Anti Money Laundering (AML ) Policy

An AML policy is a combination of measures to stop criminals from disguising illegally obtained money as legitimate income. Implementation is mandatory for financial institutions and overseen by regulatory authorities.

AML policies are designed to set a general structure of company systems and controls for combating money laundering (ML) and terrorist financing (TF). It should determine AML risk appetite, tolerances, unacceptable customer types, forbidden actions, employee responsibilities, employee rights, qualification levels, etc.

The AML policy must be approved by the company’s senior management and reviewed regularly.

An AML policy is similar to an AML program. These terms are interchangeable depending on the jurisdiction.

Key points about AML policies and procedures

  • Purpose: To combat money laundering and terrorist financing by establishing a framework to monitor transactions, identify suspicious activity, and report it to relevant authorities.
  • Components: Customer Identification Program (CIP):Verifying customer identities through documentation and checks.
    • Customer Due Diligence (CDD):Assessing the potential money laundering risks associated with a customer based on their business activities and sources of funds.
    • Enhanced Due Diligence (EDD):Applying additional scrutiny to high-risk customers or transactions.
    • Transaction Monitoring:Utilizing systems to flag suspicious transactions based on pre-defined parameters.
    • Suspicious Activity Reporting (SAR):Filing reports with regulatory bodies when suspicious activity is detected.
  • Risk-Based Approach: AML policies should be tailored to the specific risks faced by a financial institution, considering factors like customer types, geographic locations, and product offerings.
  • Employee Training: Staff should be adequately trained on AML policies and procedures to recognize and report suspicious activity.