Key Components of an Anti-Money Laundering Program


Anti-Money Laundering systems are being implemented by blockchain and crypto companies to help make unscrupulous actors in cryptocurrency a thing of the past.

Summary

Money laundering is a criminal activity that takes place all over the world. Regulators have recently targeted cryptocurrencies with current Anti-Money Laundering (AML) regulations. AML regulators and watchdogs work directly with cryptocurrency exchanges and custodians to reduce and prevent money laundering.

Because the crypto sector is still in its early stages, its regulations are changing as well. In the cryptocurrency industry, a rigorous anti-money laundering (AML) policy is aimed to protect individuals, businesses, and governments against criminal actors.

Contents

AML: The Basics

Money laundering, terrorist financing, theft, and other financial fraud are all combated by anti-money laundering (AML) protocols, legislation, and rules.

Tax evasion, market manipulation, public money embezzlement, and illicit product dealing are just a few of the unlawful behaviors targeted by AML programs. Money-laundering operations have been fought by global AML regulators for decades, and AML requirements also apply to the financial technology (FinTech) sector and cryptocurrencies.

Individual countries establish their own methods to combat domestic money laundering, guided by AML watchdogs such as the Financial Action Task Force (FATF). Policies differ widely from one country to the next. In the financial services industry and FinTech sector, the Know-Your-Customer (KYC) procedure for validating clients’ identities is a major component of most Anti-Money Laundering compliance systems.

Money laundering and other financial crimes are prevented and combated through AML, which is a comprehensive umbrella program that encompasses all additional measures taken by money service organizations to prevent and combat money laundering and other financial crimes.

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In general, a financial institution’s anti-money laundering program should follow local anti-money laundering legislation, but the following workers all have a part in the development and implementation of an AML program:

Boards of Directors: Building robust communication channels requires buy-in from senior executives — and eventually the board of directors — who set the tone from the top. These CEO decisions can have a significant impact on the effectiveness of a company’s anti-money laundering program.

Management: Managerial vigilance is essential in any organization, but it is especially crucial in the financial services industry. While boards set the tone at the top, management is ultimately responsible for the company’s policies and practices.

Legal and Compliance: It is critical to accurately identify and evaluate the risks that a company must handle and manage in order to ensure its health and safety. A competent internal legal and compliance team can aid in the identification of risks and the implementation of an Anti-Money Laundering compliance program. The compliance department can also assist management teams in developing training activities and programs for their personnel.

Employee Initiatives: Because it’s possible for leadership to overlook some information, workforce-wide methods for monitoring suspicious actions are essential. Individuals operating as a collective to counter suspected criminal acts and offer an extra layer of security become part of a risk-monitoring process.

When put together, these components constitute a network that has the potential to eliminate a wide range of unlawful financial activities.

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What Is the FATF?

The Financial Action Task Force (FATF) is the international watchdog on money laundering and terrorism financing. This intergovernmental committee aids in the development of global rules aimed at reducing financial crimes.

The major mission of the FATF is to investigate money laundering and terrorism financing. Since the inception of cryptocurrencies, the Financial Action Task Force (FATF) has worked to address new potential risks associated with the asset class.

FATF audits countries and their financial institutions on a regular basis to ensure that their anti-money laundering (AML) systems are up to date, and holds governments accountable when they do not follow FATF recommendations.

Who Oversees Anti-Money Laundering Compliance? 

It is conditional on the jurisdiction. The Financial Industry Regulatory Authority (FINRA) in the United States regulates AML integration and audits a firm’s compliance.

FINRA Rule 3310 establishes the minimum requirements for a firm’s written anti-money laundering compliance policy.

Although FINRA’s AML guidelines are meant to assist U.S. firms in detecting suspicious behavior, most financial institutions are responsible for providing AML training to their employees. Similar authorities oversee AML legislation in various regions of the world, notably the European Securities and Markets Authority (ESMA) and a number of oversight entities across Asia.

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Anti-Money Laundering Laws and Cryptocurrency

Because the crypto sector is still in its early stages, regulations and crypto compliance software solutions are evolving at a rapid pace. While many regulated and compliant cryptocurrency organizations have developed KYC rules to curb financial crimes, many institutions still have a long way to go.

As more businesses enter the crypto market and build AML processes, regional regulators will gain a better understanding of the process’s recurring pain points. Testing, like with any complex process or solution, will be critical to its improvement.

Experience-based policies and procedures will grow, as will crypto compliance software solutions, to build a more unified approach to AML.