Understanding Complexity in AML Compliance

Nowadays, criminals are becoming more sophisticated; financial crimes are evolving, adding different layers of complexity to AML compliance. 

With the rise in crimes and frequent updates to AML regulations, there's an increased pressure to stay informed and adapt quickly. 

This is even more apparent when a unique situation arises that you don't experience daily or yearly. Although regulations are detailed, it can be difficult to determine what solution or action to follow each year. 

While the regulations are detailed, it's often challenging to fully understand which solution or action to apply when dealing with complexity and difficult to know what guidance to follow. AML legislation, like The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 and The Proceeds of Crime Act 2002 (POCA), may state one rule and be interpreted completely differently. 

Example: The Institute of Certified Bookkeepers requires a valid form of ID for Customer Due Diligence (CDD). According to their interpretation, this means an inmate ID. Thus, if the ID expires, it isn't valid, and another form of ID will need to be collected. 

To prevent getting lost or confused, follow the guidance of your own supervisory body. They're the ones who directly oversee you and confirm whether you're compliant. Taking a look at other supervisory bodies can lead to confusion due to the different standards and requirements of each. 

Example: Payroll is perceived as a higher risk of being exploited for money laundering and, therefore, has additional requirements attached—the payrolls that accountants deal with day to day aren't often the ones that are high risk, but the legislation only provides broad guidance. Therefore, even though the general risk may be low, a high-risk tag is still attached. 

Today, dive in deeper and understand how to navigate the complexity of AML compliance.

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Identifying who needs ID checks in various structures

With different entities, you can't apply a one-size-fits-all method for compliance. The main principles of CDD measures must apply: 

• Must be carried out at the start of the business relationship prior to work start date
• Identifying the client (knowing who the client is)
• Verifying the client (demonstrating who they are and who they claim to be (independent and reliable sources)
• Identifying Beneficial Owners (BOs) and control structures and identities of those are to be known
• On a risk-sensitive basis take reasonable measures to verify the identity of the BOs
• Gathering information on the intended purpose and nature of the business relationship

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Identifying Beneficial Owners is where people stumble

People who have some form of control over that entity need to be pulled into the AML compliance process - it's also difficult to say that someone who is not in control shouldn’t be AML’d.

Complexity arises from a lack of information, especially when you have not done enough research or due diligence to understand who the power players are of the business and determine their influence over it. 

CCAB frameworks provide clear guidelines to follow.

Navigating international AML challenges

Another challenge for international individuals is determining the right ID. With different countries having various formats and acceptable identification, it can be difficult to determine what to accept. Moreover, navigating discrepancies in beneficial ownership in reporting laws adds more challenges. 

When dealing with international companies, ID checks often fail to reveal crucial information and don't always disclose criminal records. Depending on normal processes, electronic checks and even Google searches (adverse media) may not provide a clear insight into a client's background. 

If the investment is through a secondary company, you must identify the beneficial owners behind these identities. It's essential that you conduct comprehensive due diligence to mitigate risks and safeguard your business. 

If your firm engages with international clients, the process for complying needs to be defined in the firm's policy controls and procedure documentation on what acceptable information is required. 

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International clients

Having international clients adds layers of complexity, especially if they're international PEPS or domestic PEPS, belong to a sanctioned country, or even Joe Bloggs or live in Italy. 

If they're from a sanctioned country, there needs to be further checks against sanction lists and advertising media. Moreover, an international client who is a politically exposed person (PEP) also poses a higher risk of money laundering due to their political status, and Enhanced Due Diligence (EDD) is often needed. 

Again, if you decide to accept PEP as a client, an MLRO has to approve first.  With international clients, there's always a risk of bribes, corruption, and more, and your EDD has to assess this risk. 

Asking for more utility bills and sources of funds isn't going to cut it. 

And also deciding to accept a PEP as a client the MLRO has to approve. 

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Summarising Complexity in AML Compliance

Overall, AML Compliance isn't a one-size-fits-all strategy. With constant updates in laws and regulations, it can become difficult to interpret what the law states and how to act. While the basic CDD principles are needed, further frameworks on ID requirements across different entities and caution when it comes to international clients are often needed.

EDD must be conducted with international clients, especially if they're from a sanctioned country or an international PEP. Remember, if they're an international PEP, an MRLO has to approve first. 

When faced with complexity, start your process and begin asking questions to understand the business. As you progress, it will become less overwhelming and clearer as you work through the CCAB guidelines. Always record what you have, what you know and why, to provide a reasonable explanation to a supervisory body in the future. 

To navigate through the complexities of AML compliance further- Watch our MLRO 2025 Summit. 

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