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Due to being exposed to numerous financial threats, the world needs updated AML regulations and laws presented on a daily basis. In combating financial crimes, which is the goal of local and global AML rules, financial service providers have a crucial position. As a matter of fact, the majority of the financial crimes are initiated by the flaws of financial service providers. Companies which have a financial crime risk are supposed to exercise controls in order to meet the AML requirements according to the law.
Follow through to find out, what the global AML laws and requirements are, that you need to consider for your company in 2020.
1. The Financial Action Task Force (FATF)
In 1989 the G-7 summit determined a need to fight the serious threats posed by financial crimes and, therefore founded an organization The Financial Action Task Force (FATF), whose goals are preventing money laundering and terrorist financing. In the frame of the international activity of 39 members, including countries such as United States, United Kingdom, Japan, China, Germany, and the European Commission, FATF sets the guidelines for the AML laws and regulations globally and works as a worldwide regulator.
AML framework provided by FATF explains to countries and firms the AML requirements. The goal of FATF recommendations is to fight financial criminality by preliminary prevention of countries from committing financial crimes and by punishing the legal entities and entitled persons by fines and sanctions if their activity does not satisfy the AML/CFT conditions.
The FATF recommends:
– Applying a risk-based approach – money laundering and terrorist financing bring certain financial risks. These risks need to be recognized and evaluated by the firm or country, and afterwards – taken into consideration while implementing actions to prevent money laundering and terrorist financing.
– Customer Due Diligence – measures that financial institutions are obliged to apply are customer due diligence (CDD) requirement. Firstly, financial institutions are supposed to authenticate the customer’s identity. Secondly, the customer’s risk level needs to be checked and afterwards defined. After taking into consideration these factors it is mandatory for companies to introduce the audit process.
– Record-Keeping – since customer records may compose evidence needed in the future, AML requirements state that these records are supposed to be kept by financial institutions for 5 years minimum.
– Politically Exposed Person Controls – politically exposed people are presented as high-risk customers for financial institutions. In order to eliminate the corruption and bribery companies create PEP list controls.
– Reporting of Suspicious Transactions – financial institutions have a duty of registering “suspicious transaction reports” to competent authorities, in the case that a suspicious situation or a suspicious transaction is identified while running the checks.
2. The European Union – Fifth Anti-Money Laundering Directives (AMLD5)
For keeping the EU financial systems safe the European Union needs to identify and prevent the harmful risks. To achieve this goal the EU presents their anti-money laundering directives and implies them to all legal entities operating in the union. The mentioned regulations are supposed to help avoid money laundering and terrorist financing. The directives also conform to FATC recommendations. Until recent year of 2020 when the Fifth update of the directives was presented, the EU has successfully fought financial criminality with the help of the Forth Anti-Money Laundering Directives.
The EU AML Directives require the customer authentication before any EU Member State establishes a business relationship with them. The authentication involves a risk-based approach, by which firms can verify if any criminal activities as money laundering or terrorism financing were committed on the customer’s account. Other AML requirements implicated by Fifth Money Laundering Directives include inspection on the PEP list for their customer performed by the companies. Among other things the EU directives also relate to casinos, virtual currencies, and wallet providers.
3. The Bank Secrecy Act (BSA)
The Financial Crimes Enforcement Network (Fincen) of the United States administrates a law fighting financial crimes. The law called the Bank Secrecy Act directs all financial institutions in the US to keep detailed records of their client’s identities and financial transactions.
The BSA demands multiple reports submitted by financial institutions:
– Currency Transaction Reports – this report type is required to be prepared for Fincen about clients who process transactions worth more than $ 10,000 during one business day.
– Suspicious Activity Report – if financial institutions discover suspicious transactions during AML inspections, the cases are to be reported.
– Foreign Bank Account Report (FBAR) – the BSA demands all US citizens to submit FBAR to the US Treasury for their foreign bank or financial accounts in case their total value exceeds $ 10,000.
In the United States of America intentional violation of BSA requirements are prosecuted by the law. Individuals and institutions neglecting the AML regulations are imposed to heavy penalties as fees up to $ 250,000 or imprisonment to the point of 5 years long.
Make sure your firm conforms to AML requirements with COREDO
You are now informed about 3 main AML laws. However, there are numerous other AML requirements that you have to comply with. These rules vary in every region of the world depending on the local risk structure. COREDO will help you meet the AML requirements globally and locally as well as prevent your company from receiving brutal penalties. Contact us to make sure about your AML compliance.