Anti-Money Laundering: Meeting Money Laundering Laws and Guidelines
In the last few years money laundering laws and guidelines have not only been tightened, but also the pressure by the financial market authorities has increased. This is because money launderers have become more and more creative about how to launder money: new payment methods have been used for money laundering and terrorist financing. The internet-based payment systems are often being used for money laundering because of their anonymity and their multi-functionality.
Anti-Money Laundering with a Risk-Based Software Solution
With a risk-based software solution like the Money Laundering Detection System (MLDS), all transactions of financial institutions are monitored by rules. Every installation of MLDS includes rules for current national statutory requirements as well as rules customized for internal regulations. Because MLDS classifies the risk of both customers and their business relationships, it ensures time is spent on relevant cases and attention is paid to high-risk customers. In addition, all process steps and activities are documented for audits.
Find out more about the international legal requirements regarding anti-money laundering.
International AML Principles
Meeting International Money Laundering Standards
The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing. The FATF is therefore a 'policy-making body' that works to generate the necessary political will to bring about legislative and regulatory reforms in these areas. The FATF has published 40 + 9 Recommendations in order to meet this objective.
- FATF 40 Recommendations: counter measures against money laundering
- 9 Special Recommendations
The FATF currently comprises 36 member jurisdictions and 2 regional organizations, representing most major financial centers in all parts of the globe.
Basic Legal AML Principles of the EU
Prevention of Money Laundering in Europe
The enactment in Europe of the 2005/60/EC Directive of the European Parliament and of the Counsel on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing took place on October 26, 2005. This so-called Third Directive became effective on December 15, 2005.
The 40+9 recommendations of the Financial Action Task Force (FATF) were incorporated in the Third EU Money Laundering Directive.
Basic Legal AML Principles for Germany
Anti-Money Laundering in Germany
On June 18, 2008 the Federal Parliament decided on the new Money Laundering Act (Geldwäschebekämpfungsergänzungsgesetz GwBekErgG) to regulate the obligations of financial institutions in combating money laundering and terrorist financing.
Basic Legal AML Principles for Switzerland
AML Laws in Switzerland
FINMA has harmonised its three former anti-money laundering ordinances and combined them into one single ordinance. The new ordinance was entered into force on 1 January 2011. It is directed at all financial intermediaries falling under the Anti-Money Laundering Act and determines how the regulations to prevent money laundering and terrorist financing are to be implemented. Transitional periods are foreseen for the implementation of the new provisions.
Basic Legal AML Principles for Liechtenstein
Money Laundering Guidelines in Liechtenstein
The money laundering ordinance is described in the Sorgfaltspflichtgesetz (SPG - Due Diligence Act), and is explained in more detail in the Sorgfaltspflichtverordnung (SPV - Due Diligence Directive). Guidelines and further information can be found on the homepage of the Liechtenstein Financial Market Supervisory Authority.
On December 12, 2008 Liechtenstein Parliament decided on a national Money Laundering Act to regulate the obligations of financial institutions in combating money laundering and the financing of terrorism.
With our Money Laundering Detection System, we have implemented the risk-oriented approach required by legislation. Here you can find the MLDS functionalities to detect unusual transactions. They support you in meeting international and national anti-money laundering principles.
Know Your Customer (KYC)
Meeting Customer Due Diligence Duties
Only the person with additional information on his customers is in a position to be able to make a decision in a case of doubt as to whether a customer relationship or a transaction carries a risk. The specific obligations under the KYC principle are:
- obligation to identify the contracting party
- obligation to establish the beneficial owner
- obligation to clarify the financial background
Risk Classification of Customers
A risk classification of individual customer relationships is required in order to make an evaluation of unusual transactions and events. MLDS money laundering detection system operates a five-stage classification process. The categorization of individual customers is made in a rule-based project that takes into account the financial relationships and transaction performance of the customer in addition to the customer master data.
Creating Synergies for Relationship Management
The information collected in the KYC profile is not only relevant for compliance. It can also be used in relationship management, and offers other opportunities for profit.
Know Your Transaction
Analyzing Risk-Oriented Transactions
The heart of MLDS is an intelligent analysis module that brings together all available data on customers, transactions, and histories, and then evaluates them with respect to various risk scenarios. This high quality identification of unusual transactions is the result of many years of practical experience and constant optimization of the modeled business logic.
Identifying Unusual Transactions and Suspicious Transaction Patterns
Transactions are analyzed taking into account the individual risk classification and the information contained in the KYC profile. Conclusions can thus be reached as to whether the amount of a transaction or deposit is, in fact, unusual. MLDS also identifies suspicious transaction patterns, such as pass-through transactions.
Graphically Model Rules - without IT Support
The rules applied to identify unusual transactions are modeled graphically with Visual Rules. The compliance department can define and revise the monitoring of the rules without the support of IT.
The Result: Initiate Clarification Actions
Rule-based analysis marks and prioritizes the transactions or events identified as unusual. To support the editor, MLDS delivers reasons with extensive explanations as to why a transaction was found to be unusual. Next, the required steps for clarification are initiated automatically, using defined processes.
Know Your Process (KYP)
Clarification of Hits
Different clarifications are initiated based on the risk level of the transaction. These clarifications range from an acknowledgement of the simplest case up to complex processing under the dual control principle. In addition to the customer advisor, his superiors, as well as the compliance department, will become involved depending on the clarification type. MLDS provides each of the people involved with an application specific to their individual tasks. The customer advisor completes an electronic checklist during the course of the clarification. It is approved by compliance and his superior, respectively, and, if necessary, returned to the customer advisor for the addition of further details. All work steps are paperless, and archived automatically.
Process-Oriented Workflows
All persons involved are linked through the electronic workflow. An automatic workflow forms the basis for efficiency and security, particularly for financial institutions that have a high daily transaction volume. Unusual transactions or transaction types trigger defined activities to be performed by the persons involved on a systematic and mandatory basis.
Risk Classification of Customers
How Are Risks Classified?
Classification logic first differentiates among various types of business relationships: private or retail banking, corporate customer business, institutional investors or brokerages. Their business behavior differs. For example, in the case of corporate customers, large money inflows and outflows are the order of the day. In contrast, this transaction pattern would be more unusual for a private account.
Classic Risk Factors to Detect Money Laundering Include:
- Country risk
- Transaction behavior
- Legal form
- Financial circumstances
- Industry
- Politically exposed person (PEP)
- Occupation
The results of risk classification are used, for example, to define limits for transaction monitoring.
Risk Classification with the MLDS Money Laundering Detection System
The MLDS Money Laundering Detection System classifies both business relationships and customers according to their typical business behavior and takes into account the above risk factors. The rules of risk classification are depicted graphically; the business department can create, test and revise rules on its own.
