Anti-money laundering compliance - EY - United States

1 Anti-money laundering compliance The need for outside-the-box investigations Reporting thresholds established by the Financial Crimes Enforcement Network (FinCEN). and the Bank Secrecy Act (BSA) are important in identifying suspicious activity when an analyst is investigating possible money - laundering alerts. Maintaining an effective Anti-money laundering (AML) Checklists capture situations where Joe M. Launderer compliance program can be a bewildering task because writes three checks for $8,000 to Jane Cash. Knowing of the constant amount of change within the field. AML that this is a relatively straightforward example, and compliance departments find themselves struggling to that money launderers have evolved from this simplicity, stay ahead of this constant change resulting from new how will check the box lists keep up? Modern money government regulations, internal procedural adjustments laundering now incorporates fraud in already elaborate and ever-evolving laundering techniques.

2 Schemes. Joe has to think outside the box to evade regulations. What happens when each of his checks is to a Therefore, maintaining compliance , especially during different beneficiary, like Jane Cash, JC Inc., and George specific AML investigations, cannot be viewed money ? Can an analyst using a checklist know to examine as a straightforward task. The use of audit-based the endorsements, handwriting, references or account procedures, such as compliance checklists, creates an numbers? How are these considerations included while inside-the-box dependence that promotes a level of maintaining uniformity and procedural compliance ? uniformity and repetition. However, due to the intricacies of evolving laundering techniques, those procedures While it is easy to identify whether the transaction activity are not always fully beneficial, especially within an AML aggregates to more than US$10,000, research and investigation scenario.

3 Investigation into whether a business or apparent lawful purpose exists for transactions should be conducted. A new model Combining the efforts of the compliance , legal and fraud Fraud detection and Anti-money laundering (FRAML) is a departments will provide the required investigative insight. recently developed model that aims to increase the parity These departments already combine efforts when a and transparency of data sources and information through violation of the Foreign Corrupt Practices Act (FCPA) or a the consolidation of fraud and AML resources. FRAML financial statement misrepresentation investigation occurs. attests that, in addition to the compliance procedures, Bringing together the fraud and AML departments using investigations must include a team of knowledgeable the FRAML model helps lead to success in Anti-money experts from the compliance , legal and fraud departments, laundering compliance .

4 Who not only have experience within their respective fields but also have the capability to adapt their investigative Individuals who work regularly in fraud have experience techniques to the AML environment, thereby providing a in dealing with all types of transactional data and more effective assessment. are responsible for identifying how fraudulent funds were funneled and where they ended up. As such, an AML meets fraud outside-the-box investigator's skill set becomes attuned Reporting thresholds established by the Financial Crimes to recognizing suspicious activity among transactional Enforcement Network (FinCEN) and the Bank Secrecy Act data in all types of engagements. (BSA) are important in identifying suspicious activity when an analyst is investigating possible money laundering Use of judgment alerts. While some sets of transactions are easy to review Well-written and detailed procedures are a vital part of and suspicious activity is evident, other instances are not conducting an AML compliance investigation.

5 Throughout always a black-and-white scenario. the investigation, it is important for the analyst to follow the procedures as closely as possible. However, if a FRAML. mindset is applied, the investigation would not be limited to just the procedures. 2 | Anti-money laundering compliance An investigative mindset can be crucial in determining the nature of the transactions reviewed, the direction in which the research should be taken, and the transactions and parties that require additional review. Consider the three checks written by Joe M. Launderer An investigative mindset to three different beneficiaries: these transactions may Reviewing the transactions, investigating the associated appear to be normal and may adhere to the reporting parties and developing an assessment of alerted threshold requirements listed in the procedures.

6 But transactions are only the beginning of an AML compliance when looking at each individual transaction by itself, or investigation. The level of judgment required throughout this isolated set as a whole, procedures state that this the process becomes much more significant as only in transaction may not require further review. What can a few circumstances does the investigation follow clear- be easily overlooked is that in this specific incident, cut lines of set procedures. An investigative mindset can a beneficiary from this transaction may appear in be crucial in determining the nature of the transactions numerous other transactions that triggered the filing reviewed, the direction in which the research should of Suspicious Activity Reports (SARs). If SARs were be taken, and the transactions and parties that require filed by other departments or organizations, an internal additional review.

7 AML SAR database would not hold this information. However, implementing FRAML would lead to combining Information identified in the investigation of various knowledge, databases and skills from other departments. alerts is then pulled together to incorporate into SAR. The information sharing would tie Jane Cash to other recommendations. Oftentimes, the investigation process transactions, thus providing the analyst with more requires compiling information from numerous alerts and information to use in an evaluation of the alert. transactions. A set of alerted transactions or a particular individual found in an alert may not be worthy of filing compliance -only investigators can too often get caught a SAR recommendation on its own, but the presence of adhering to the AML procedures, possibly missing a crucial a certain type of transaction or a group of individuals part of the investigation.

8 The concept of FRAML allows across several alerts can result in the filing of a SAR. The investigators to use their experiential judgment to think AML compliance investigation often involves the search of outside the box when analyzing the transactions. There patterns, as money laundering is a complex endeavor, and are instances in an investigation where judgment calls the ability to identify patterns among the patterns can be have to be made, and additional research is needed to critical to combat and prevent money laundering . supplement the research that is already required by the procedures. Even though this may stray from the set Filing a SAR recommendation is often seen as the procedures, it is important that investigators use their end result of an AML compliance investigation. While judgment and perform additional research on the party often effective, the form can also be limited in the at hand.

9 Information and detail provided. Looking at the SAR. recommendation form, it is easy to see how the boxes From sampling to recommending a SAR report, can be checked and the blanks can be filled without experienced investigators must use risk-based judgment providing a comprehensive picture of the investigation throughout the investigation to analyze the problem and finding. A SAR recommendation filed with the boxes to develop a thorough assessment of the situation. Trained and blanks filled arbitrarily does little to combat money investigators, especially those with forensic and fraud laundering . Without an investigation performed with an training, tend to rely on these outside-the-box judgments open, investigative mindset and considerable attention when compared to untrained investigators using to detail, it is impossible to fill a SAR recommendation compliance checklists.

10 An untrained eye will be less likely with the necessary information to identify instances of to deviate from provided procedures, or will just check the box. Without a more thorough investigation into AML. alerts, suspicious activity may be overlooked. Anti-money laundering compliance | 3. EY | Assurance | Tax | Transactions | Advisory By using sound judgment in lieu of procedure-based compliance checklists, About EY. EY is a global leader in assurance, tax, transaction and advisory investigators are able to formulate services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We conclusions that may not have been develop outstanding leaders who team to deliver on our promises to all discovered otherwise, thus reducing of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.