What is an AML policy?

An AML policy is a combination of measures to stopcriminals from disguising illegally obtained money as legitimate income.Implementation is mandatory for financial institutions and overseen by regulatory authorities.

AML policies are designed to set a general structure of company systems and controls for combating money laundering (ML) and  counter terrorist financing (CTF). It should determine AML risk appetite, tolerances, unacceptable customer types, forbidden actions, employee responsibilities, employee rights, qualification levels, etc.

The AML policy must be approved by the company’s senior management and reviewed regularly.

An AML policy is similar to an AML program. These terms are interchangeable depending on the jurisdiction.

Why are AML policies important?

A solid AML policy is important because it sets forth the measures and controls for preventing suspicious customers and transactions. It also safeguards businesses from huge regulatory fines in case ML has been detected during an audit.

How do AML policies prevent money laundering?

An AML program prevents money laundering through customer due diligence, transaction monitoring, and detecting and reporting suspicious activity. This includes predicate offenses to money laundering and terrorist financing.

Since criminals constantly improve their money laundering methods, it’s essential to develop an AML policy that can handle new and complex ML attempts. Otherwise, businesses expose themselves to financial and reputational losses.

Components of AML policy

1. Draft AML policy statement 

2. Appoint Compliance Officer

3. Perform Client Due Diligence (CDD)

4. Verifying client identify 

5. Politicaly Exposed Persons (PEPs)

6. Share data with regulatory bodies 

7. Record keeping procedures