Anti-money laundering (AML) policy

Money laundering is a money legalization process, when a person takes actions that conceal the source of funds in order to make their nature lawful. Anti-money laundering (AML) involves a set of measures aimed to prevent usage of the financial system or banks for money laundering or terrorist financing. AML measures and instruments are globally standardized and implemented by international and national institutions, banking and business companies. Each bank and other financial institutions, as well as other business entities, must execute the laws and regulations on AML. In order to obtain bank license, the bank must approve compliance with AML requirements and present AML policy. AML policy can be upgraded in case of necessity or in response to recent trends in AML field and recent practice.

Confidus Solutions team of experts will provide you with updated information on AML policy and its requirements.

AML policy core principles

Although the AML policy may differ from bank to bank, the major principles are common customer due diligence procedures (CDD) based on know your client principle. Due diligence procedure is based on client provided information in the questionnaire. Such questionnaire must be frequently updated.. If the person transfers funds significantly exceeding the indicated cash flow - the bank may ask additional questions in order to verify the purpose of such transfer. If the company changes the business profile, it must notify the bank. In addition, if the company starts co-operation with a new company, it must notify the bank in order to provide smooth transfer process. Usually banks or other large financial institutions incorporate a specific department that challenges AML. Such department are called Legal Compliance Department.

AML and customer due diligence definitely affect client's privacy. However, the purpose of investigation is solely based on protection of public interests and prevention of financial crimes and support of terrorism. Consequently, lack of investigation would greatly threaten the internal market of the Europe Union.

Goals of AML policy

AML policy was introduced with the ultimate goal to establish a general framework to fight against money laundering, terrorism, corruption and other financial crimes. The other goal is to protect community from money legalization and to ensure that the organization complies with relevant laws and regulations.

By introducing AML policy, it is planned to provide transparent and trackable cash flow that must be maintained in order to prevent terrorist financing and to control its usage by suspected terrorists and criminal groups and their own financial resources. The full transparency and traceability of transfers of funds is an important and valuable mechanism in the prevention process, identification and investigation of money laundering and terrorist financing. If the bank detects a suspicious transaction,it may freeze the funds until the client provides an explanatory reasoning.

AML policy in action

AML policy is a basis for procedures and controls that is carried out by Legal Compliance Department (LCD). AML procedures are applicable not only to bank and financial institutions that provide transfers directly, but also to consultants providing services, which are well informed of client`s activities. The European Commission has developed general guidelines with the list of transactions showing factors, explaining how to identify suspicious transactions. There is no threshold when transaction can be identified as a suspicious. The situation must be analyzed on case-by-case basis. Each factor regarded separately, might look seamless, but when observed together, it may arouse suspicion that the transaction is related to money laundering offence. Compliance department must know the client, inter alia, nature of business, usual quantities of transfers, financial history and background. If transactions do not appear to be in line with regular business practice, it might be a relevant factor for establishing the fact that transaction looks suspicious. That is the reason why banks have recently drawn attention to and carried out intensive supervision of newly introduced clients.

AML policy strategies

Examples of commonly acknowledged indicators are: client transfers funds in big amounts without payment details or receives funds in big amounts without payment details. The client presents confusing details about the transaction or knows very few details about its purpose. The client requests an express transfer and insists to make the transfer fast or he/she makes transactions at different physical locations trying to avoid detection. The client arbitrary informs about large volume transactions, using unconventional bookkeeping methods or off-the-record books. The client does not react on invitation to meet in person; normal attempts to verify the background of a new or prospective client are difficult. The client uses post box service instead of real office or he/she appears to have recently established a series of new relationships with different financial entities, etc.

Applicable methodology may differ depending on organization, though the basic principles should be common, for example, large cash transaction reporting, recordkeeping, background checks, case management tracking system; incident reporting database, corporate 'hot file', etc.

Sometimes companies on business start-up stage face certain difficulties. E.g., to fill the client’s questionnaire being unable to show it to any business collaborates, since the business is new and agreements are not concluded yet. Therefore, it is possible to upgrade the client’s questionnaire later, in order to keep the bank informed on planned activities. At the moment of account opening, the bank must verify the source of income and origin of funds.

If the bank establishes that the transaction is suspicious or the client himself is suspicious, it must be reported to the competent authority.

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Duty to identify the party

Duty to identify the customer is applicable to financial institutions and banks, and also other organizations dealing with money transfers and rendering financial services. The duty of report is also applied to service providers that keep records, consult or deal with significant amounts of funds. E.g., lawyers, business consultants, auditors, notaries, tax consultants, accountants, agents that provide intermediary service related to real estate transactions, share purchase and selling agreements, managers of investment funds, managers of financial instruments, security dealers, life insurance companies and brokers, money service providers and companies that provide electronic money transfers and remit funds, casinos, dealers in precious metals and stones, persons acting on behalf of other persons and do investments, persons involved in company formation and management services, persons providing cash deposit / withdraw services, etc. Private companies must also implement AML policy in respect of identification of suspicious transactions, for example, real estate market, purchase of vehicle and other deals that involve significant amounts of funds.

First of all, banks have access to database where the potential or actual terrorists are listed, thus at the moment of opening a bank account, the bank will check, if the client or his/her indicated business partners are not listed in the aforesaid database. Secondly, client’s identification is performed by filling out the questionnaire, thus, self-declaration is carried out. In the questionnaire the client must indicate basic details, such as company’s name, corporate number, office address, when company was opened, company activities, amount of paid and registered equity capital, information about the signatory rights in the company, company board and directors, contact information, information about the shareholders and beneficial owners. If the company forms a larger corporate structure, all subsidiaries and daughter companies must be indicated as well. Information regarding projected scale of transfers and business partners must be shown.

AML compliance solutions

Currently, self-declaration of the client seems sufficient for implementing the AML procedures. Local supervision and monitoring of the client`s funds situation is a sufficient mechanism for collecting information about the client’s business nature. In order to provide safe online banking system that sometimes is attractive for financial crime purposes, it is advised to conduct tests and upgrade the system in case of necessity.

Confidus Solutions has experienced banking specialists and international lawyers, who can provide you with detailed consultations regarding AML policy, as well as help your company with development and implementation of efficient AML solution, which is going to comply with legal requirements. Contact us now to get more information on AML solutions.