AML Compliance Checklist - Best Practices, Processes, & Tools for Businesses

Anti Money Laundering (AML) compliance is compulsory for organizations that operate in regulated industries as laid out by the Financial Action Task Force (FATF). The goal is to fight money laundering, terrorist financing, and other financial crimes. However, constant regulation changes mean that these organizations often encounter complexities in a bid to remain AML compliant. One of the best ways to stay on track is to work the right AML compliance checklist.

What is AML Compliance?

Anti-money laundering (AML) compliance refers to a series of processes an organization establishes to verify customer identities and monitor their activities to eliminate money laundering, terrorist financing, and other associated crimes and comply with AML laws set by regulators. AML compliance is crucial for regulated entities like banks, insurance companies, and other money service businesses. This helps protect the business, preventing them from being facilitators of money laundering and the consequences of non-compliance. 

What are the 5 Pillars of AML Compliance?

AML compliance programs are founded on five key pillars. Let’s take a brief look at each:

a. Designate a Compliance Officer  

Designating a compliance officer to oversee your business’s internal and external AML compliance processes is the first AML compliance pillar. The goal is to ensure all processes are in line with the regulatory requirements laid out for the jurisdictions you operate in. Such individuals should be experienced in AML processes and the nature of risks your business faces.

b. Develop and Implement Internal AML Policies

Internal policies are established as a central hub for employee reference. It is a source of guidance for employees to refer to for all compliance processes and related questions. Also, it serves as evidence for regulators and auditors, showing a blueprint of your compliance program.

c. Implementation of AML Program for Customer Due Diligence

AML program for customer due diligence takes the planning off the book and into practicality. It is essential that you conduct customer due diligence during customer onboarding to adequately assess the risks they pose and put appropriate measures in place. Businesses also need to constantly monitor customer transactions and report suspicious activities.

d. Proper Employee Training Programs

A solid AML policy and due diligence program without employees who understand and can implement them would be ineffective. It is necessary to frequently train employees on the importance of AML compliance and upgrade their skills and knowledge of the latest compliance requirements. 

e. Regular Audit and Maintenance of the AML Program

Regular reviews should be conducted by third parties to assess how effective the AML program is and suggest updates accordingly. This gives another perspective that will be unbiased compared to internal auditors who literally developed the system.

We covered all you need to know about the five pillars of AML compliance here.

AML Compliance Checklist - Best Practices and Processes

Key AML compliance checklists, best practices, and processes businesses should keep in mind during implementation include:

1. Analyze Your Risk Appetite

The risk appetite of an organization determines how much risk it is willing to tolerate when establishing business relationships. Some businesses may choose to be high-risk, while others, risk-averse, depending on their level of operation. This plays a key role in the rest of the practices a business adopts along the way.

2. Adopt a Risk-Based Approach  

Initially introduced by the European Union, the Risk-based approach was adopted by FATF in 2012. It is mandatory for financial institutions to adopt a risk-based AML compliance approach that assesses customers and implements controls based on their risk levels.

Essentially, treating all customers equally in AML compliance regardless of their risk level can result in inefficiencies and inaccurate outcomes. For example, applying a high level of scrutiny like Politically Exposed Persons (PEP) and watch/sanction lists screening for a tier one account holder will likely generate false positives while requiring a high level of resources. With the right AML process, AML compliance activities can be more streamlined and effective. 

3. Establish Key Signs or Indicators of Money Laundering

What is money laundering? What are triggers that may be an indication of such? This practice helps you clearly define money laundering signs and the kind of transactions that should be flagged. Examples include: 

• Large volume transactions amove AML thresholds
• Transactions from high-risk countries
• Multiple account creation over a short period of time
• Sudden logins from multiple locations over a short period of time

4. Implement Ongoing AML Monitoring

Frequent customer monitoring and adequate control are essential for mitigating customer risk and protecting your business. The goal is to maintain accurate and updated customer data at every point because it changes over time, potentially affecting their risk level. It also ensures that the risk-based approach adopted remains relevant since it is largely dependent on the customer risk level.

AML checks like adverse media, PEP, watch, and sanction list screening are important for assessing customer risk levels. Businesses should be able to instantly detect when a customer has been placed on a watch list or gotten caught in adverse media that potentially causes harm to the business.  

5. Keep Records

Record keeping is an AML compliance requirement as businesses are mandated to not just collect and verify but keep customer information. This comes in handy in times of money laundering investigation after a suspicious reporting activity. However, businesses should note that they are to comply with data protection laws in keeping customer records.

6. Adopt the Right Technology

Leveraging the right AML technology is easily the best way to strengthen AML compliance for a business. For example, Smile ID’s suite of solutions facilitates efficient and seamless AML compliance processes from customer onboarding to AML monitoring across 1,100+ global databases in real-time and authentication without negatively impacting customer experience. 

Achieving Seamless AML Compliance with Smile ID

Smile ID offers a suite of compliance solutions that make implementing AML policies much easier. Businesses can conduct KYC due diligence, and AML checks, and compile the right data for suspicious activity reporting. This improves customer onboarding rate and makes it easier for the institution to comply with AML regulations and protect it from money laundering and other financial crimes.

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