Crimes such as money laundering and terrorist financing have both economic and social effects. Money laundering promotes crime and corruption that slows economic growth and lowers productivity in the economy's real sector. Some crimes promoted by money laundering are smuggling, cybercrime, human trafficking, green crime, illegal wildlife trade, and other similar crimes.
In order to anti-money laundering activities, global and local regulators have certain laws and regulations, and institutions at risk of money laundering must comply with these regulations. Institutions that do not comply with the regulations receive fines. When we look at these fines in 2020, it increased by approximately two times than the penalties given in 2019 and reached approximately 8 billion dollars. The main reasons for these fines are due to the deficiencies of procedures such as Know Your Customer (KYC), Customer Due Diligence (CDD), where regulators determine. In this article, you can find the answer to how to deal with these penalties.
In the meantime, have a look at our article on AML fines for the year 2020:
Anti-Money Laundering Requirements
There are some obligations in the laws and regulations of global and local regulators, and although they differ by region, some obligations are similar. Fulfilling these obligations considerably reduces and prevents money laundering risks. Failure to comply with these obligations is accompanied by money laundering activities and AML penalties. If an institution has both money laundering activities and AML penalties, the reputation and credibility fall considerably. The most basic AML obligations are as follows:
AML Compliance Program: The AML Compliance Program represents all the procedures and measures that companies with financial crime risks have implemented in dealing with financial crime and compliance processes. At the heart of an advanced AML compliance program is a risk-based approach.
Risk-Based Approach: The risk-Based Approach is essential in that businesses perform AML controls according to the customers' risk potential and risk levels. The risk perception of each company, and the risk level of each customer are different. Therefore, while performing AML controls, a Risk-Based Approach and control processes appropriate to risk levels are applied.
Know Your Customer: Know Your Customer is a control procedure that financial institutions providing financial services apply to exist or new customers to identify and prevent their risks. The importance of KYC has been stated in many regulations. Examples of these regulations are European Union Directives and Financial Action Task Force (FATF) recommendations.
Employee Training: Financial institutions should have a compliance officer to tackle financial crime. These compliance officers and other employees need to be trained to understand and combat current financial crimes.
Recording and Keeping Procedures: Information collected about the customer during the current due diligence in financial institutions should be kept for five years after the termination of their business relationship. In some special cases, this can be extended for five years.
Reporting: If suspicious situations such as money laundering and terrorist financing activities occur in companies, these transactions must be reported to the compliance personnel's necessary institutions. The generic name for these reports is called Suspicious Activity Reports (SARs).
In addition to these obligations, performing Customer Due Diligence, Enhanced Due Diligence, Adverse Media, Sanctions, and PEP Screening, Transaction Monitoring procedures in institutions that carry financial risks both ensures compliance with regulations and ensures that institutions are protected from AML penalties.
The Requirement of Customer Due Diligence Measures
Customer Due Diligence is one of the basic requirements of the risk-based AML approach and enables identifying potential customer risks. Customer Due Diligence is one of the key components of Anti-Money Laundering (AML). Organizations should implement CDD measures under AML responsibility because companies that do not follow CDD procedures may be subject to AML penalties. CDD aims to determine the customer's risks, comply with the relevant regulations, and prevent money laundering activities. While CDD is applied to customers with normal risk, Enhanced Due Diligence measures are applied to customers such as Political Exposed Persons (PEPs). EDD is briefly a KYC process that enables higher-risk individuals or companies to examine potential risks.
Sanction Scanner provides Know Your Customer, Customer Due Diligence, Enhanced Due Diligence measures to all organizations with financial risk in compliance with all regulations. Through these precautions, you can avoid AML penalties with Sanction Scanner.
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A Sanction, PEP, and Adverse Media Screening
Sanctions, PEP lists, and Adverse Media data are growing and changing in the world day by day. It is almost impossible to follow these lists accurately and quickly manually. Many authority organizations have sanction lists such as United Nations Sanctions (UN), US Consolidated Sanctions, OFAC - Specially Designated Nationals (SDN), EU Financial Sanctions, UK Financial Sanctions (HMT), Australian Sanctions. There are many sanction lists like these lists. In addition to the sanctions lists, PEPs data are also mixed. For example, when conducting a PEP screening, it is checked whether they are Domestic or Foreign PEPs to make an accurate risk assessment, and PEP's Relatives and Close Associates should be scanned. As a result, it is almost impossible to scan all these data manually, and if these scans do not occur for customers or business partners, money laundering and terrorist financing activities may occur.
With Sanction Scanner sanctions and PEP Screening Service, organizations at financial risk can comply with global and local AML regulations and protect themselves from AML penalties. With our global sanction, PEP, and adverse media data, we offer AML solutions that can meet companies' AML needs in every region of the world. We strengthen companies' AML compliance globally and locally by developing our solutions according to the Financial Action Task Force and European Union regulations.
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Transaction Monitoring Processes
Transaction Monitoring is software that helps financial institutions instantly monitor customer transactions. Transaction Monitoring is the most effective way to help financial institutions such as banks combat financial crimes such as fighting money laundering. With the Transaction Monitoring procedures, financial institutions can easily comply with AML / CTF regulations, and the Transaction Monitoring procedures also support anti-money laundering compliance programs. The Transaction Monitoring regulations have an important place in the Suspicious Activity Report (SAR), which should be filled in in case of suspicious activity. Transaction Monitoring generates the necessary alarms for suspicious situations and alerts the company's compliance department of the suspicious transaction. Afterward, these transactions are examined and reported in detail. As a result, SAR filing is made for real suspicious transactions detected by Transaction Monitoring, and these files are presented to the necessary institutions.
Sanction Scanner's Transaction Monitoring tool provides end-to-end features for companies of all sizes that provide the ability to counter money laundering and counter financing of terrorism obligations. Organizations can automatically detect high-risk and suspicious activities thanks to our Transaction Monitoring Software features such as Dynamic Rules and Scenarios, Advanced Sandbox Test Environment, Real-Time Alarms, Powerful Alarm Management, Fast Integration with Sample Rules. As a result, through these measures, they are not only protected from high-risk financial crimes, but also from legal AML penalties.
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To sum up, AML fines and crimes such as money laundering and terrorist financing can be avoided as long as global and local regulators' regulations are complied with. To easily comply with these regulations, you can use the Sanction Scanner solutions that comply with the regulations. For more information, you can contact us or request a demo.