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8 AML Guidelines Every Compliance Team Should Be Using

by Pedro Ferreira
  • There are some AML rules which should be universal to nearly every compliance team.
AML
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Many compliance teams may find that AML or anti-money laundering detection rules aren’t straightforward in their application.

This happens due to the plethora of risk factors and possible thresholds which are relevant to each of their respective business models, customers, range of products and so forth.

Even with that being the case, there are some AML rules which should be universal to nearly every compliance team. We narrowed them down to 8:

AML Rules Every Compliance Team Needs to Know

AML guidelines, compliance

Effective structuring detection

Structuring, to put it in simple terms, is something which happens when fraudsters place a large number of transactions just below the reporting threshold.

This means that in what concerns AML rules, pattern detection should be adjusted to customer transactions slightly below the reporting amount imposed by the jurisdictions companies are operating in.

By doing so over a significant period of time, compliance teams might find relevant patterns which will demand further action.

Check for changes to Customer Details before any major Outbound Payments

If customer details are changed before major outbound payments, there should be a rule put in place to detect it.

The reason behind this is twofold:

· Layering could be happening and thus fraudsters are trying to hide the money’s route.

· Fraudsters might have gained access to a dormant account and are attempting to prep it before engaging in money laundering activities.

Working together with this, the next guideline can also be of the highest importance.

Monitor dormant accounts and look for immediate withdrawals to private wallets

Transactions which are soon followed by a withdrawal of funds the moment they are received should be monitored as they might be connected to criminal activities.

The case worsens when the practices have a set frequency (ex: every couple of days).

Moreover, there might be the case that dormant accounts are used. Dormant accounts should have an associated AML rule with a trigger for an unusual level of activities, high-risk jurisdiction transfers, customer detail alterations, and so forth.

Look for Deviation from Spending Patterns

Unusual spending patterns are hard to encapsulate in a single rule due to how customers have different social status, income levels, and, logically, types of spending.

Nonetheless, account takeovers happen so criteria should be pegged to the customer’s usual activities.

Accordingly, red flags should be spotted if deviations are identified.

Following this line of thought, the next guideline is quite obvious because, after all, it might also be the case of where the money is going.

Monitoring transactions to high-risk jurisdictions

If money is moving to high-risk country, then it becomes clear that something might be at hand.

High-risk countries, however, aren’t solely countries in which financial crime exposure is more prevalent, but also tax havens, and countries with a higher level of banking secrecy.

Given the everchanging political and economic landscape, the general risk level is constantly changing as well, meaning that the high-risk country list should be constantly updated as to reflect those changes.

Keep Buyer Diversity % on your radar

Having such a rule in place will work as an attempt to prevent money laundering practices which can happen under collusion, meaning that it’ll be actively looking for the circulation of funds through clusters of accounts.

The idea is to look for merchants which are receiving payments from a limited number of consumers in places such as platforms where multiple buyers should be the rule and not the exception.

Monitor Cash Activities

It is widely known that cash is still one of the preferred methods of criminals and inconsistent cash activities should always raise red flags.

Having a rule in place which trigger when a significant number of cash deposits is identified is a start.

However, going the distance and have it crosscheck with customer behavior for inconsistencies is key.

But cash isn’t the only thing to look for as Virtual Assets also pose a challenge.

Monitor Virtual Asset Conversion Rate

Virtual assets transactions might be a way to conceal where the funds are coming from, but as more frequent conversions get between cryptocurrency to FIAT and vice versa, the higher the possibility of money laundering.

Given that virtual assets aren’t usually the preferred method of day-to-day transactions, they become an easy target for schemes.

Monitoring the frequency in which small transactions are made might help tackle fraudsters.

Wrapping up

It is important to understand that these 8 recommendations are broad strokes in a much larger AML/CFT canvas.

Understandably, different businesses, products, and users require different AML rules and there isn’t a “catch-all” rule.

Nonetheless, these 8 general rules if narrowed down to each case respectively, can give AML teams higher chances of success.

Many compliance teams may find that AML or anti-money laundering detection rules aren’t straightforward in their application.

This happens due to the plethora of risk factors and possible thresholds which are relevant to each of their respective business models, customers, range of products and so forth.

Even with that being the case, there are some AML rules which should be universal to nearly every compliance team. We narrowed them down to 8:

AML Rules Every Compliance Team Needs to Know

AML guidelines, compliance

Effective structuring detection

Structuring, to put it in simple terms, is something which happens when fraudsters place a large number of transactions just below the reporting threshold.

This means that in what concerns AML rules, pattern detection should be adjusted to customer transactions slightly below the reporting amount imposed by the jurisdictions companies are operating in.

By doing so over a significant period of time, compliance teams might find relevant patterns which will demand further action.

Check for changes to Customer Details before any major Outbound Payments

If customer details are changed before major outbound payments, there should be a rule put in place to detect it.

The reason behind this is twofold:

· Layering could be happening and thus fraudsters are trying to hide the money’s route.

· Fraudsters might have gained access to a dormant account and are attempting to prep it before engaging in money laundering activities.

Working together with this, the next guideline can also be of the highest importance.

Monitor dormant accounts and look for immediate withdrawals to private wallets

Transactions which are soon followed by a withdrawal of funds the moment they are received should be monitored as they might be connected to criminal activities.

The case worsens when the practices have a set frequency (ex: every couple of days).

Moreover, there might be the case that dormant accounts are used. Dormant accounts should have an associated AML rule with a trigger for an unusual level of activities, high-risk jurisdiction transfers, customer detail alterations, and so forth.

Look for Deviation from Spending Patterns

Unusual spending patterns are hard to encapsulate in a single rule due to how customers have different social status, income levels, and, logically, types of spending.

Nonetheless, account takeovers happen so criteria should be pegged to the customer’s usual activities.

Accordingly, red flags should be spotted if deviations are identified.

Following this line of thought, the next guideline is quite obvious because, after all, it might also be the case of where the money is going.

Monitoring transactions to high-risk jurisdictions

If money is moving to high-risk country, then it becomes clear that something might be at hand.

High-risk countries, however, aren’t solely countries in which financial crime exposure is more prevalent, but also tax havens, and countries with a higher level of banking secrecy.

Given the everchanging political and economic landscape, the general risk level is constantly changing as well, meaning that the high-risk country list should be constantly updated as to reflect those changes.

Keep Buyer Diversity % on your radar

Having such a rule in place will work as an attempt to prevent money laundering practices which can happen under collusion, meaning that it’ll be actively looking for the circulation of funds through clusters of accounts.

The idea is to look for merchants which are receiving payments from a limited number of consumers in places such as platforms where multiple buyers should be the rule and not the exception.

Monitor Cash Activities

It is widely known that cash is still one of the preferred methods of criminals and inconsistent cash activities should always raise red flags.

Having a rule in place which trigger when a significant number of cash deposits is identified is a start.

However, going the distance and have it crosscheck with customer behavior for inconsistencies is key.

But cash isn’t the only thing to look for as Virtual Assets also pose a challenge.

Monitor Virtual Asset Conversion Rate

Virtual assets transactions might be a way to conceal where the funds are coming from, but as more frequent conversions get between cryptocurrency to FIAT and vice versa, the higher the possibility of money laundering.

Given that virtual assets aren’t usually the preferred method of day-to-day transactions, they become an easy target for schemes.

Monitoring the frequency in which small transactions are made might help tackle fraudsters.

Wrapping up

It is important to understand that these 8 recommendations are broad strokes in a much larger AML/CFT canvas.

Understandably, different businesses, products, and users require different AML rules and there isn’t a “catch-all” rule.

Nonetheless, these 8 general rules if narrowed down to each case respectively, can give AML teams higher chances of success.

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