5 Important Elements of an Effective Anti-Money Laundering Program

By virtue of the U.S. Bank Secrecy Act, all financial institutions in the country are required to have anti-money laundering (AML) programs in place in order to protect their assets from being used in financial crime. But even as money laundering, terrorist financing, and other illicit activities run rife—and even as they increase in complexity—many institutions still rely on the same bare-minimum AML protocols. It is the pitfall of small and mid-sized banks, in particular, to assume that they are less at-risk than their bigger and more prominent counterparts, or that AML isn’t as great a priority as other aspects of banking operations.

5 Important Elements of an Effective Anti-Money Laundering Program

Truth be told, it is particularly urgent for smaller institutions to bolster their anti money laundering programs. If you are a decision-maker in either a small or mid-sized bank, remember that you shouldn’t have to wait for a scandal to taint your institution’s good name before you strengthen your AML systems. It would be a good idea to revisit your current AML policies and AML infrastructure as soon as possible so that these can be effective safeguards against financial crime—and so that your bank can save money on compliance and earn the esteem of your customers and of regulators.

If the goal is for you to spearhead an effective new AML program for your bank, where should you start? To answer that question, here are five key elements that should be the basis of your AML reforms.

Updated Knowledge of Trends in Money Laundering and Financial Crime

The very first element of a responsive AML program is improved knowledge of financial crime and how it transpires in the modern era. Today’s money launderers and terrorist backers utilize much more sophisticated methods than they did a decade ago, and a bank that relies on outdated knowledge of their movements is quite vulnerable indeed to their attacks.

In order to be viable, an AML program must incorporate up-to-date research on how international crime rings are currently operating, how they utilize their “fronts” or “money mules,” and what methods they could be using to disguise their illicit activities. As a stakeholder in your bank’s AML compliance, take the lead in encouraging compliance officers and staff to keep up to date with the news and with industry bulletins.

Empowered Backend Systems

A bank is only as powerful against money laundering and other forms of financial crime as its backend is. Thus, when revamping your current AML program, you’ll want to put special emphasis on empowering your backend staff and treating them as one of your primary lines of defense.

One of the best ways to strengthen your backend performance for AML compliance is to upgrade the technology your staff uses. A unified platform for the execution of AML tasks done in the backend, such as know your customer (KYC) and customer due diligence (CDD), will smoothen your staff’s workflow and make your team more efficient overall in their day-to-day compliance efforts. In the medium term, this will allow you and your staff to practice being vigilant and organized about your AML compliance; in the long term, you will be able to recuperate the costs of upgrading your AML system and even save money on your compliance processes.

A Unified and Forward-Thinking Data Strategy

It may initially be difficult to pick up on signs of illicit activity. But if your KYC and CDD data are unified, consolidated, and easy to analyze, they will be able to reveal important patterns about what’s really going on with your bank.

You must also consider that in the near future, it will not be enough for your AML program to rely on piecemeal data gathering methods and the flagging of thousands of individual transactions as false positives or (even worse) false negatives. Rather, your data strategy should be more pre-emptive and dynamic—i.e., capable of detecting webs or networks of suspicious behavior and predicting patterns that could suggest criminal activity, such as a sudden influx of account openings from one IP address.

Up-to-the-Minute Analytics Capabilities

The best complement to an improved data strategy for your refurbished AML program is advanced analytics capabilities. In the long run, you may want to consider onboarding new analytics technologies that can help your bank make sense of large, complex swathes of KYC and CDD data. Being able to analyze this data on a more granular level, and through faster and more accurate methods, will allow you to implement the most responsive compliance-related decisions in real time.

Some examples of analytics technologies that you can explore for your bank are machine learning, deep learning, graph analytics, and natural language processing. Even small and mid-sized banks have begun adding these capabilities to their tech stack because they are more accessible and affordable than they used to be. Take advantage of how much easier it is to bolster your bank’s data analytics capabilities and determine which of these technologies you can onboard.

Ease of Execution, Flexibility, and Scalability for Future Effectiveness

Bankers may be quick to assume that the most efficient AML programs are resource-heavy, complicated, and hard to maintain. But it’s actually just the opposite—an excellent AML program will draw much of its viability from how easy it is to implement, how flexible it is relative to the bank’s circumstances, and how scalable it is according to the bank’s goals for growth.

You shouldn’t have to worry about being more susceptible to financial crime or more burdened by your AML compliance tasks as your institution grows bigger. Aim to revamp your AML program to be both effective and lightweight, as these two qualities will be essential in preparing your bank for the challenges of tomorrow.

Final Words

No matter how big or small your financial institution is, you need an AML program that can address your needs for your compliance and, ultimately, protect your assets from the evolving threat of financial crime. Use the five elements listed above to develop a rock-solid AML foundation for your bank.