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Navigating AML Regulations in the Financial Services Sector

Money laundering is happening at large in today’s interconnected global financial networking. Many financial institutions have been subject to heavy fines up to $10.4 billion in fines in 2020. This news has sparked a greater focus on Anti-Money Laundering (AML) to adapt to the changing requirements of 2023.

This blog will provide a fresh perspective on what industry experts have to say about it, including building AML trends and guidance toward compliance.

Important Role of AML Screening within the Financial Sector

Financial entities, including but not limited to banks, Fintech companies, and other service providers are responsible for maintaining transparent transactions in their effort to combat money laundering and obedience to AML laws. This responsibility emphasizes developing and maintaining an AML system that not only prevents but also identifies, detect, document, and cancel out risky transactions.

Stats emerging through the United Nation highlights the existence of $1.6 trillion (2.7% of global GDP in 2020) which was channeled through illicit means including money laundering practices.

Highlighting Major AML Regulations in the Financial Sector

Bank Secrecy Act (BSA) – 1970:

What it is: The BSA was the first major AML law in the U.S. It requires banks to keep certain records and file specific reports that could help detect and prevent money laundering and other financial crimes.

Key Requirements:

  • Banks must report cash transactions over $10,000.
  • Banks must be obliged to keep records of cash purchases and transactions.
  • All activities related to money laundering, tax evasion, or any other criminal activity must be reported under “Suspicious activity reports”

USA Patriot Act – 2001:

The USA Patriot Act was aimed to strengthen, prevent, detect, and combat global money laundering and financing of terrorism. The post-9/11 requirements from this law necessitate:

  • Improved due diligence for both private and domestic banking sector
  • Compulsory for all financial institutions to set up AML practices
  • Regular monitoring of flagged alerts, and suspicious activity reports that might hint toward money laundering

Recommendations from the Financial Action Task Force (FATF):

FATF is a marked international regulatory body that mandates standards for financial institutions to facilitate them in combatting high-risk transactions, money laundering, and other corruption-related threats by maintaining:

  • A risk-based approach by which countries and entities can assess risk before onboarding any user.
  • Strong overseeing of financial institutions to conduct due diligence on customers.
  • Global collaboration among countries and institutions for overseeing AML prosecutions.

EU 6th Anti-Money Laundering Directive (6AMLD) – 2020:

These regulations are the updated set of rules by the European Union to tackle new challenges associated with AML Screening. The modifications include:

  • AML checks now include wider areas of coverage to mitigate risks.
  • Enhanced public visibility into true owners of entities
  • Strict control over transactions emerging from prepaid cards and concealed safe deposit boxes

Anti-Money Laundering Act (AMLA) of 2020:

What it is: A U.S. law that aims to modernize AML laws and strengthen national security.

Key Requirements:

  • Establishes national priorities for AML and counter-terrorist financing.
  • Enhances the whistleblower reward program.
  • Requires companies to report their beneficial owners to the U.S. Department of the Treasury.

Key AML acts & guidelines: BSA (1970), Patriot Act (2001), FATF, 6AMLD (EU, 2020), & AMLA (U.S., 2020) shape global finance

Case Study: Consequence of Not Following AML Regulations

Deutsche Bank’s AML Violation:

Background:

In 2017, Deutsche Bank was fined nearly $630 million by U.S. and UK financial authorities due to its alleged involvement in a $10 billion Russian money-laundering scheme that transpired from 2011 to 2015. This became popularly known as the “Russian Mirror Trading” scandal.

Findings:

  • The scheme involved the bank’s Moscow, New York, and London branches. Traders artificially inflated the volume of trades in Russian stocks, which allowed clients to move money from Russia to the West, bypassing standard legal requirements.
  • Deutsche Bank was accused of missing several opportunities to detect and halt the scheme due to its lax oversight and inadequate AML controls. The bank’s internal systems did not raise proper alerts, and even when they did, the bank often failed to act.
  • It was revealed that Deutsche Bank did not maintain an adequate AML control framework from at least 2011 to 2015.

Consequences:

  • Deutsche Bank was fined $425 million by the New York State Department of Financial Services (DFS) and £163 million ($204 million) by the UK’s Financial Conduct Authority (FCA). The fine by the FCA was the largest it had ever imposed for AML-related deficiencies.
  • This case highlighted gaps in bank’s crime controls and necessitates the need for strong adherence to regulatory and legal issues.

Outcome:

This case scenario is a perfect example of how even the largest of entities can be caught in the toughest compliance challenges if their AML controls are not kept in place leading to repercussions that go beyond monetary fines of reputational damage across the globe.

Understand Challenges and Solutions in AML Compliance across the Financial Sector

Dynamic Regulations with continuous updates and revisions are a challenge to meet. AML Watcher helps with automatic, real-time updates to ensure compliance without manually checking for updates.

Data management, collecting & analyzing vast datasets is complex when data is coming from various sources. AML Watcher helps solve this issue by enabling centralized in-house control for complete data access

False Positives add to the hassle of managing an overwhelming system. AML Watchers handle the stress by reducing false positives from emerging in the first place instead of managing the flagged alerts.

Customer Due Diligence (CDD) which is marked by collecting, and verifying information, is a complex process if the system isn’t automated to manage enhanced screening.

Risk assessment entails updating the customer risk profile to manage the rest of the screening procedures. AML Watcher ensures enhanced screening while reducing wait time for customer requests.

AML challenges: Adapting to changing regulations, managing data, addressing false alerts, & refining CDD processes.

Because of the changing trends in technology and legislation, financial institutions must be both adaptable and attentive. In this case, AML Watcher appears as the best solution provider, providing innovative technology geared to current issues. AML Watcher is the ideal partner for those looking to strengthen their AML tactics and safeguard the security of their organization.

Contact us right away to protect your reputation and the integrity of the global financial system.

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