Effective AML / CFT Framework for Businesses

Money laundering is primarily used for financial institutions, especially for businesses at risk of money laundering such as FinTechs, crypto, insurance, lending, investment, etc.; it is a big risk. These risks must be known in businesses, and the risks are minimized. This is why global and local regulatory agencies have strict AML laws for businesses, and failure to comply with these laws will penalize institutions.


A business that does not abide by these laws or is involved in any money laundering offense will not only be penalized but also seriously damaged its reputation. As a result, every business with money laundering crime and risk needs an effective AML / CTF program.


Importance of Effective AML / CFT Framework


The negative effects of money laundering on businesses or the economies of countries are quite high. The high risks and negative effects of money laundering do not prove that these crimes cannot be prevented: Effective AML / CTF applications and businesses' programs are a powerful part of dealing with money laundering. An effective AML / CTF framework increases its deterrence for crime and allows them to minimize their risk. Every AML / CTF step taken in businesses is of great importance. An AML Compliance Program allows businesses to easily comply with regulations, thus protecting themselves against risks and avoiding regulatory penalties. Anti-Money Laundering regulations, audits, and penalties are increasing in 2020. Therefore, the importance of effective AML / CTF Framework is increasing in businesses day by day. In fact, even in the first half of 2020, the penalties exceed 6 million. Later in this article, we will talk about how to get an effective AML / CTF Framework. Please keep reading.


Get to know AML Fines in 2020 more closely. 


1) Having Qualified Compliance Professionals

The first step to an effective AML / CTF framework actually has an AML expert who is an expert in the field and always open to innovations. An effective AML / CFT framework requires a corporate governance structure that includes compliance professionals who are fluent in relevant legal requirements. AML Professionals are responsible for ensuring that reported issues within the organization are addressed within the organization and within a timeframe that will not expose the organization to further risk. Also, it is important that all employees, not just AML professionals, understand the overall idea of AML / CFT and the specific risks involved in a business. Reporting the risks of money laundering or terrorist financing (ML / TF) is very important. If not reported, the AML / CFT team often may not see these risks. The AML team should investigate suspicious transactions and perform specific tasks and investigations. For this reason, employees in relevant departments must undergo interdisciplinary training or certification programs in AML / CFT to identify potential risks.



2) Training of AML Experts

Anti-Money Laundering is a very dynamic sector. There may always be a new update, regulation, law, or proposal. Besides, different methods continue to find channels in criminals day by day. For this, AML specialists in companies must always be fed industry-oriented. Investing resources in training AML specialists can increase the ability to identify and assess the risks faced by international operations and reduce the likelihood of enforcement. AML professionals conduct regular compliance risk assessments, identify changes to compliance programs and AML / CFT policy guidelines, and make any necessary changes. Enhancing the skills of employees is crucial to ensuring that AML / CFT measures are adequately implemented. All staff, not just the AML team, have a role to play in ensuring AML compliance, protecting your organization's reputation, and avoiding significant fines. Further training should be provided to companies on how to identify AML / CFT risks and AML systems and processes.



Finance professionals must understand AML / CFT legislation and regulation and identify and report suspicious transactions. Management personnel who have direct contact with customers or who process documents and money that may pose AML / CFT risks need to be aware of why criminal behavior and its cessation are important. All staff must understand the various roles assumed by the organization's consultants, officers, compliance staff, AML / CFT compliance officer, senior management, and the board. Employees also need to know how to react when they encounter a suspicious customer or suspicious transaction and respond if a customer wishes to exceed their reporting requirements. Training on internal policies, customer verification, and identification should be provided. As a result, AML training is very effective when focused on skills that can add value. 



3) Risk Assessment and Risk-Based Approach

The foundation of an effective Anti-Money Laundering and Counter-Terrorism Financing framework is based on a risk-based approach. Organizations should determine the client's risk level by conducting a risk assessment during the client recruitment process. Organizations should then aim to implement an effective AML compliance program by creating a control program tailored to customers' risk level. We can summarize why risk assessment is necessary for a few items as follows:


  • Developing policies and controls to reduce the risk of money laundering,
  • Understanding the level of risk associated with business relationships and transactions
  • Making appropriate risk-based decisions about customers and employees
  • Identifying sources of risk and evaluating risk reduction controls
  • Effectively running successful AML / OFAC compliance programs.


Besides, a risk-based approach should be applied to detect and prevent money laundering. What is the meaning of a risk-based approach? Each firm's risk perception and the risk level of each customer are different. As a result, each company would be inefficient to apply the same AML controls to each customer. Therefore, there are two basic steps for organizations to take a risk-based approach. The first is risk assessment. The second is the implementation of control processes appropriate to risk levels.


4) Advanced AML Policies

Highly dynamic AML policies are necessary to protect an organization from money laundering and fully comply with relevant laws and regulations. We mentioned above that to minimize money laundering, reputational, and regulatory risk. Organizations need to implement robust risk-based governance to guide processes and systems. Providing an effective AML policy framework is a top priority when meeting AML obligations. AML policies should be easily verifiable by regulators, reflect an organization's risk appetite, and digestible for compliance analysts. For example, AML policies should include customer risk ranking during the due diligence and recruitment process. Organizations must know their customers to comply with global and local legal AML requirements. At this point, procedures should be applied to show who they really are in the first interaction with customers, such as Know Your Customer and Customer Due Diligence. 


5) Know Your Customer

Know Your Customer (KYC) processes include the process of defining customer information accurately and completely. Usually, the most important step in the AML control process is KYC. Because the information given by the customer is checked at this stage, and if the errors in the customer information cannot be detected, other controls may lose their function. The business may be under great risk. So the KYC process is essential to understand who the customer really is. After making sure who the customers are, the risk level of this customer must be determined, and at this point, Customer Due Diligence (CDD) procedures are applied.


Determining the customer risk level with CDD makes the company's AML control process more effective and faster. During the Customer Due Diligence process, the customer must be screened in sanction and PEP lists. If PEPs are found in these scans, then Enhanced Due Diligence (EDD) procedures should also be applied. Because customers like PEP are considered high risk by regulators and CDD procedures may not be sufficient for these customers, EDD procedures may be applied. As a result, the risks and threats of customer account opening can be detected, and AML controls can be made more effective. 


6) On-going Monitoring

Information and risks of customers or institutions may change. Someone who does not have PEP may become PEP by taking a new task or vice versa. Thus, it is necessary to be familiar with customer information that may change over time and change the customer risk level, and this process should be under control. The risk-based approach, which is primarily applied in businesses, addresses the current risk of the customer. Therefore, customer information should be updated at certain time intervals, and its accuracy should be confirmed not to lose the function of the risk-based approach. If you cannot keep up with changing customer information, this will have serious consequences. For example, if your customer, who was not on the sanction list before, entered the sanction list after a certain time and you continue your business relationship with this person without losing it, you may be subject to regulatory penalties, and even your other customers may not even want to work with you.


As a result, if your current customer, which you regularly check, is added to any sanction lists, you should identify it and terminate your business relationship with your customer. For customers, sanction and PEP scans should be made, for example, every 3 months. So you can identify risks and protect yourself from factors that could damage your AML compliance. 


7) Detecting and Reporting Suspicious Transactions

In fact, the most fundamental purpose of AML checks is to detect suspicious transactions and financial crimes. Suspicious transactions made in businesses must be detected, and the necessary persons in the company must check these transactions. Financial crimes should be detected, and necessary precautions should be taken to bring your Anti-Money Laundering processes to their true purpose. Although it is difficult to check suspicious transactions instantly, suspicious transactions can be detected with Transaction Monitoring solutions during the transaction. These transactions are immediately stopped and passed to the control of AML experts.


AML experts can suspend suspicious transactions and check these transactions within a certain period of time; if these suspicious transactions are false positive, they are allowed to occur. Still, if this transaction is indeed suspicious, the AML expert must report this transaction. These reported transactions are called Suspicious Activity Report (SAR), and SARs have to be submitted to the competent authority in each country, such as the Financial Intelligence Unit (FIU). 


8) Upgrade The AML System with AI-powered Solutions

At a time when technology is so advanced, crimes are changing and developing day by day. As a result, regulations are developing and changing. While this is the case, manual AML controls remain insufficient in businesses with the risk of money laundering. As we mentioned above, Know Your Customer, Customer Due Diligence, Enhanced Due Diligence measures during and after customer purchases automatically carry out these transactions. These measures are included in most of the operational regulations. In the event of these procedures, compared to manual scans, an incredible amount of time is saved, and risks are scanned more easily and justifiably, and as a result, risks are minimized. It should not be forgotten that thousands of data should be examined to determine whether a person has a PEP, whether he is on the sanctions lists, and whether there is Adverse Media news about him. It is almost impossible to do this manually.


Moreover, it is very important to control customer purchases and the transactions made by these people after they become your customers. Because imagine that an account that looks very innocent is opened, but this account is used as a money mule by money launderers. In this case, it is not enough to determine the risks of the customer. In such cases, even money mules may not be aware that they are committing crimes, but businesses need to detect these transactions. At this point, AML Transaction Monitoring solutions allow instantaneous monitoring of transactions and instantly stop transactions and generate alarms in suspicious cases. Thus, you can easily overcome the opportunities and risks provided by technology. In short, it is essential to follow these innovations when technology and crimes have developed so much. 


Sanction Scanner's Powerful AML / CTF Solutions

As Sanction Scanner, we offer end-to-end solutions for the AML needs of businesses. Sanction Scanner collects and structures more than 1000 sanctions and watch lists of regulatory and law enforcement agencies of more than 200 countries with Artificial Intelligence support. Businesses perform a more efficient and secure AML control with our structured data. With our PEP and Sanctions Screening Service, businesses can meet global and local AML obligations and be protected from legal penalties. At the same time, businesses can perform CDD and KYC transactions with our AML Name Screening tool in accordance with their obligations.


Besides, the Sanction Scanner's AML Transaction Monitoring software has end-to-end features that enable companies to AML /CTF obligations. Businesses can create their own rules and scenarios without any coding knowledge, so they can easily detect high-risk and suspicious activities automatically. As a result, you can protect your business from potential financial crime risks and legal penalties with our advanced AML solutions. For more information, you can contact us or request a demo. 

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