Three Lines of Defense and more.

In a typical corporation, whether it be financial or non-financial, it is common to see the compliance structure be in the form of a three line defense (3LOD).

The Anti Money Laundering and Countering Financing of Terrorism or AML/CFT three line of defense can be interpreted as three gates which separates the corporation from the various risks it can possibly be exposed to. The three gates rely heavily on the respective ‘gate keepers’ which we will get to shortly. It is imperative that these ‘gate keepers’ ensure that they do their utmost to ensure the amount of money laundering and terrorism financing (ML/TF) risks that slips through is minimal.

The first line of defense (1LOD) is typically the customer-facing units such as sales representatives, customer service and relationship managers. These ‘gate keepers’ are of the closest proximity to customers and possible risks. Corporations need to ensure that these ‘gate keepers’ are equipped with the necessary resources (tools, training, policies and controls) to detect and escalate any form of ML/TF risks.

The second line of defense (2LOD) is primarily the compliance and risk management functions. These functions help design and implement policies and procedures which will help 1LOD detect and escalate indicators of suspicion. Often, they will also conduct training to the 1LOD on a regular basis to ensure that these skills remain relevant and up-to-date. In addition to the compliance and risk management function, operations such as human resource and…