business operations.

Additionally, it guarantees that the employees are aware of how and why they must follow guidelines in their tasks.

Compliance training needs to be essential and continuous. Compliance training must be given to everyone in the organization regularly, not only to new hires. If implemented right, this creates the foundation for a positive culture where team members can voice concerns and prevent issues from developing.

Every organization and industry will have a different set of compliance training subjects, and training will vary from position to position and across departments.

However, there are several essential topics that organizations should tackle in their training process:

  • Federal and state laws
  • Company procedures and policies
  • Code of conduct
  • Data privacy and security
  • Fraud detection and prevention (anti-money laundering, anti-bribery, etc.)
  • Business ethics (gift policy, conflicts of interest)
  • Risk management

AML Officer Responsibilities & Duties

Compliance officers are in charge of ensuring that their company's organizational and management procedures comply with regulatory obligations. Their broad responsibilities include everything from conducting risk assessments to providing guidance.

Let’s examine the responsibilities a compliance officer will need to fulfill.

  • Compliance Policy: Developing and implementing the company's AML compliance policies by keeping up with the latest updates on regulations.
  • Training: Providing training to the staff on a regular basis, and keeping them informed about any legal or regulatory changes.
  • Risk Assessment: Conducting risk assessments, as well as creating a mitigation plan to minimize and manage these risks.
  • Due diligence: Establish a robust KYC and due diligence procedure to onboard clients and continuously monitor them based on the outcome.
  • Point of contact: Act as a point of contact between the senior management, compliance team, and regulators. 
  • Reporting: Identify and report any suspicious transactions or activities as per regulatory guidelines.

If you’re operating in the U.S., many compliance teams choose to have a Bank Secrecy Act (BSA) Officer to ensure that the institution is fully compliant with any laws related to the Bank Secrecy Act. The role of a BSA differs slightly from an AML Officer. If you’re in the U.S. check out our deep dive on the role of a BSA Officer.

What It Will Cost: AML Compliance Officer Salary

Compliance officers' salaries are based on their level of professional experience; the more experience, the higher the compensation. High standards of ethics, exceptional communications skills, and managerial skills are essential for the position. Because of this, businesses rarely use Compliance Officers in entry-level positions.

There are three types of seniority levels, each of which has a range of compensation packages:

  • The annual salary range for a Compliance Officer is $55,000 to $100,000.
  • The annual salary range for a Senior Compliance Officer is $90,000 to $130,000.
  • The annual salary range for a Chief Compliance Officer is $120,000 to $250,000.

Source:; based on average base pay salaries using their Salaries tool, using San Francisco as the location.

Investing in compliance resources can be expensive; the best way to save such expenses is by investing in reliable AML software and training a compliance professional to use them. As per BSA and other legislations worldwide, there is a mandatory requirement to hire a compliance officer or MLRO.

Investing in AML software solutions can help the compliance officer and the entire business financially by avoiding fines, and penalties, and paying salaries to multiple people to do the same job manually.

A high-quality AML compliance tool allows even non-technical staff to perform complex tasks. This lets you build out a team with fewer resources that can perform at the level you need. This not only helps with the turnaround time, but also helps the compliance officer work independently and efficiently, with accurate results.


AML compliance officers help ensure their companies follow AML regulations and take the appropriate measures against financial crimes. It’s crucial to invest in a high-quality solution that empowers compliance professionals to identify instances of fraud and money laundering rapidly and without help from the engineering team.

Chapter 8: Steps to Build an Effective AML Compliance Program

To successfully conduct AML procedures and prevent money laundering, organizations need an effective AML compliance program. This isn’t easy to achieve and requires planning and execution from the risk and compliance team.

Now that we’ve covered how to build the best possible team as your program's foundation, this section will explore the steps required to implement a robust AML compliance program.

Let’s start by explaining what an AML compliance program is, why we need it, and what we need to do to create a successful AML program.

What is an Anti-Money Laundering (AML) Compliance Program?

An Anti-Money Laundering (AML) compliance program is a set of policies and procedures establishing the infrastructure for an organization's compliance operations. These programs set up guidelines for risk and compliance teams and outline how financial institutions (FIs) will identify and combat money laundering.

Due to constantly changing rules and regulations, maintaining an AML compliance program is a continuous challenge.

The compliance program must be tailored to the institution’s business needs and the nature of the service, product, and clientele. It cannot be one-size-fits-all.

Why an AML Compliance Program is Important

An AML compliance program is an important aspect of an organization’s compliance framework. It is imperative to understand anti-money laundering policies, procedures, and regulations to be able to create a robust AML compliance program within the business.

Because a compliance program establishes the procedures and guidelines that an organization should follow concerning anti-money laundering policies, it’s essential to ensure organizations adhere to AML requirements.

It provides necessary guidance on how risk and compliance professionals should perform their duties to mitigate risk and ensure the FI stays compliant with any regulations.

Failure to meet AML compliance requirements can lead to significant fines and penalties for the organization. Having a comprehensive policy that team members can easily refer to helps organizations avoid liability for failing to meet AML compliance standards. These fines and penalties can be substantial. 

For example, Capital One was fined $390 million for both willful and neglectful violations of the BSA, failing to report $16 billion worth of transactions despite several warnings from regulators.

5 Fundamentals All AML Compliance Programs Should Have

Every AML program should have a compliance officer, resources dedicated to compliance, AML compliance policies, key controls and procedures, effective tools, and a strong compliance framework within an organization.

An AML program should cater to the requirements and risks of an organization. As different organizations and their operations may pose different risks, it’s imperative that the program is tailored to the needs of the organization.

While AML requirement standards need to be met, there is no one-size-fits-all approach to creating a compliance program.

Several regulators all over the world have set standards for this. In the United States, the main legislation followed is the Bank Secrecy Act (BSA), which establishes pillars for building a program that is widely accepted as best practice.

5 Pillars of a Successful AML Program

The Bank Secrecy Act is a U.S. legislation focused on detecting and preventing money laundering within the financial industry. The law prescribes a set of regulations that require institutions to record cash transactions and report any that exceed a certain threshold or are suspicious.

In accordance with the BSA, U.S. financial institutions are required to enforce an AML compliance program within their organization, which should consist of 5 pillars.

The five pillars of AML compliance are:

1. Designation of a Compliance Officer

The first step is to designate a BSA compliance officer to manage AML operations. Due to the sensitive nature of AML operations, it’s important to invest in a well-qualified and experienced officer to manage a company’s AML program and operations.

This individual will act as a focal point for all money laundering and financial crime-related activities within an institution and shall act as an intermediary between the compliance department and the senior management team.

They are a core element in protecting the organization from compliance failings, breaches, and other fines or penalties.

In certain jurisdictions, they are often called a Money Laundering Reporting Officer (MLRO). A compliance officer, regardless of what they are called and the jurisdiction has significant responsibilities, which include the following:

  • Receiving and evaluating suspicious transaction/activity reports (STR/SAR)
  • Taking necessary decisions regarding STRs/SARs
  • Leading the AML/CFT compliance function
  • Overseeing risk management strategies
  • Point of contact: Act as a point of contact between the senior management, compliance team, and regulators. 
  • Ensuring there is a culture of compliance within the organization
  • Having adequate regulatory knowledge and staying updated with relevant changes
  • Carrying out all responsibilities in an unbiased manner with ethics and integrity
  • Communicating effectively with both the compliance department and senior management

A compliance or money laundering officer (BSA officer or MLRO) should be a valued team member whose inputs are considered by the senior management and employees.

A compliance officer should focus on keeping the organization safe from illicit activities such as financial crime, and combat threats by creating procedures to detect and prevent money laundering. Past cases involving compliance failings have enumerated how pivotal this role is.

2. Development of Internal Controls

It is vital to ensure that internal controls and procedures are set up in a way that helps detect any suspicious activities by monitoring and combating them. It is critical to establish a strong KYC framework during client onboarding to understand the customer, the nature of their business, assets, and clientele. 

Ongoing monitoring is another important part of a successful AML compliance program, ensuring customers and their activities are monitored throughout the customer lifecycle (and not just during onboarding).

Key controls, such as corporate governance, risk assessment, senior management responsibility, training, internal and external communication, audits, PEP/sanctions screening, escalation procedures, and mitigation of risk, are some crucial elements of an efficient compliance system.

All these components should be included in a compliance policy. Case studies show that a lack of these controls often results in breaches and non-compliance.

Failure to implement adequate policies and controls can result in hefty fines and loss of reputation, as we see in the case of Sunrise Brokers LLP. The company was fined over £600,000 for failing to have adequate AML compliance systems and controls.

There was a lack of implementation of controls such as screening processes, senior management engagement, independent assurance, and escalation procedures concerning the management of violations.

3. Establishing a BSA Training Program

One of the most essential steps toward implementing a successful AML compliance program is establishing proper training and development.

To do this, there needs to be clear documentation regarding policies and procedures that need to be followed, as well as adequate training for team members to perform their duties with competence.

There are no exceptions for failing to meet compliance standards, and organizations can still be held accountable for negligence or incompetence.

It’s essential that risk and compliance professionals receive adequate training, and that they have access to supporting documentation to guide their work. It’s vital that organizations establish a training program for compliance, and that this training is implemented for all team members.

One of the key challenges facing many compliance professionals is spreading awareness and trying to make members of other teams or departments, across all levels, understand why the organization needs compliance programs in place.

Educating other team members on why compliance is essential, the consequences of non-compliance, and what is expected of them with real-world scenarios and examples is imperative. It ensures they prioritize compliance, report any suspicious activity, and follow a code of conduct.

4. Independent Audits and Reviews

An independent audit helps a company evaluate how effective its compliance program is. It should be conducted by someone who is not affiliated with the organization or involved in the development process of the compliance plan.

It is a great way to monitor the organization’s current situation, detecting inconsistencies and the effectiveness of the current policies and procedures.

This also evaluates how employees and senior management adjust to the policies and procedures. It enforces a culture of compliance, which is an integral part of an organization’s strong compliance system.

5. Perform Customer Due Diligence

This pillar focuses on investigating the person behind an account to estimate their risk levels and collect relevant information about them.

Customer due diligence is a crucial part of AML compliance plans and must be implemented based on risk profiles after considering factors such as the nature of the business relationship, the industry, jurisdiction, source of funds, and more. This also involves updating customer information periodically after the onboarding process is successful.

Again, the penalties for failing to meet KYC procedures cannot be understated. In 2019, Westpac was fined $1.3 billion, the largest fine any Australian bank had received at the time.

Ultimately, the bank was fined for failing to report 23 million violations of money laundering regulations, including failing to keep records of fund transfers, monitoring risks associated with this activity, and inadequate KYC processes for transactions related to child exploitation.

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7 Steps to Create a Successful AML Compliance Program

A common link in AML failures stems back to the lack of implementing proper risk management policies, specifically with regard to customer due diligence and case management filing.

Many of these issues would be avoidable with clear guidelines around customer due diligence procedures and an available channel for escalating suspicious activity.

Conducting and maintaining an effective AML compliance program is challenging, considering many factors. To ensure organizations have an adequate policy in place, we outline the following steps for creating and managing an AML compliance program below:

Step 1. Set the Tone at the Top

Every successful AML compliance program starts at the top. The organization must promote cooperation and engagement with the risk and compliance team from early in the development process.

This collaborative risk culture is imperative for ensuring risk and compliance efforts are valued, but also saves valuable time and effort on compliance operations across the organization.

Senior team members and leaders must prioritize compliance, and encourage communication and cooperation to set a good organizational tone.

Step 2. Appoint a Compliance Officer

Every compliance program needs a clear leader, responsible for guiding the team, resolving issues that arise, and ensuring the compliance program is properly enforced across the organization.

They will work closely with different departments, advocating for AML compliance requirements along the way, and ensuring product development teams consider AML guidelines throughout their own process.

They’ll be a key point of contact for the entire risk and compliance team, and will be responsible for guiding the team toward successful implementation and management of the AML policy.

Step 3. Establish and Share a Written Compliance Policy

A clear, well-written compliance policy and procedure establishes and enforces a plan that needs to be adhered to.

Drafting a policy provides the organization with a governance structure where clear roles and responsibilities are established, builds a channel of communication between departments, and maps out how the resources will play their part in maintaining compliance.

Not only should the compliance policy be clearly laid out in a written document, it needs to be accessible to the entire organization so that all members understand their roles and obligations.

Step 4. Implement a Training Program for Staff

Providing access to the compliance program isn’t enough. All team members must understand their roles and responsibilities in relation to AML operations. This means training risk and compliance professionals and the entire staff.

Each team member should know how they are impacted by the AML program, their responsibilities, and how to perform their jobs in a manner consistent with the AML policy.

Build out a training program that onboards new staff, as well as retrains and refreshes staff throughout their time with your organization. This program needs to be updated regularly to stay relevant and fresh, ensuring all team members are aware of their roles and responsibilities.

Step 5. Perform Ongoing Monitoring

Transaction and behavior monitoring is an essential element of a successful AML policy. It helps compliance teams identify red flags, inconsistencies, or potential problems that may arise.

This includes reviewing policies and ensuring employees are trained to understand compliance, analyze risk indicators, monitor transactions of all kinds, and stay on top of any regulatory updates or changes.

Step 6. Run Internal Audits to Review Performance

It is crucial to conduct compliance audits from time to time and review and update them according to the company’s current situation, risks, and regulatory requirements. Compliance teams should regularly audit their AML program, identifying areas for improvement.

The fact is, just as money laundering efforts are constantly changing, so should your detection and prevention methods. Consistently review the program for weaknesses, and make updates that improve your ability to mitigate fraud.

It’s a best practice to perform internal audits and have external auditors review your compliance policy.

Step 7. Set Up Strategies for Incident Management

It’s much easier to address problems if you’re prepared ahead of time. As part of your compliance program, it’s important to outline specific guidelines and procedures for handling the variety of incidents that may arise.

Clear guidelines for security breaches, different types of suspicious activity, and internal misconduct allow you to react quickly and agilely. This helps risk and compliance teams easily navigate issues, speeding up operations and ensuring all regulations are followed.

How to Create an AML Policy to Guide Your Compliance Program

One of the key components of a successful AML program in a company is developing and implementing an effective policy, establishing a strong foundation on which an organization’s risk and compliance efforts can be governed and managed.

It should be customized as per the industry and company’s requirements. These are the top tips for developing a great AML policy.

1. Keep It Simple

One of the key components of a successful AML program in a company is developing and implementing an effective policy, establishing a strong foundation on which an organization’s risk and compliance efforts can be governed and managed.

It should be customized as per the industry and company’s requirements. These are the top tips for developing a great AML policy.

2. Explain the ‘Why’

It could be difficult for certain departments to understand why a company needs an AML compliance policy, especially if they are driven and motivated by different KPIs, like the number of sales pitches they conduct.

It’s essential to explain to them why not every customer qualifies to be safely onboarded or why they should not contact clients from risky jurisdictions or sanctioned entities.

3. Give Examples

Including several real-life scenarios and examples is a great way to ensure your policy is understood. This gives insight into how paramount compliance is to the organization and the consequences of failing to follow the policy.

4. Use a Positive Tone

Using a positive and encouraging tone can result in employees being more open to the idea of embracing the objective of the policies within the organization and helping sustain a culture of compliance. This helps uphold the ethical values of an organization.

5. Roles and Responsibilities

Explain the need and purpose behind each person’s role and responsibility.

Contextualize the importance of each role for maintaining compliance and effectively protecting against money laundering. This keeps all team members on the same page and ensures that the organization works collectively towards the same goals.

Not just senior management, but employees of every department should understand whom to go to in case of any compliance issues, queries, or suspicions that may arise. It also provides a sense of accountability across the organization.

Conclusion: An Effective AML Compliance Program is the Foundation for Success

Ultimately, a company's AML compliance program sets the tone - and establishes guidelines - for how compliance operations should be conducted.

It’s essential to have a clear, understandable, and accessible AML compliance program that your organization can follow. This will instill a strong risk and compliance management culture, ensuring regulations are met.

Unit21 offers a complete AML compliance infrastructure that is ideal for developing and conducting a complete AML compliance program. Automate regulatory requirements, streamline case management and SAR filing, and drastically improve customer onboarding and KYC procedures.

Alert scoring empowers teams to easily prioritize and manage cases through their workflow, assigning them to the best individual to conduct the review.

With all these features (and more) in a unified dashboard, risk and compliance teams can optimize investigations and improve AML compliance operations, protecting the organization - and customers - from money laundering threats.

More than 150 Fintech and crypto platforms (like Chime, Intuit, and rely on Unit21 for a high-performance risk and compliance infrastructure that allows them to shorten case times, stay up-to-date on compliance regulations, and reduce false positives.

You can learn how Unit21 can help with risk and compliance by requesting a demo today!

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