The Place of AML and CFT across Financial Institutions over the Years
The first anti-money laundering structures came about with the Financial Action Task Force (FATF) introducing it in the year 1990.
FATF is considered to be the global money laundering and terrorist financing watchdog. It sets international standards which is fabricated to prevent illegal activities such as money laundering, financing terrorism and other financial related crime that may bring harm to the society.
In the year 2000, the International Monetary Fund (IMF) was invited to expand work in the area of anti-money laundering (AML) in general and with concern on the abuse of Offshore Financial Centers (OFC) in particular by initiating an OFC assessment program which paved way for the development of an AML Report on Standards and Codes (ROSC) module.
While the Report on Standards and Codes (ROSC) module was ongoing the tragic events of September 11, 2001 intensified the efforts and broadened their scope to include combating the financing of terrorism (CFT).
Within a year, the International Monetary Fund (IMF) was already actively at work assessing member countries compliance with the international standard developed (and subsequently fundamentally revised) by the Financial Action Task Force (FATF), as well as providing technical assistance on how to improve AML/CFT regimes.
In March, 2004, the board favorably evaluated the progress which led to the decision to incorporate AML/CFT assessments and AML/CFT technical assistance into the Fund’s regular work and continue to make AML/CFT assessments a mandatory Report on Standards and Codes (ROSC) in every Financial Sector Assessment Program (FSAP) and Offshore Financial Centers (OFC) assessment.
Understanding the Relationship between AML, CFT & KYC
A lot of times one might ask which comes first or to which one of these terms does the remaining terms stems from?
Well, let's begin by understanding these different terms:
Anti-money Laundering (AML): as the term implies Anti-money Laundering (AML) are series of standards and policies established to confront the recurring events of circulating money from illicit or illegal business & trades. Such as illegally truncated money from public funds, proceeds of criminal activities such as human trafficking, hard drugs, theft, terrorism, etc.
Along side with these policies is the Counter-terrorist financing (CTF), otherwise reffered to as Combating the financing of terrorism (CFT) which on the other hand seeks to expose, control and penalize matters specifically surrounding the issues of financed terrorism.
For these policies to play out fine, principles are thereby needed to ensure proper investigation is done to highlight and trace possible indicators that can expose, control and bring to book any case of money laundering and financed terrorism in the financial and regulated instotutions. This is where the KYC policies are established to enable risk assessment and monitoring of clients within the financial and regulated institutions as they comply with standards and policies of AML/CFT program across the world.
Know Your Customer (KYC) procedures are followed with precision to gather detailed important information about the identity of clients which helps to determine the possibility that clients have to be categorized either as an identity with low-risk or high-risk suspicious involvement in illegal dealings/proceeds.
Financial Institutions & Regulated Institutions expected to comply with AML/CFT standards includes, but not limited to:
1. Banks
2. Money Service Businesses
3. Investment Firms
4. Insurance Companies
5. Casinos
6. Real Estate Agents
7. Lawyers, Accountants, and Trust or Company Service Providers
8. Dealers in Precious Metals and Stones
9. Non-Profit Organizations
10. Charities and Charitable Organizations
Functions of AML/CFT in Financial and other Regulated Institutions
- Specifies principles for functional and adequate customer due diligence compliance in the AML program structures/systems across regulated institutions.
- Aligns the goals & objectives of Governments and Institutions towards the apprehension of financial criminals and their activities.
- Serves as reference for identifying, monitoring, reporting and enforcing penalties/protective measures in cases of breaches in policies/standards or detection of perceived risk updates in client profiles as stated therein.
- AML/CFT also serves as reference for established concerns to strengthen public confidence regarding the safety of citizens against money laundering and terrorism in countries that adhere to these policies and standards.
