A Checklist for AML Compliance

Following our three part, in-depth series on the KYC Refresh process, we have put together a checklist that can help maximize your AML programs straight out the gate.

The first three markers to check for are:

  1. Identity and/or beneficial ownership: Understanding who your customers are is the key to knowing their business. But it isn’t enough if you just collect the data they provide. As a responsible financial institution you must make ample effort to assess and validate the information. As part of due diligence, you can even make use of third party resources to verify the same.
  2. Source of wealth: This is one of the most important markers to lookout for. You need to be able to draw logical parallels to a person’s profile and their transactions. That doesn’t mean you only look for obscure customers handling large volumes of money. Even well-known individuals can get caught up in illicit transactions.
  3. Past or present convictions: A person convicted of fraud is likely to do it again. However, you could still take them on as a high-risk individual and conduct periodical KYC checks to ensure everything is in order. This of course will run your costs up, so it’s a delicate balancing act.

Certain other non-quantifiable markers include:

  1. Frequent use of intermediaries: Research the underlying reasons for a client to make use of intermediaries. If it doesn’t make sense in the normal course of their business or personal life, you should take a closer look.
  2. Unreliable documentation: If a client has consistently produced incomplete documentation, or worse, provided counterfeit files, that’s a serious cause for concern.

The final set of markers are all in reference to independent transactions and require the most intense reviews due to the sheer volume of transactions made on the whole. You have to see patterns and figure out which of them are illicit. Some things to watch for include:

  1. Relationships between transacting parties: If your clients are interacting with suspicious persons, then it stands to reason that they may also be involved in suspicious activity.
  2. Overly frequent transactions: Constantly sending money to someone halfway around the world, especially when they do not have a verifiable footprint, is a staggering red flag that needs to be checked.
  3. Unrealistic structure of receiving parties: If the receiving party belongs to an organization headed by a recently appointed 90 year old CEO, then it’s time to review your client’s priorities.

While this is by no means an exhaustive list that can catch the elusive and ingenious fraudsters, it is a good place to begin investigations and reviews.