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Financial fraud cases have skyrocketed over the past few years, especially in the wake of the COVID-19 pandemic. In 2020, over 755 money laundering cases were reported to the US Sentencing Commission, and this should be a great cause for concern.

With more people conducting transactions online, fraudsters have become more innovative and persistent about their ploys to scam and launder other people’s money.

Money laundering can also be called “dirty money” because it is attained illegally. The amount of money coming from this criminal activity is hefty, and criminals need a way to deposit the money into legitimate institutions without raising suspicion. The money-laundering scheme works as follows:


The fraudster will try to place the dirty money into a legitimate financial institution secretly.


The fraudster hides the money’s source by bookkeeping tricks and transactions at this stage


The laundered money is withdrawn from the legitimate account and used for whatever purpose.

While financial institutions have security systems in place, 95% of those system-generated alerts are false positives that cost firms billions of dollars. Federal authorities have required financial institutions to construct a strong anti-money laundering (AML) process to address these security gaps.

Anti Money-Laundering Compliance Best Practices

AML programs are built to protect institutions from fraudulent activity. Given that banks, credit unions, and other financial organizations are prime targets of criminals, having a strong process in place ensures that fraud-related risks are kept at bay. Moreover, money laundering is a means to fund criminal activities such as human trafficking and drug cartels, so prevention should also be viewed as a moral obligation.

1. Identity verification and risk assessment 

Financial institutions require proper customer identification and verification to ensure the client’s legitimacy. Since private banking institutions have high-risk services, their company must acquire in-depth client documentation.

Know Your Customer (KYC) is a process that involves collecting information that could verify a customer’s identity. Most financial institutions adhere to strict KYC procedures to reduce the occurrence of both identity theft and money laundering. To ensure proper implementation, reviewing the Basel Committee’s requirements on account opening should make it much easier for you to design a strong KYC process.

2. Screening and transaction monitoring

Financial institutions must ensure that they aren’t doing business with people, companies, or countries listed on the international sanctions list. Thorough background inspections are needed to check for their legitimacy, especially if they are politically exposed individuals.

A bank’s AML checklist should include a screening process that can determine the risk potential of an individual. Banks in the United States must carefully screen their clients against the sanctions list of both the US Office of Foreign Assets Control and the United Nations Security Council.

Furthermore, financial institutions must always keep an eye out during the transaction to ensure that no suspicious activities occur.

3. Employee training

Your organization can implement a safety culture if employees are given the proper training to identify fraudulent activity before and as they happen. According to the Financial Action Task Force (FATF), bank employees must undergo AML training to recognize suspicious activity that could lead to money laundering.

This adds protection to the institution on a more minute scale to effectively deploy a safety culture throughout the organization, starting from the very bottom of the chain. Attention to detail will also put your patrons at ease, increasing their trust in your organization.

4. Periodical maintenance and testing

Much like any other system, to ensure continuous and regular upkeep of your organization, your AML program must be regularly tested and maintained. Regular maintenance keeps up with anti-money laundering compliance and ensures that your program will work when you need it to.

It’s better to stay vigilant and on top of matters before being surprised that your program didn’t work. Before you know it, your organization would have been under a security breach without you even knowing it existed.

Your clients will appreciate that the organization they’ve trusted with their money takes time and protocols to ensure that all their security systems are tested and working 100%.

5. Record-keeping

Financial organizations assess risks based on their records, making record-keeping vital for identification and verification. Furthermore, should authorities need access to specific customer information, these client records are helpful during an investigation. That said, record-keeping is important at every stage of the AML process and should encompass everything from onboarding to monitoring and screening.

6. Compliance officer

A compliance officer should be a requirement to keep with FATF recommendations. An appointed compliance officer would oversee the AML program and serve as a liaison for the financial authorities. The most fitting person for the role is a senior employee with authority and expertise in the field.

Adapt These AML Best Practices Today

Money laundering is not a new scheme. Since cases continue to grow by the year, a strong AML program will ensure that fraud is mitigated and that millions are kept safe from terrorist activities. Following the practices listed above ensures that your financial institution complies with industry standards and regulations¬† and keeps your stakeholders’ safe.

If you’re looking to strengthen your customer identification procedures, acquiring identity management solutions will be in your best interest. Partnering with experts such as Q5id will enable you to construct an AML process that follows best practices and federal compliance.

Contact us today to learn more!

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