The Importance of a Robust AML Process

From fines to reputation – it’s more than ticking boxes

Money laundering is big business, and as a result, governments around the world have put various policies in place to fight it. The United States was one of the first countries to enact anti-money laundering (AML) policy through the Bank Secrecy Act in 1970, and today, the Financial Action Task Force (FATF) encompasses 37 member countries. The FATF devises and promotes international standards to prevent money laundering, that inform local legislation like New Zealand’s Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

Financial institutions and other businesses that handle large sums of money are required to have robust procedures in place to combat financial crime. These are designed to detect and prevent money laundering, providing benefits to the business and society as a whole. Here’s how it works.

What exactly is AML?

Anti-money laundering (AML) refers to the processes financial institutions and other businesses use to achieve compliance with their legal requirements and to actively monitor any suspicious activities.

4 reasons why AML compliance is critical

With estimates of between US$800 billion and US$2 trillion being laundered globally each year, concern about money laundering is valid. While the sheer volume of money is troubling, so too are the illegal activities that accompany it. 

At an organisational level, AML compliance is important for the following reasons:

1. Regulatory requirements

Adherence to local policy is crucial. Regulations require financial institutions to monitor customers and transactions and report suspicious activity. Failure to comply can lead to substantial fines, loss of credit ratings, temporary or permanent closure of a business and even criminal charges.

2. Reputation

Reputation and trust are particularly important for financial institutions. An AML crisis where a financial institution has been associated with illegal activities can damage a brand significantly. On the other hand, a robust AML policy can drive feelings of security for customers. 

3. Technology has changed the playing field

Money laundering has moved from being a slow, cumbersome process to one that is quick and more difficult to trace. As a result, institutions need to be increasingly diligent to avoid issues.

4. Costs

Inadequate AML policy can present huge costs to financial institutions. This includes everything from capital reserved for risk exposure through to fines.

AML processes are evolving

Anti-money laundering policies and procedures are constantly evolving as technology drives change in the landscape. Firms need to continually assess, manage and mitigate risks to ensure they are satisfying regulatory requirements. Engaging a specialised firm like First AML takes the pressure off your business and simplifies the AML process for you and your clients.