Avoiding AML Compliance Mistakes: Senior Management Edition

Avoiding AML Compliance Mistakes: Senior Management Edition

As the senior management of a regulated entity, you must avoid AML compliance mistakes to abide by the law and counter Money Laundering and Terrorist Financing risks effectively.
A lot of places where the senior management can go wrong in complying with the AML compliance requirements. Here is the list:
  • Not understanding the significance of preventing ML/FT threats for your business
  • Unable to create an AML culture in your entity
  • Not implementing the right AML policies for your business
  • Failure to prepare employees for the change
The senior management must avoid these mistakes to ensure that the entity complies with AML regulations. The blog here focuses on senior management’s mistakes in AML compliance. Before that, let’s explore their critical responsibilities in the Indian AML context.

Critical Responsibilities Of Senior Management In Ensuring An Effective AML Compliance

The senior management’s responsibilities include:
  • Supervise the company-wide assessment of risks from business, customers, locations, and other factors.
  • Oversee the execution of KYC, CDD, and EDD to verify customers’ identities and build risk profiles.
  • Strategize a risk-based approach to develop an AML framework in alignment with requirements.
  • Ensure the implementation of relevant AML policies, procedures, and controls based on global best practices.
  • Ensure an effective transaction monitoring system is implemented to detect suspicious transactions.
  • Ensure record-keeping of KYC, CDD, and related records.
  • Support and oversee the appointment of an expert AML/CFT principal officer and compliance team.
  • Create enterprise-wide AML compliance culture by promoting awareness and training programs.

Top 7 Mistakes To Avoid By Senior Management In AML Compliance

AML compliance is everyone’s responsibility in a regulated entity. All the employees in their specific roles and positions must contribute to it. The senior management must ensure that these contributions are happening in the entity. The senior management needs to oversee that respective employees are performing their duties that add to fulfilling AML requirements as an organisation.

Lack Of Awareness Of The Latest AML Guidelines And Laws

Senior management must stay up-to-date with the latest guidelines issued by authorities. By this, you will know what requirements to follow and what deliverables to submit. Based on this, you can prepare the plan or strategy for AML compliance execution.
Also, these guidelines become your direction for the road ahead. They help you list the submissions, compliances, and duties to follow for the year. You are also better aware of expectations from the senior management in AML compliance.
Such awareness also enables you to understand the significance of AML compliance. Compliance becomes smoother only once you understand how AML can benefit the business journey.
You might miss compliance if deprived of such knowledge, leading to penalties. Also, your compliance efforts will be half-baked, exposing you to money laundering threats. So, have enough awareness and knowledge of your AML rules, guidelines, and notifications.

Absence Of A Positive AML Culture In The Entity

Is AML compliance a cost centre? Some entities believe that.
No, this is a wrong philosophy. It is not a cost centre but a way to become a legally compliant entity. The fact that it involves costs is true, but it saves you from the threats of financial crimes. It improves customers’ trust in you, boosts your business reputation, and protects the financial system and economy from risks.
So, the entity must commit to preventing, managing, or mitigating ML/TF risks. It must align this commitment to achieve AML compliance. When everyone in the entity, from top to bottom, is ready for this, it creates an AML culture.
To create such a positive AML culture, the senior management must:
  • Create risk appetite and risk tolerance statements for the entity. These statements let the employees know the entity’s expectations about AML. Senior management must consistently promote this message in their actions across the entity.
  • Have all the correct answers to the questions posed by employees on AML. For all your employees’ doubts or confusion, give simplified responses to them.
  • Understand the why, what, and how of AML compliance initiatives. Only when you comprehend these clearly can you answer to other stakeholders. Clarity on the value that AML compliance generates is essential.
How could you make such a mistake?
  • Create a risk-rewards program for your employees. You can do this by incentivising employees to support a positive AML culture.
  • Lead by example by displaying your non-tolerance of AML non-compliance. You must behave ethically in decision-making and maintain the integrity of operations.
By employing these tactics, you can ensure that the entire entity works towards achieving AML compliance. You must believe in the spirit of AML compliance and create a solid, positive AML culture. With enough effort for it, you can ensure efficient AML compliance.
If you don’t have such an AML culture or if it is poor, you are bound to experience failures in your AML efforts. Your efforts lack the lustre and do not result in the expected outcomes. So, a positive AML culture is essential for success.

Neglecting Constant Communication On AML Status And Actions Taken

Just building a strong AML culture is not enough. The employees and other stakeholders must know the entity’s AML compliance status. So, communication is a crucial ingredient. The communication that is generally needed is from top to bottom.
The leadership of the entity is responsible for AML compliance. You need to make decisions and take action to follow the PMLA, 2002 and IFSCA (Anti Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022. You must have all the necessary data points and information for these decisions. You will get these points from the employees who face customers and work on processes. So, the information flow from bottom to top exists.
In the case of AML compliance, the information flow from top to bottom is also essential. You must communicate the compliance status, identify loopholes, and take corrective actions. It would be best if you informed the following to employees:
  • The inputs and outputs of compliance testing
  • What is working and what is not
  • List of risks your business faces
  • Risk mitigation and management measures implemented
  • Risk-based approach and decisions taken for AML compliance
  • Appropriate governance structures established for AML
  • Risk parameters, restrictions, and boundary conditions
  • Red flags related to ML/TF
If you maintain such a quick and smooth communication flow, you are sure to achieve compliance with AML laws.
Moreover, a communicative and collaborative relationship with regulatory authorities is also essential. With this, you can stay up-to-date on upcoming changes and act faster. Also, you can give prompt responses to inquiries or examinations.

No Integration Of AML Requirements With Business Processes

AML compliance is one of your business objectives. It helps you achieve your goals of a revenue-generating and legally compliant entity. But this business goal must be ingrained well into the business.
It cannot be separated from your other objectives. It holds as much importance as any other goal. You need to be AML-compliant to attract customers and have a good reputation in the market.
So, make AML compliance procedures and controls a part of your business operations. For example, you must conduct KYC before onboarding a new customer. So, the customer acquisition team will be responsible for this task. Before conducting a transaction, engage in KYT and transaction monitoring. When you spot a suspicious transaction, investigate it further and submit a Suspicious Transactions Report (STR).
Thus, integrate the AML procedures into your routine, day-to-day business operations. These must work in a flow with no distraction to regular business. Such “business as usual” feature of AML processes ensures better outcomes for your entity.

Not Allocating Enough Budget, Time, And Resources To AML Compliance Policies

What do you need to adhere to AML regulations in India?
Enough budget. Time to comply. Skilled resources.
The senior management is responsible for ensuring these three aspects. Without them, you cannot expect to complete your risk assessments, transaction monitoring, due diligence, and implementation of AML controls.
So, keep a separate budget for AML activities. Break your budget into different aspects of AML compliance activities for clarity. A part of the budget is also spent on technology solutions for these AML initiatives. Entities use technological systems for:
  • Conducting risk assessment
  • Monitoring transactions
  • Conducting KYC, KYB, and KYT
  • Screening customers against sanctions, watchlists, and bans
  • Executing due diligence measures
You spend a lot of money on these solutions, but they make your work easier. You save time, reduce human errors, and ease the process.
Also, you must hire skilled personnel for the AML jobs. To save money there, you can train existing employees on AML skills. Thus, with expert personnel working on AML activities through technology, you save time and have quality results. But ensure that timelines are set for each deliverable so that employees commit to them.
If you miss doing so, you might not achieve the desired future state of compliance. Consider long-term objectives while focusing on these three factors: time, money, and resources. Your AML requirements, customers, and transactions will increase when you scale and grow. So, you will need to address more of everything.

Missing Framing Of The AML Monitoring And Auditing Framework

The AML compliance officer will create the AML framework, including policies, procedures, and controls. In a senior management position, you will approve this AML framework. Also, you will ensure that the team executes this framework across the entity.
But what after execution? What about its performance? You can’t ignore that.
An often-ignored aspect of AML compliance is the performance measurement of your AML framework. For this, you must ensure its frequent monitoring. Constant monitoring can ensure that the framework satisfies the requirements and helps you achieve AML compliance.
The monitoring framework must be such that you can:
  • Identify the loopholes with the AML initiatives in the entity
  • Improve your procedures and policies to prevent the threats of financial crimes
  • Maintain the effective parts of the existing AML framework
  • Avoid complacency or lackadaisical attitude towards AML culture
  • Take decisions based on the performance measures
It is your defence action in times of crisis. You can identify AML breaches or ML/FT incidents with such a monitoring framework. You can respond to this crisis immediately and improve your AML framework. Thus, you are ready for emerging risks as well as developments in the industry.
You can appoint an external independent auditor to ensure compliance with AML/CFT regulations. You can also have an internal team performing the health check of your AML compliance.
You must communicate this performance monitoring framework to the AML compliance team. Ensure its execution on priority to keep tracking your performance and improving.

Ignoring The Background Check Of People In Senior Positions In The Compliance Team

The senior management must participate in the recruitment process of the AML compliance team and the AML compliance officer. Your involvement is necessary to ensure you have ethical people managing AML compliance.
You cannot have people compromising their ethics and moral values for more rewards. Such people might approve high-risk customers for higher incentives. They might add lucrative markets to the list of feasible places to do business despite those countries being sanctioned or having weak AML regimes. They might even support illegitimate transactions. So, stay wary of them.
Onboard ethical people with a history of maintaining a good balance of risks and rewards. They must measure the rewards of a business relationship against the risk tolerance. If the risk is high, don’t form a relationship. Put in place proper controls and governance policies for effective consideration of each business case.
Employ ethical people with the right mindset of risk-reward balance. If you miss doing so, your exposure to money laundering and other threats increases. It will deteriorate your business reputation, and customers will lose trust in you.

How Can Niyeahma Help You?

Senior management professionals, you know the mistakes you must avoid in AML compliance. Pay attention to the points mentioned in this blog. If you still need help or want to shift the burden of AML compliance to an expert, we are here.
Niyeahma is a prominent provider of AML compliance services in India. By associating with us, you need not worry about AML compliance. Our AML professionals and consultants take care of every activity for you. Be it transaction monitoring, KYC and CDD, training, or risk assessment, we handle all. We create a customised AML framework for your business and ensure its successful execution.

About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 22 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.

He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.