Blog postAML Program Effectiveness: Policy and AutomationMon 21, 2020 By Dave Gowan About the writer Dave GowanDave brings a unique blend of experience as a former investigator and compliance officer with multi-billion dollar asset financial institutions. Dave has a 15+ years of career experience from the armed forces; to financial crime / fraud investigation; to complete compliance officer responsibilities. Dave brings a pragmatic and practical approach to the industry, grounded in fact and working knowledge of financial regulations. Dave has been with PayLynxs for over 4 years. Share Share Tweet Email When many compliance professionals make plans for determining astrategy for managing your financial institution’s AML risk mitigationstrategies, the use of software, such as SimpliRisk, may be at the forefront ofplanning. There are many situations for which software can be the proper toolfor alleviating some of the risks. Developing risk models for measuring yourmember or customer base as a business segment is one such mitigation strategywhere software can easily assist in making the job easier to manage. Developingspecific rules to catch outliers within your portfolio is another step manytake regarding the use of software.As effective as software is in crunching large volumes ofnumbers to determine hot spots for review, there are times where the use ofsoftware is better meant to assess a policy’s effectiveness, as opposed tobeing that front line of defense. Often, when establishing AML monitoringrules, a compliance professional is left wondering, “How do I establish a threshold to gaininsight on what is worthy of review?” Often, the answer lies within thefinancial institution’s already established policies.For example, all financial institutions have a good grasp onthe basic patterns of structuring and Currency Transaction Report (CTR)evasion. This goes beyond industry-wide best practices, as the rules for situationsinvolving cash transactions is very clear, as seen in FinCEN’s Noticeto Customers: A CTR Reference Guide. It is common knowledge that thethresholds for monitoring CTR evasion involves aggregating transactions involvingcash at a threshold above $10,000. Similarly, Monetary Instrument Log (MIL)evasion is established by monitoring the cash purchases or exchanges ofmonetary instruments within aggregated thresholds of $3,000 and $10,000. Bothinstances require looking at the results of both queries and comparing thoseresults against the daily paperwork at the branch level.However, as simple as this might seem, there are gaps. Oneof the most common gaps involve transactions that appear outside of the system.For instance, a person walks in with $5,000 in cash and wishes to procure amonetary instrument for an equal or lesser amount. This request may appear tobe commonplace and inconsequential, until the AML professional realizes thatthese transactions are not being easily captured. In essence, these transactionsoften do not trigger a rule because the transactions are not tied to a distinctaccount.To alleviate this monitoring gap, a common practice by manyfinancial institutions involves policy. While not all people conducting such transactionsare necessarily doing so with the intent to obfuscate the source of funds, itis well known that bad actors do employ such a tactic, and as such, a policy ofdeposit prior to purchase is commonplace. Similarly, a policy of not executingnon-customer cash purchase transactions may be put into place as well.One last point on this topic involves persons negotiatingchecks for cash. It is important that a financial institution, specifically smallerones, gain an in-depth knowledge of Regulation CC,which governs ‘funds availability’ for various deposits. While manytransactions require immediate or next-day funds availability, checks notdeemed ‘on-us’ allow for longer delays of full funds availability to ensure thefunds guaranteed by the instrument are available within the account at the other financial institution.Becoming knowledgeable on Regulation CC and otherregulations will greatly assist in tightening your policies on higher risktransactions. As is always the case involving policies affecting consumers,publishing all changes, such as changes to your Regulation CC policy, in accordancewith all rules and regulations is mandatory. Managing and understanding variouscontrols through policy gives the AML professional better insight intoestablishing risk-based thresholds for monitoring compliance, both inside and outside ofyour financial institution. Share Share Tweet Email About the writer Dave GowanDave brings a unique blend of experience as a former investigator and compliance officer with multi-billion dollar asset financial institutions. Dave has a 15+ years of career experience from the armed forces; to financial crime / fraud investigation; to complete compliance officer responsibilities. Dave brings a pragmatic and practical approach to the industry, grounded in fact and working knowledge of financial regulations. Dave has been with PayLynxs for over 4 years.