What is Anti-Money Laundering (AML)?

What is anti-money laundering “AML” and how can you stay compliant in 2020?

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By Vanessa Malone

What is anti-money laundering, or AML?

Anti-money laundering refers to a set of rules and regulations financial institutions must adhere to in order to help detect and prevent money laundering, fraud, and terrorist financing. The legislative framework these rules come from is called the “Bank Secrecy Act.”

Money laundering happens when bad actors make illegally obtained funds look like they come from a legitimate source. Collectively, firms are required to put anti-money laundering compliance programs in place to continually monitor clients and report financial crime to relevant bodies.

Who is responsible for preventing money laundering?

Financial institutions are legally required to put anti-money laundering measures in place. Banks, investment bankers, credit unions, registered broker-dealers, currency exchanges, insurance companies, travel agencies, and real estate firms are all under this anti-money laundering umbrella.

It’s not just traditional financial institutions who have to combat against money laundering. Companies surrounding the transfer of money, securities exchanges, online gambling or gaming, issuers dealing with new investors or who are conducting a securities offering, and high-end retailers are just a few other types of firms responsible for doing their part to prevent financial crime.

Recently the Financial Action Task Force (FATF), an inter-governmental body built to combat money laundering on a global scale, amended their AML Recommendations to require all Virtual Asset Service Providers (VASPs) to adhere to the anti-money laundering rules in place. This includes blockchain exchange providers, digital securities issues, and firms that deal with digital securities.

Further, although not all companies are required to have AML compliance programs, all should have a moral or ethical call to put some type of measures in place to help protect their company and brand from bad actors.

What do firms have to include in their anti-money laundering compliance programs?

FINRA reviews a firm’s compliance with anti-money laundering rules under FINRA Rule 3310, which sets forth minimum standards for a firm’s written AML compliance program. The standards, which can also be found on the link above, are as follows:

  1. The program has to be approved in writing by a senior manager.
  2. It must be reasonably designed to ensure the firm detects and reports suspicious activity.
  3. It must be reasonably designed to achieve compliance with the AML Rules, including, among others, having a risk-based customer identification program (CIP) that enables the firm to form a reasonable belief that it knows the true identity of its customers.
  4. It must be independently tested to ensure proper implementation of the program.
  5. Each FINRA member firm must submit contact information for its AML Compliance Officer through the FINRA Contact System (FCS).
  6. Ongoing training must be provided to appropriate personnel.

A repeated phrase in the standards is “reasonably designed.” This loose language was purposeful, as regulators wanted to ensure that firms would do everything in their power to create stringent anti-money laundering compliance programs, instead of just doing the bare minimum.

Why is anti-money laundering software a critical component to an AML compliance program?

One key way for firms to stay compliant in 2020 is to integrate technology into their AML compliance programs. Technology has become a common, arguably necessary, part to any AML compliance program and this demand is only getting stronger. There is a plethora of data coming in from clients, investors or users that a firm has to process, which can cost firms time and money if there are program inefficiencies. Software can be used to greatly enhance and streamline the data collection process.

Just because compliance requirements are increasing, doesn’t mean the amount of time it takes to onboard a user has to change. For example, Horizon’s KYC/AML smartphone app showcases the ability for KYC and AML to be integrated into the onboarding process without disrupting the user experience.

Horizon offers advanced anti-money laundering software to continually streamline the verification of user details against a proprietary database of global sanctions, Politically Exposed Persons (PEPs), bad actor wallets and watchlists. Because our technology is built on the Ethereum public blockchain, it provides immutable, timestamped records of when someone is cleared and who cleared them for internal record keeping and any compliance checks by regulators.

In conclusion

Just as money laundering will continue to get more sophisticated, firms must be diligent in adapting their anti-money laundering compliance programs to effectively combat fraud. Integrating technology solutions such as Horizon’s anti-money laundering software can help firms maintain compliance throughout the lifecycle of their users or investors.

About Horizon

Horizon offers a suite of integrated blockchain software applications for compliant issuance through secondary trading of digital securities. To learn more about Horizon’s anti-money laundering screening solution, AMLCop, please visit https://amlcop.com/.

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