Anti-Money Laundering, Fraud Detection, and Financial Crimes
The AML program
A firm's AML program rests on four pillars: written policies and procedures, a designated compliance officer, ongoing training, and independent review. The client-level controls are identification, verification, beneficial ownership determination, and ongoing monitoring. Enhanced due diligence applies to higher-risk relationships, including politically exposed persons and clients in higher-risk jurisdictions.
Red flags and reporting
Supervisors must recognize red flags: structuring deposits to avoid thresholds, rapid movement of funds with no apparent purpose, accounts opened in the name of a third party, reluctance to provide identification, and transactions inconsistent with the client's profile. Suspicious transaction reports must be filed with the financial intelligence unit, and tipping off the client is prohibited. A common trap is a representative who wants to ask the client about a suspicious report; that is tipping off.
Fraud detection
Fraud schemes to recognize include unauthorized trading, misappropriation of client funds, affinity fraud, and account takeover. Controls include signature verification, callbacks for wire transfers, dual approval for large movements, and monitoring for changes in contact information followed quickly by a withdrawal.
Traps to expect
Questions often test whether a suspicious transaction must be reported even if it turns out to be legitimate. The obligation is to report suspicion, not proven wrongdoing. Another trap is assuming small transactions are exempt; structuring is often small by design.
Worked rule of thumb
If a transaction has no apparent economic purpose, or the client's explanation does not match the pattern, escalate to the AML officer and document. Do not confront the client with the suspicion.