“Are the implementation of AML background checks on your employees just another checkbox to meet the compliance efforts, or are they really helpful in fighting against money laundering?” If we look back into the effects of those employee background checks, it has benefited organizations in many ways but we believe there is still some complexity in this topic, and we will discuss this in today’s content. Let’s build our arguments with the John Smith book “The Dark Side of Compliance”. Where he argues that though AML background checks are very helpful in checking the employee’s background history, these checks often fail to detect the issues that can lead to money financial crimes.
And that is the reason, Smith says that if companies are not implementing them properly, then these checks are nothing but mere formalities of complying with AML regulations. So, this blog writing will highlight why AML background checks are important for business by discussing the top 5 components that make AML checks more effective for financial organizations.
Understanding AML Background Checks
As companies, particularly financial institutions are obliged by law to not onboard an employee who may have been involved in any criminal activities. Therefore it is essential for companies to check the employee’s history while onboarding them. What are these checks and why are they important? Well the background check in the realm of AML is known as the AML check. Let’s discuss What businesses check under these. If we see the ultimate purpose, we conclude that the ultimate purpose of an organization for applying the AML checks is to ensure that they do not onboard any person who may be involved in money laundering and other financial crimes. That is why These checks are essential for all sorts of businesses to ensure that financial institutions, businesses, and other organizations are complying with Anti-Money Laundering (AML) regulations.
Factors Undermining the Effectiveness of AML Background Checks
- Inconsistent Implementation Across Jurisdictions
The effectiveness of any law heavily depends on its consistency. And if AML background checks are not consistent in different jurisdictions, it becomes challenging for the companies. Will it not help the criminals? Obviously, this will help the criminal to take advantage of that and find these gaps to avoid AML checks and easily commit the crimes without the fear of detection.
- Evasion of Detection
As we all know the AML sanctions can be circumvented, and so can AML checks be avoided. But the million-dollar question is how? By opting the tactics that are less known and often not detected. That is why the obligatory bodies have observed that Criminals often employ sophisticated tactics to hide their tracks that make it difficult for standard AML checks to detect illicit activities.
Let’s understand it with an example:
Suppose a criminal uses shell companies or complex ownership structures to avoid background check measurements, Don’t you think this tactic will help him obscure the true beneficial owners and ultimately make the check’s effect lesser?
- Over-Reliance on Technology
If your organization is relying too much on the latest and advanced technology, this can also affect the AML background checks ability. For instance, think about a system that generates too many false positive and false negative results. How could this system be able to measure AML background checks in a better way?
5 Ways to Enhance the Effectiveness of AML Background Checks
So, to make sure your organization is complying with the AML regulations, you need to implement these 5 AML checks that fulfill their purpose,
- Standardization Across Jurisdictions
This area is often neglected, because people often think that every country or state should work on their own rules and checks. But as the world has globalized, the criminals use such loopholes to commit the crimes. So to avoid any difficulty in AML background checks businesses need to implement the international standard of AML checks. This way financial institutions can cover the loopholes that criminals often use to commit money laundering and other financial crimes.
- Enhanced Due Diligence
There are always chances that the high-risk individual such as the politically exposed person will try to exploit your organization for their illegitimate aims. To avoid them, businesses need to implement EDD measures on all their clients and employees. Because the EDD involves a more in-depth investigation into a client’s background which includes their financial history and connections in the past.
- Human Oversight with Advanced Systems
Neither the technology nor sole manual AML system is perfect for combating financial crimes. Therefore, businesses need to implement the integration of both, because Combining automated systems with human expertise can help reduce the incidence of false positives and negatives. People in the compliance team who are also Trained professionals can provide the necessary context and judgment that machines alone might lack.
- Regular Review and Update of AML Policies
As criminals do not use the same tactics all the time, how could the same policies be effective for years? Therefore, AML background checks and policies related to them must be reviewed after a specific period of time. This will help businesses stay updated with the latest challenges.
Can Advanced Technology Mitigate the Failures of AML Background Checks?
The success of AML background checks doesn’t depend solely on the tools used but on the overall compliance framework. However, advanced technology can significantly enhance the effectiveness of these checks. Tools like AML Watcher, which offer comprehensive screening against sanctions lists, PEPs, and other global watchlists, can help organizations stay ahead of financial criminals.