Anti Money Laundering Policy: 8 Steps to Create Your Company Policy

What is an Anti-Money Laundering (AML) Policy? [P2]

Money laundering poses a significant business risk to financial institutions and other organizations in regulated industries. As a result, most countries have enacted anti-money laundering (AML) and combating financial terrorism (CFT) regulations. Organizations are mainly responsible for identifying risky customers or transactions, and if they fail to do so, they face fines and legal penalties. 

AML regulations are complex. Organizations must establish a clear AML policy to guide day-to-day activity. Compliance teams at the organization must understand the rules, identify their responsibilities, and translate them into a practical approach that employees can carry out.

An AML policy typically includes measures and controls that can identify "dirty" money obtained from illicit activity and prevent it from being introduced into the financial system. A central part of these controls is "Know Your Customer" (KYC), which allows an organization to verify the identity of its customers and understand if they represent an AML risk.


In this article:


The Importance of Anti-Money-Laundering (AML) Policies

Many countries have anti-money laundering legislation intended to prevent financial crimes and financing of terrorist organizations—also known as counter-terrorism financing (CTF). The Financial Action Task Force (FATF) is an international organization with 39 members, which helps countries put in place AML legislation and ensure consistency between different countries' regulations.

AML regulations are different in every country, but their common denominator is that they require financial institutions to maintain and enforce policies to prevent financial crime and avoid the introduction of illegally obtained funds into the financial system. These policies must include:

  • People—Responsible for preventing money laundering.
  • Processes—how the organization will act to prevent money laundering.
  • Technology—tools and security control an organization will implement to prevent money laundering. Technology is crucial for applying AML principles to many transactions and customers.

Related content: Read our guide to AML software

For example, the US Bank Secrecy Act (BSA) requires financial institutions to create and document an AML compliance program. As part of this program, they must:

  • Establish customer due diligence (CDD) systems
  • Screen customers according to requirements for economic and trade sanctions from the Office of Foreign Assets Control (OFAC)
  • Monitor and report suspicious activity
  • Demonstrate they are taking a risk-based approach to anti-money laundering.


Related content: Read our guide to AML in banking


8 Steps to Creating an AML Policy for Your Organization

1. Define the Purpose of the Policy

Here are three critical statements a business should introduce as part of the policy drafting process:

  • Definition of terrorist financing and money laundering
  • Pertex for the policy and why it required
  • Consistent regulatory review conditions to remain within compliance specifications

An organization uses the three core pillars to create its AML policy. 

2. Appoint an AML Officer

An organization must hire a compliance officer. This position is for a business member responsible for overlooking all matters relating to the company's AML strategy. 

An organization should outline the employee's name, responsibilities, and qualifications. In addition, they should be familiar with financial law, AML technologies, AML policies, and other relevant details. 

3. Reporting to the Financial Intelligence Unit (FIU)

An organization outlines how they satisfy law enforcement requests and financial intelligence units for details on criminal activity. Organizations should describe the procedures and actions they will carry out in response to a request from authorities. They should also know how they will document the process.  

4. Sharing Data with Financial Institutions

Organizations need to define how they share gathered AML information with other financial institutions to discover and stop money laundering elsewhere. This policy should outline a confidential and secure methodology that will not permit data leaks. 

5. Establish Screening Procedures

Know Your Customer (KYC) approaches have a crucial role in upholding AML compliance and stopping financial crime. An organization should implement a screening process for all clients starting any business relationships or establishing an account. 

Before conducting business, the organization must check if a possible client is on a financial sanction or deny list. One such list is the US Specially Designated Nationals List (SDN). 

An organization should have a clearly outlined process to achieve this. This process should be written and distributed to each potential client. An organization should continuously review the document in keeping with the evolving regulatory requirements. 

6. Authenticate your Client's Identity

This step establishes the KYC process. An organization must verify a client's identity after the initial screening. Every organization should outline a list of measurable, comprehensive, and reliable steps to verify client identities. 

Here are key points to establish this step of an organization's AML policy effectively: 

  • Determine if identity verification is done in-house or outsourced
  • Determine their personal information
  • Determine if a client provides false data or no data
  • Establish the data verification process
  • Define time limit for waitlist items and checklists
  • Decide what to do if it is not possible to verify a client
  • Determine how to document the AML process
  • Establish a client notification process

7. Conduct Customer Due Diligence (CDD)

This part involves measures taken by beneficial owners, politically exposed persons (PEP), senior management, and the like as part of CDD. An organization must also outline the foundation of its risk rating system, including how it decides whether a case is customer due diligence, simplified due diligence, or enhanced due diligence.

Organizations need to include when a customer alerts sanctions list checks or adverse media checks. In this case, the would-be subject to continuous monitoring.

8. Complete Suspicious Activity Reports (SAR)

A crucial part of an AML policy is efficiently responding to suspicious activity identification. Organizations should accurately form a compliant declaration, known as SAR. An organization's AML policy must outline the information in the report and the deadline for submitting the report.

BlueCheck KYC and AML Identity Verification

BlueCheck helps financial institutions conduct KYC checks, including identity and age verification, to meet anti-money laundering regulations. Key features include:

  • Multiple datasets to confirm information—a combination of proprietary and commercially available databases are queried to verify the information. BlueCheck can increase the likelihood of a successful verification using this combination of resources, streamlining the onboarding process.
  • Smart Database Navigation—BlueCheck can automatically verify most customers using smart database navigation. Queries move through the most accurate databases commercially available to ensure a match.
  • Quick Implementation—Using our DirectAPI or CustomJS framework, BlueCheck Identity Verification can deploy quickly, saving your business time and money.
  • Set How Users Are Verified—BlueCheck offers a host of verification methods giving users a choice and alternatives when identifying themselves. For example, allow for name & address, last 4 of SSN, or Photo ID verification.
  • Encryption & Security Standards—BlueCheck utilizes multi-layer data encryption to ensure data is securely transmitted and stored, protect against malicious actors, and safeguard the verification process.
  • Developer & API Documentation—thoroughly documented REST API available in addition to the verification plugin.

Schedule a call today with a BlueCheck specialist to learn more about our Age & ID Verification solutions.