The Financial Action Task Force (FATF), requires organisations to implement programs against money laundering and terrorist financing. The program should support the development of prevention and mitigation measures that are commensurate to the financial crime risk faced. This drives how organisations allocate their compliance resources, organize their internal controls, their internal structures and how they implement policies as well as procedures to deter and detect money laundering/terrorist financing across the organisation.
With the growing complexity of our regulatory environment, organisations continue to be subject to the ever-increasing scrutiny and legal obligations to combat money laundering and terrorist financing. For Uganda, there has been many amendments in the Anti Money laundering laws and regulations which makes establishment of a robust anti-money laundering (AML) compliance program essential for mitigating risks, protecting the reputation of organizations and ensuring compliance with applicable laws and regulations. This article outlines the components of a compliance program and discusses why each step is crucial for the success of the program.
- Leadership and governance:
Compliance, ethics, and anti-Money laundering programs should be fully understood by the board of directors and C-suite leadership. The responsibilities of an organization’s leadership should be clearly defined and assigned. They should be documented in well-developed and socialized written policies and procedures, which establishes an atmosphere of accountability. These policies and procedures should be reevaluated on a documented regular basis, in my opinion at least annually.
- Written policies and procedures:
Employees need clear and comprehensive policies and procedures as guides to adequately navigate the AML regulatory framework. Documents such as these outline expectations for the organization, outline rules and processes to follow, and clarify how suspicious activities can be detected, reported and mitigated. Organizations should ensure consistent compliance efforts by establishing standardized practices which enable employees to make informed decisions within legal constraints. These policies and procedures should be based on relevant local and global AML documents and practices.
- Independent Money Laundering control officer (MLCO)
The MLCO should be a member of senior management and have unfettered access to the board of directors, [and] internal and external legal counsel. A regular operation of the working relationship between the compliance function and other key operational areas should be conducted as well.
The role of the compliance officer should not be understated. While this individual is not considered part of the core pillars per se, their leadership, expertise and influence drive the overall management and oversight of risks within the program.
- Organisation/enterprise wide Risk assessment:
To establish an effective AML compliance program, a comprehensive risk assessment is essential. Organizations can allocate resources effectively, implement appropriate controls, and tailor policies and procedures by identifying and understanding their specific risks. An organization can focus its efforts on vulnerable areas and prioritize areas of higher risk through a risk-based approach.
- Training & Awareness
Detecting and preventing money laundering requires employees to have the necessary knowledge and skills. Money laundering is linked to both organized crime and terrorist groups, and has significant political, economic, and social costs. Alongside the moral imperative to act, many organizations have a regulatory obligation to prevent money laundering taking place.
Anti-money laundering awareness and compliance is an important part of meeting regulatory requirements. Regulated entities should ensure employees are aware of anti-money laundering practices, so they can identify AML risks in their day-to-day roles. Effective AML training supports organizations to do this.
As best practice, in addition to providing training to the board of directors and C-suite leaders, an organization should ensure that all employees, as well as its agents or representatives or other third parties, attend such sessions. You must also maintain training records, ready to supply as evidence that your organization is adhering to AML requirements.
When an organisation is able to demonstrate that it has complied with applicable AML/countering the financing of terrorism (CFT) laws and regulations, designed its program to provide useful information to the regulators, and implemented reasonable controls to prevent and detect financial crime (for a specific threat or the overall AML/CTF program), this should be considered as strong evidence of the organisation’s AML compliance program.
6. Customer Risk Assessment
Organisations must understand who their clients are and perform the necessary know your customer (KYC) and customer due diligence measures (CDD) during initial onboarding and throughout the relationship. The data collected from these processes should inform a dynamic methodology with established weightings based on the client’s profile. Risk classification will be different for a client who is a foreign politically exposed person with businesses in a high-risk country compared to a retired schoolteacher living off a modest pension.
If, during the relationship, the client exceeds the established risk parameters, decide if you maintain the relationship with enhanced measures or part ways with the client. The decision to exit the relationship should have the backing of the business line owner with sign-off from compliance and senior management.
- Reporting and investigating:
Establishing a reliable and confidential reporting mechanism promotes reporting suspicious activities by employees and stakeholders without fear of retaliation. AML concerns may be investigated and escalated quickly because of this step. To mitigate risks and fulfill their obligations to report suspicious activities to the appropriate regulatory authorities, organizations must thoroughly investigate reported incidents.
- Regulatory compliance and updates:
AML regulations, guidance and best practices are constantly evolving, and compliance officers must stay current. Continuous monitoring of regulatory changes and updates ensures that the compliance program adheres to current requirements. To avoid penalties, maintain regulatory compliance and demonstrate a commitment to robust AML practices, organizations should be able to adapt promptly to changes.
- Monitoring and evaluating the program’s effectiveness:
The board of directors/ senior management and C-suite members should receive regular updates on the program’s implementation and monitoring. These compliance updates must include reports of suspected non-compliance and should be kept by the MLCO. It is important to consider factors such as the previous year’s audit findings and annual risk assessments in determining how frequently various functions need to be monitored.”
Conclusion
A robust program prevents, detects and deters financial crime through the implementation of frameworks and controls. The ultimate objective is to create an environment unattractive to criminals looking to launder ill-gotten funds. Avoiding noncompliance penalties and preserving reputation are other reasons to take program building seriously.
All organisations need a robust AML compliance program. The components as discussed work together to create a culture of compliance, mitigate risks and protect the financial system’s integrity. By adopting these components, compliance professionals are able to protect their organizations and reduce financial crime.
BY: Susannie Kyamanywa
