Lesson Two – Effective AML Programs

We will begin this lesson by discussing the requirements of an effective AML program.

Effective AML Policy

The standards set out in your  company’s AML policy is based on applicable legal and regulatory guidance. These requirements are intended to prevent the company, its employees, third-party vendors, and clients from being misused for money laundering, terrorist financing or other financial crimes.

All employees, from entry level personnel to executive management and the board, must adhere to the requirements set out in the AML Program. Employees must also comply with the spirit and letter of all laws and regulations applicable to the company’s business. Breaches of your AML Program or any related procedures could result in disciplinary action up to and including termination. Additionally, violations of AML/SAR/BSA laws or regulations can result in criminal and/or civil penalties against individual employees as well as the company.

All employees must be vigilant in not allowing the company’s loan origination operations to be used to violate the law. Employees are required to report violations of the law or suspicious transactions in accordance with the procedures of the company’s AML Program. All employees should follow this most basic rule: If you see something suspicious, speak up.

AML Training

As a part of the AML program, all employees who are identified to complete AML Training will take AML Training annually. All new employees who are identified to complete AML Training will be required to complete the AML Training within 90 days of date of hire. The training will include a final exam, which requires a 70% score to pass.

Reporting of Suspicious Activity

This training will later identify what would be considered “red flags” for potential money laundering or fraud. Before that, it’s important to identify the steps that must be followed if you think there may be potential money-laundering or fraud.

It is an employee’s job to follow these steps if something suspicious is detected. It should not be the employee’s job to determine if what is seen is or isn’t fraud or money-laundering activity. The job is simply to inform the AML Compliance Officer that fraud is “suspected” and let the AML Compliance Officer investigate and determine if a SAR needs to be filed.

Confidentiality

The other important detail to remember is that SARs are confidential. This means that employees cannot talk with anyone about the filing or potential filing of a SAR. They must report the information only to the AML Compliance Officer, who will handle it from there.

Let’s review the steps to follow when you identify a suspicious activity.

Preliminary Report of Suspicious Activity

Step 1

Identify one or more red flags that may indicate suspicious or fraudulent activity. Review all file documentation provided and compile the information.

 Step 2

If red flags are present in the loan file, complete the Preliminary Report of Suspicious Activity or other document(s) as outlined in your company’s policies and procedures, gather all information you have, and send the documentation and Preliminary Report of Suspicious Activity to your AML Compliance Officer. The AML Compliance Officer will inform you of next steps and of any additional information needed. Do not talk about the information to anyone besides the AML Compliance Officer.

Because the filing of SARs are confidential, the AML Compliance Officer will not provide you with updates if a SAR is actually filed.  However; your AML Compliance Officer  will inform you of the next steps you need to take with the loan.

 Step 3

The AML Compliance Officer will investigate the information you provide to them. The AML Compliance Officer may communicate with the wholesale lender involved with the transaction and may also request additional information from you. The AML Compliance Officer will then communicate next steps with you, and advise you on how to proceed with communication with your borrower. It is important to follow the AML Compliance Officer’s instructions and NOT discuss the information with anyone other than individuals or entities the AML Compliance officer has instructed you to communicate with.

The AML Compliance Officer will advise you to proceed by doing one of the following:

  • Make credit decision
  • Complete to close
  • Elevate the loan file to quality control for investigation

If your file is elevated to quality control, they will make a recommendation whether to deny the loan or proceed to closing.

If suspicious information is found that indicates possible fraud, money laundering or terrorist financing activity, the AML Compliance Officer or other identified individual will file a SAR in accordance with applicable law and regulation. Remember, you will not be notified if a SAR is filed.