Effective Risk Management AML Practices in 2024
As financial institutions fight and make their way around the changing money laundering strategies, powerful AML Risk Assessment and Ongoing AML Monitoring are important tools that can protect them against these crimes.
AML Risk Assessment is an extremely important part of risk management inside organizations. It finds out the risks related to money laundering. By pointing out weaknesses and evaluating the effect of these risks, businesses can customize their way of compliance to get rid of dangers.
According to reports, somewhere in the range of 2% and 5% of worldwide GDP, or generally $800 billion to $2 trillion yearly, is laundered, with drug dealing only! This makes around $200-500 billion USD yearly.
In AML Compliance, Corruption Risk Assessment plays an important role. Corruption many times accompanies money laundering activities, and this challenges the integrity of the financial systems. By analyzing corruption risks in activities and transactions of business, organizations can use due diligence practices to eliminate dangers.
Want to learn more about AML Risk Management strategies, read this blog and increase your knowledge.
Politically Exposed Persons (PEPs) bring in a high level of risk because they are likely to be involved in crimes and be part of money laundering plans. Performing PEP Risk Assessment allows the identification and screening of these people. Enhanced due diligence, transaction monitoring and continuous examination help in eliminating the risks that come with PEPs.
Around 80-90% of FIs around the world perform AML risk assessments to identify and get rid of weaknesses in their systems before they are taken advantage of.
Ongoing AML Monitoring is a defense against crimes. Through monitoring processes, organizations can identify suspicious ways of behaving and transactions in real-time. They help in moderating the risks before they get out of hand.
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Risk Management AML Practices
Risk Management AML (Anti Money Laundering) practices are very important for FIs so they can protect themselves against risks related to money laundering.
- Know Your Customer (KYC) Procedures
Perform due diligence on clients to confirm their IDs and analyze the risk keeping in view their activities. Collect data about their transactions and how they deal with other businesses, this helps in identifying unusual behavior.
- AML Risk Assessment
Check the risks related to money laundering everyday. Check the effectiveness of the process used to eliminate risks and change strategies accordingly.
- Enhanced Due Diligence (EDD) Measures
Use enhanced due diligence for high-risk clients, like PEPs and clients that come from areas at a high-risk. Keep them under monitoring.
- Transaction Monitoring
Track the transactions of your customers to make sure there are no suspicious activities taking place. Set up alarms and limits to help you identify transactions that are too high.
- Collaboration and Information Sharing
Work with other institutions and agencies to share data and knowledge on the arising dangers and best practices.
- Continuous Improvement and Review
Do regular audits of AML processes and controls to make sure no improvement is needed. Use the feedback to improve your processes.
The worldwide AML fines added up to more than $6.2 billion, with banks frequently getting the biggest punishments in 2021.
Read about the 10 payment risks and find out what McKinsey & Company has to say about it.
Danske Bank Estonia Money Laundering Scandal
Between 2007 and 2015 Danske Bank’s Estonia branch worked with around €200 billion in transactions that were very suspicious from Russia and some other risky areas. These transactions included shell companies with no real business, huge money deposits, and transfers to suspicious individuals. In spite of numerous alerts, the bank didn’t have great Anti-Money Laundering (AML) controls or reporting of suspicious activities.
The Estonian branch didn’t have any proper EDD checks for clients, systems to screen transactions, or assessments for risky clients. Both Estonian and Danish management overlooked alerts, thinking more about money than following guidelines. A culture of risk-taking and weak oversight in the bank allowed the plan to continue. This lack of oversight was exemplified in instances like Story Saver .Net, where transactions were not properly scrutinized, contributing to the overall failure of compliance measures.
In 2022, Danske Bank got a €470 million fine from Danish authorities and made an agreement to pay a $2 billion settlement with the US Department of Justice. The scandal hurt Danske Bank’s reputation, causing investors to lose trust. The CEO at that time, Thomas Borgen quit and different top level managers were fired. Danish authorities also made AML rules stricter and increased punishments for money laundering.
Is Risk Management AML Worth It In 2024?
Risk Management AML is very important for protecting the financial systems and stopping crimes like money laundering and terrorist financing. By putting their focus on AML Risk Assessment, Corruption Risk Assessment, and PEP Risk Assessment, banks can become stronger against crimes. We are sure you don’t want to end up with fines like Danske Bank, check out AML Watcher now and make your systems better at Risk Management.
