Financial institutions and related organization sectors of the economy must have strong anti money laundering policies for the sake of preventing money laundering and the funding of terrorists. So today, this blog will go into additional detail about the framework for AML standards, pertinent anti money laundering rules, and the real cases in order to emphasize the need for compliance.
What Are AML Obligations?
AML obligations can be further described as a set of legal and regulatory requirements that are particularly designed to stop illegal money laundering as it ensures that financial institutions are supposed to act as gatekeepers to prevent criminals from misusing the financial system. Essential yet effective components of AML obligations include of following features:
Customer Due Diligence (CDD): This is seen as an essential step in fulfilling anti money laundering obligations as it aids in verifying identity of the client and assessing their risk profile which is known as customer due diligence, or CDD.
Suspicious Activity Reporting (SAR): The Suspicious Activity Reporting (SAR) mechanism is regarded as a crucial anti money laundering requirement that is meant to monitor transactions or suspicious activity at the same time.
Record Keeping: This is seen as an essential step in fulfilling anti money laundering obligations as comprehensive records of customer transactions aids in regulatory review.
Internal controls and training: This is seen as an essential step in fulfilling anti money laundering obligations as internal controls make sure that staff members receive the right training and that there are systems in place to identify and lower anti money laundering risks.
What Is the Framework for AML Obligations?
International financial law enforcement groups and watchdogs, such as the Financial Action Task Force (FATF) have produced guidelines that serve as the cornerstone for the global framework for anti money laundering measures. There are multiple nations out there which are incorporating these regulations into their own legislation side by side. Important rules are as follows:
- Beneficial ownership data is one of the new reporting requirements introduced by the USA federal deposit insurance corporation for anti money laundering Act of 2020, which is also considered as expansion of the BSA.
- If we talk about the most recent regulation in the region of Europe then its the Fifth Anti-Money Laundering regulation (5AMLD) where the European Union’s anti money laundering law has strengthened and expanded to include virtual currencies and prepaid cards as well..
Above stated rules ensure that the battle against money laundering is consistent around the world.
How Do AML Laws and Regulations Vary Across Jurisdictions?
If we talk about the legal and financial environment in each nation, it tends to determine the specific anti money laundering standards which are further described as follow:
Risk-Based Approach: According to the scale and kind of anti money laundering related operations, institutions should definitely assess and manage anti money laundering related risks using the risk based approach.
Transparency Requirements: financial institutions are required to reveal beneficial ownership openly and conduct extra due diligence on high risk clients by taking the nature of anti money laundering seriously.
Sanctions Compliance: Companies have to make sure they do not let people or groups that have already been sanctioned conduct business with them as it might increase the risk of money laundering.
Real-World Case Studies: Lessons in Compliance
1. ING Bank’s Costly Oversight
In 2018, ING Bank was hit with a €775 million fine from Dutch authorities which is responsible for a sound financial system for their inability to prevent money laundering. After careful inspection, the Dutch authorities found that ING’s weak and nil security allowed companies to launder millions of dollars through its accounts which resulted in such a big fine by legal authority.
2. The Shutdown of Pilatus Bank
Pilatus Bank functions in Malta and it became a wake up call in 2018 when its license was revoked due to significant anti money laundering infractions. As the investigation progressed, it came into notice that the Pilatus bank was found to have facilitated transactions for dishonest politically exposed persons (PEPs).
3. Standard Chartered’s Global Compliance Failure
In 2019, Standard Chartered was fined $1.1 billion by financial regulators of 2 different countries which were the US and UK. Further investigation helped in revealing that due to the bank’s failure to implement consistent AML regulations across its overseas offices, illegal transactions took place in high risk areas.
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