How to Build an AML Compliance Program (Step-by-Step)

Follow these steps to build an effective AML compliance program. 

1. Conduct a Risk Assessment

Any compliance program will falter if team members don’t have a full understanding of their organization’s risk profile. By conducting a risk assessment, companies can identify and evaluate potential risks to better prepare for certain situations and minimize the potential for problematic situations. A compliance manager should lead the risk assessment process. 

Risk assessments involve a combination of statistical data and meetings with senior team members to get a gauge of the hazards that could cause harm to the organization or anyone connected to the organization. The compliance manager works in concert with the risk management team to determine what hazards could affect business operations, evaluate the possibility that each risk occurs and their level of consequences, and craft a plan to keep risks low or control the scope of the damage. Don’t attempt to deal with all risks equally. It’s best to prioritize risk to focus your team’s efforts and shield the organization from the biggest hazards first and foremost. 

2. Develop AML Policies, Procedures, and Controls

The next step is to create internal practices and procedures to best detect and confront suspicious financial activities. If these policies are non-existent or lacking in some way, there is a higher chance of breaches or other issues related to non-compliance. While AML programs should be tailored to the unique risks and requirements of each organization, there are external bodies that set fundamental standards for regulation. A primary source for this in America is the Bank Secrecy Act (BSA). 

Also known as the Currency and Foreign Transactions Reporting Act, the bill was the first piece of legislation designed to target fraud carried out through financial institutions. While the original intention of the BSA was to track money moving in and out of the U.S., it has since been updated to combat criminal activity involving worrisome cash transactions. The Basel Committee on Banking Supervision performs a similar job internationally. The committee is composed of banking regulatory authorities from 28 jurisdictions to set regulatory standards across the globe. 

Even with these principles in place, it’s important to update your AML programs over time to keep up with new fraud techniques and avoid overexposure. 

3. Implement Customer Due Diligence and KYC Processes

Financial institutions don’t just deal with a person’s money. They also need to understand the person behind the account. Any organization with an AML compliance program has to perform customer due diligence and Know Your Customer (KYC) programs to collect information about each client. This helps reduce fraud by creating a reliable profile of each customer and evaluating their individual risk levels based on several factors such as their industry, source of funds, and the nature of the business relationship. 

4. Establish Transaction Monitoring and Reporting Systems

Consistent monitoring is another key aspect of AML compliance programs. This helps compliance teams spot inconsistencies or other red flags at the moment and quickly take action. If the compliance manager deems any activity to be suspicious, they can then report the incident to senior management or regulatory authorities. According to the BSA, financial institutions must document all cash transactions that exceed $10,000 in a single day and any other transaction that warrants deeper inspection. 

5. Conduct Regular AML Training

Educating employees on how to contribute to an AML compliance program is also vital. Each member of the compliance team must understand the rules and standards so they can perform their responsibilities to the organization more effectively. Compliance training programs can take many forms, but all courses should be designed for each position and be conducted on a regular basis instead of being treated as a one-off event.