What are AML Violations & How Can You Avoid Them?

Want to learn about AML violations – and what you can do to protect your entity from the penalties and fees that come with them?

Violating AML (anti-money laundering) regulations can happen to any business, no matter how big or small. It’s important for businesses to be aware of the different types of violations and what they entail. More importantly, businesses that handle money must put measures in place to prevent these violations from occurring in the first place. And if that’s what you’ve been tasked with doing, you’ve come to the right place.

In this article, we will provide a comprehensive guide to addressing potential AML violations. We’ll discuss what the AML rule is, what are the different types of violations, and the fines and penalties associated with them. Additionally, we’ll provide tips on how you can prevent AML violations through digital onboarding and authentication.

What is the AML Rule?

The AML rule is a set of regulations that businesses must follow in order to prevent money laundering. These regulations have been put in place by the Financial Crimes Enforcement Network (FinCEN) as part of the Bank Secrecy Act. Businesses that violate AML regulations can be subject to civil and criminal penalties. The goal is straightforward: to prevent dirty, criminal cash from being “cleaned” and then reintegrated into our society.

How does money laundering work?  In criminal enterprises, cash is passed from the offender’s hands into a complex scheme of financial transactions. This results in obscurity surrounding the true origins of the cash – and makes it difficult to trace these origins back to the criminal enterprise. Goals can include aiding in tax evasion, asset inflation, drug trafficking, and a host of other criminal exploits. These days, money laundering is more difficult to stop than ever – thanks to the increasingly complex global financial network.

All businesses, especially those that deal primarily with the movement of money, are at risk of violating the AML rule. This includes banks, casinos, securities brokers, and even real estate agents. As such, it’s an important topic to delve deep into – which is what we’re going to do below. Let’s get into the three main types of AML violations.

What are the Different AML Violations?

There are three different types of AML violations: failure to file a suspicious activity report (SAR), failure to maintain an effective anti-money laundering program, and structuring transactions to avoid reporting requirements.  Let’s look at each in turn.

Failure to File a Suspicious Activity Report (SAR)

Failure to file a SAR is the most common type of AML violation. If a business suspects that money laundering is taking place, they are required to file a SAR with FinCEN. Failure to do so can result in fines of up to $11,000 per violation. In some cases, failure to file a SAR can also lead to criminal charges.

Failure to Maintain an Effective Anti-Money Laundering Program

All businesses that deal with money are required to have an effective anti-money laundering program in place. This program must be designed to prevent money laundering from occurring within the business. If a business is found to have an ineffective AML program, they can be fined up to $11,000 per violation.

Structuring Transactions to Avoid Reporting Requirements

Structuring transactions to avoid reporting requirements is a third type of AML violation, which  occurs when businesses try to avoid triggering the SAR filing requirement. This can be done by breaking up transactions into smaller amounts, or making frequent deposits/withdrawals just below the reporting threshold. In most cases, businesses must report cash transactions exceeding $10,000. Businesses that fail to do so – or try to game the system to prevent having to file such a report – can be fined up to $25,000 per violation.

What are the Fines & Penalties for AML Violations?

As we have seen, the fines and penalties for violating AML regulations vary depending on the type of violation. Failure to file a SAR can result in fines of up to $11,000 per violation. Failure to maintain an effective anti-money laundering program can also lead to fines of up to $11,000 per violation. And finally, structuring transactions to avoid reporting requirements can result in fines of up to $25,000 per violation.

But these black-and-white figures don’t really paint the whole picture. To help you really gain an understanding of the gravity of violating AML regulations, let’s look at a few real-world cases where people or institutions were fined and penalized:

• In 2003, HSBC was fined $350 million for violating the Bank Secrecy Act. This is the largest fine ever imposed on a bank for violating AML regulations.
• In 2012, UBS was fined $700 million for helping American citizens evade taxes. The Department of Justice also required UBS to turn over the names of nearly 5000 American clients who had hidden money in Swiss bank accounts.
• In 2014, JPMorgan Chase was fined $614 million for failing to report suspicious activity by Bernard Madoff – one of the most notorious fraudsters in history.
• More recently in  2018, Deutsche Bank was fined $630 million for violating AML regulations. This included failing to properly monitor transactions involving Russian oligarchs and failing to flag suspicious activity in the “Mirror Trading” scheme.

As you can see, the fines and penalties for violating AML regulations can be quite severe. Per-violation amounts can quickly add up to huge numbers.  And this is just the monetary side of things. In some cases, people have also been sentenced to prison time for their role in money laundering schemes. Obviously, these types of fines can take a serious toll on your business. As such, preventing them from occurring should be top of mind within your entity. We’ll discuss how you can protect yourself and your company down below. First, though, we want to talk about the future of AML regulations – so you can prepare for what’s to come.

The Future Landscape of AML Regulations

One of the most important shifts in the AML regulatory landscape is in regard to cryptocurrency. One of the perceived advantages of this revolutionary type of currency is its relative lack of regulation and governance oversight. However, this same limited regulatory regime also creates a huge opportunity for criminals. Specifically, concerns have been raised around NFTs (non-fungible tokens). Art has long been known as a vehicle for money laundering – and the digital art that is increasing in popularity poses a perfect opportunity. Crypto exchanges will likely become subject to AML regulations for this very reason.

How Can You Prevent AML Violations Through Digital Onboarding & Authentication?

There are a few ways that businesses can prevent the violation of AML regulations through digital onboarding and authentication. First and foremost, businesses should put measures in place to ensure that all customers are properly identified. This includes requiring customers to provide government-issued ID (such as a passport or driver’s license) and proof of address (utility bill, lease agreement, etc.).

In addition, businesses should utilize KYC/AML software solutions to screen customers against sanctions lists and other high-risk databases. This will help to ensure that businesses are not onboarding or transacting with customers that may pose a risk of money laundering. Finally, businesses should have procedures in place for filing SARs. These procedures should be followed diligently to ensure that any suspicious activity is reported in a timely manner.

Use FortifID to Make AML Violations a Worry of the Past

One of the best ways to protect yourself from violating AML regulations is with the help of a digital onboarding solution that features KYC/AML screening. This will help you flag high-risk customers or transactions on autopilot.

Digital onboarding and authentication solutions like FortifID can help businesses to comply with the AML rule, and prevent violations from occurring. FortifID’s solution offers ID verification and AML screening to help you stay safe and protected throughout your operation. That’s not all, though. Our solutions help you protect sensitive data in case of a breach. If a hacker infiltrates your system, there will be nothing for them to steal – as you won’t actually store any of that sensitive data with FortifID integrated into your processes. This is the #1 way to protect your businesses and your customers all at once. Head over to our site to learn more about what we can do for you!

Final Thoughts on AML Violations

In summary, violating AML regulations poses a serious risk to businesses that handle money. There are three different types of violations you must prevent in your day-to-day operations – and there are viable tactics you can use to help do so. Under the law, the onus is on you to prevent money launderers from using your services – and with the right AML compliance program in place, this can be simple and stress-free.

No more worrying about hefty fines or criminal charges – enjoy peace of mind by getting FortifID set up in your systems today.