AML investigations are essential to help a regulated entity differentiate between a transaction that is legitimate and a transaction that is not.
The question is: How can I conduct effective AML investigations when I get a transaction monitoring alert?
Here are 5 essential steps AML investigators usually follow when conducting investigations to ensure thoroughness, compliance, and accuracy:
1. Initial Assessment and Information Gathering
Receive and assess the transation monitoring alert from the relevant system.
Prioritize higher-risk alerts.
Make an initial review of the transaction to check if there are indeed grounds to conduct more enhanced investigation. If yes, proceed to step 2.
2. Customer Due Diligence (CDD):
Review the customer's existing due diligence information, including KYC documents, risk assessments, and transaction history.
If necessary, conduct enhanced due diligence (EDD) to gather additional information, such as verifying the customer's identity, source of funds, and purpose of the account.
Consult with the relationship manager to gain further insights into the customer's behavior and business activities.
If additional information is required from the customer, coordinate with the relationship manager to obtain it.
3. Transaction Monitoring and Analysis:
Examine transactions that triggered the alert for unusual patterns, amounts, or jurisdictions.
Compare these to historical transaction behavior and expected activity.
Look for potential red flags that may indicate a change in customer behavior or align with common AML/CFT typologies.
Utilize open-source intelligence (OSINT), public records, or paid databases to identify potential links to sanctions lists, politically exposed persons (PEPs), or adverse media.
4. Decision-Making and Reporting:
Based on the investigation findings, determine the appropriate course of action.
If necessary, escalate the case to senior management or regulatory authorities.
If there is indeed suspicion for illegal activity, file a Suspicious Transaction/Activity Report (STR/SAR) to the relevant financial intelligence unit, providing the relevant details.
If investigation reveals no suspicion of illegal activity, clear the alert and clearly document the reasons for non-reporting.
5. Continuous Monitoring and Improvement:
If an STR/SAR was submitted to the relevant authority, keep the account under enhanced scrutiny until you receive instructions.
From there on, evaluate the effectiveness of existing controls and monitoring systems, identifying areas for improvement of the transaction monitoring systems.
In the case of a "false alert", recommend enhancements to reduce the risk of similar alerts in the future.
Maintain strict confidentiality of all investigation details, adhering to regulatory and organizational policies.
Final Thoughts on AML Investigations
Each investigation is unique, and AML investigators should maintain a risk-based approach, adapting their steps based on the complexity of the case and the regulatory requirements of their jurisdiction. Continuous training and staying updated on emerging threats are also critical for long-term effectiveness.
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