What are the causes of the failure of AML programs, and how to strengthen the AML Compliance Program?

Despite having stringent AML compliance rules and regulations in place and global AML compliance recommendations, services of AML experts, advanced AML software, and immediate consultation available, non-compliance is a grave concern worldwide. It is estimated that 99.8 % of laundered money goes undetected. So why does black money go undetected and the best AML programs fail? Let’s discuss the causes of the failure of AML programs and how to strengthen the AML compliance program.

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Why do AML Compliance Programs fail?

1. Compliance Officer's absence

A Money Laundering Reporting Officer or Anti-money laundering officer is a compliance officer that manages the AML compliance of a firm. The appointment of an MLRO-AML compliance officer is necessary as per the AML laws and regulations. The FATF- Financial Action Task Force has recommended the appointment of an MLRO at the management level. 

2. Lack of AML training

Lack of awareness and employees not being equipped with the proper knowledge and tools to identify suspicious transactions is one of the reasons for AML compliance failure. The AML compliance and KYC process are intertwined, and lack of clarity often leads to AML non-compliance. So, AML compliance investigation is treated as a hindrance in day-to-day operations. But it should not be the case as AML compliance is necessary for helping the government fight money laundering and avoid non-compliance and penalties.

It’s essential to provide adequate AML training to the employees to equip them with updated knowledge of AML rules and tools to identify suspicious transactions. 

They should be aware of the consequences of non-compliance and get acquainted with the AML policies, rules, and documentation process. They need to adopt the correct behavior to combat the challenges of non-compliance. 

Proper training should focus on the importance of AML and compliance, the social and internal consequences of non-compliance, rules, policies & procedures, and money laundering mechanisms. Employees should be trained to create an STR and avoid false positives. 

The irony is that criminals hire money launderer professionals. They are well aware of the process of AML detection and are equally vigilant about the ways to circumvent the AML mechanisms. So, to be ahead of the criminals, banks, financial institutions, capital market companies should hire AML experts who can assist them in catching the criminals and identifying suspicious transactions and fraudulent accounts. 

3. Confusion about Customer Data

Many financial institutions are confused about handling the vast customer data and effectively cracking down on criminals. The customer data may be incomplete, not easily accessible, or stored only in physical form. Lack of quick access, incomplete data, and the absence of use of technology is a significant hurdle for financial institutions in AML compliance.

4. Weak KYC process

KYC is an integral part of the AML compliance programs. When institutions do not have a proper KYC process, it provides an opportunity for criminals to launder money easily. 

5. Data stored in digital systems that operate in isolation

Disparate digital systems often pose a massive challenge in collecting customer data and detecting suspicious transactions. In such scenarios, quick access cross verification and scalability are non-existent. So, extracting information is difficult, making the AML compliance process unsuccessful.

6. False Positives

False positives are a huge concern for every organisation. The false alerts put undue pressure on the company, waste resources, and question its reliability and reputation. The transaction monitoring systems should be well-equipped to deal with the menace of money laundering. The transaction monitoring software should be equipped with capabilities to provide accurate results.

It’s essential to get assistance in the proper AML software selection. It’s crucial to integrate a software solution that can spare the financial institution of false alarms, save resources and instead provide the correct alerts that will help identify suspicious accounts and transactions. 

7. Lack of compliance culture

Lack of acceptance of setting up an in-house AML compliance department and no compliance culture is why AML programs fail. The management is responsible for setting up an AML compliance department, and the unwillingness to do so does not help in AML compliance. Institutions have a lot on their plate and are occupied with running the company dealing with other major and minor issues, so AML compliance takes a backseat.

An untrained workforce in AML compliance does not help either, and a vast amount of black money remains undetected, and the company has to pay up the fines imposed by the authorities. Most of the time, the management turns a blind eye to the suspicious transactions because of high gains and treats AML non-compliance fines as not serious enough to worry about. It is not the right approach. The leadership should inculcate the culture of compliance. 

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How to prevent the AML program from failing?

1. Hire a good AML consultant

AML compliance is a complex task that needs continuous vigilance and monitoring to avoid the risk of non-compliance. AML consultants have in-depth knowledge of the AML rules and regulations and are aware of the complexities involved in the process. They understand the AML regulations and help companies comply with the AML laws.

The consultants have a strong network of AML professionals and accessibility to AML experts, and their expertise will help mitigate the AML risks. AML training should be provided to the employees and equip them with the proper knowledge and practical tools to identify suspicious transactions.

AML experts help detect suspicious transactions and speed up the identification process to help combat money laundering and prevent associating with fraudulent people and entities. Customized services are provided, and clients from diverse industries can receive robust AML support that is likely to have unique business requirements. The service provider will offer complete support at all stages of the AML compliance cycle and prevent financial crimes. 

The AML consultant team consists of compliance experts, a risk management team, and business analysts who offer expertise to meet the diverse AML compliance requirements. Get access to the vast and rich experience of the experts who will leave no stone unturned to help your business stay AML compliant at all times prevent a single instance of non-compliance. Get access to the updated knowledge of AML rules and regulations and ensure compliance with the global AML regulations and recommendations. 

AML experts know the governments and regulators’ expectations and are in sync to stay AML compliant. Get AML consultancy services online from the experts and rest your worries about AML compliance.  Avoid penalties and guard your reputation by diligently following the AML rules and regulations. 

2. AML Software

AML Software embedded with emerging technologies such as AI and ML help track doubtful accounts and trace the source of black money. The software is available at budget-friendly prices and therefore is a compelling reason why financial institutions should adopt the software and fight money laundering with advanced tools. 

Get assistance from AML experts to help you select the best software for your business and help reduce the rate of false positives. Automation should become an inherent part of AML compliance as with Robotic Process Automation, the process is streamlined and becomes cost-efficient. Let RPA detect suspicious transactions and the human workforce investigate and take the necessary actions to deal with the money launderers. 

Conclusion

Money Laundering is a global financial crime that involves transferring illegally-obtained money into the legal system- banks and financial institutions- and using it to fund criminal and terrorist activities. Criminals use banks, financial institutions, capital markets, and other regulated entities to launder money. Criminals try to run money through these legal institutions and be successful in money laundering.

Regulatory and compliance challenges continue to bother the entities as they struggle to comply with the AML rules and regulations and deal with the rising money laundering cases. The incompetence of the financial institutions in being AML compliant can be known from the fact that more than $15 billion worldwide fines have been imposed for AML violation. Check List of Administrative Fines related to AML non-compliance.

AML violation can result from a lack of knowledge, training, or unwillingness to comply with the AML rules. This attitude and behaviour need to be changed as non-compliance can result in serious consequences.

Regulated entities should follow the AML rules not only because they have to avoid the penalties but should treat AML compliance as a duty in serving the nation. Their AML compliance efforts should be in tandem with the government’s objective to prevent money laundering. It will unburden the world economy of this financial crime’s ill effects and avoid criminal and terrorist activities funding.

AML programs will be successful only if the leadership is willing to go that extra mile to prevent financial crimes and eliminate the menace of money laundering. 

It is crucial to remove the complications which drain the company’s resources when the authorities impose hefty fines and penalties. Incomplete data, reliance on physical storage systems, lack of acceptance or limited use, or isolated digital systems pose a huge problem for companies in being AML compliant.

Proper KYC processes, identification of UBOs and PEP, and other crucial information are necessary to follow the AML rules and regulations diligently. Companies need to get rid of partial vigilance and create a robust AML compliance program is the need of the hour. It would be best to hire AML compliance experts who would assist the business at every stage of the AML compliance process. 

AML Experts

AML UAE is a reliable AML UAE consultant to thousands of businesses in the UAE. It offers a comprehensive range of services such as AML / CFT Policy, Controls and procedures documentation, In-house AML Compliance department set up, AML training, AML software selection. You can also access AML/ CFT health checkups and Annual AML/ CFT risk assessment reports

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About the Author

Pathik Shah

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

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.