I Am Not a Bank, Why Do I Have to Do an AML Independent Assessment?

At a glance:

• The main takeaway: Investing in an AML independent assessment can help strengthen your AML Program and foster banking relationships, as well as mitigate the risks associated with money laundering and terrorist financing.
• Impact on your business: An AML independent assessment helps test and analyze the processes you have in place to maintain and improve your AML program.
• Next steps: Aprio’s trusted advisors can guide you through the AML independent assessment process. Contact us today.

Schedule a consultation with us.

The full story:

Banks are increasingly requesting Anti-Money Laundering (AML) independent assessments from companies, even if they are not traditional financial institutions or Money Services Businesses (MSBs). Partner banks are trying to risk-rate their clients and ensure their clients are also investing resources in mitigating their own money laundering risk. This process helps banks categorize their clients appropriately and ensures they have the necessary comfort level to manage these relationships effectively.

With the rapid growth of Fintech companies, banks and financial institutions are becoming more selective about their partners. Requiring AML independent assessments is one strategy banks use to determine which companies they want to maintain as banking partners.

Regulatory & Compliance Risk for Banks

Banks are subject to strict AML regulations under the Bank Secrecy Act (BSA) and must perform Know Your Customer (KYC) and Enhanced Due Diligence (EDD) on high-risk clients. If a company has large cash transactions, international dealings, or high-value goods (e.g., jewelers, car dealerships, real estate firms, crypto businesses, etc.), banks may classify them as higher risk for potential money laundering.

The Corporate Transparency Act (CTA) and increasing global AML efforts, such as the FATF standards, are pushing banks to demand more due diligence from all business clients. Even if a company isn’t directly regulated under AML laws, banks may require compliance measures to maintain the relationship. Regulators (like FinCEN, OCC, FDIC, or the Federal Reserve) may pressure banks to scrutinize their business clients more closely to help ensure they are not inadvertently aiding in illicit activities.

De-Risking Strategies by Banks

De-risking in the banking sector involves ensuring proper oversight of all business partners to reduce their risk levels. Banks aim to lower the risk associated with their clients to avoid the need or pressure to offboard them. Many banks are adopting de-risking policies, meaning they avoid or increase oversight on non-financial institution customers that could expose them to compliance violations.

Requesting an AML independent assessment helps banks justify keeping a business as a customer while demonstrating to regulators that they have adequately vetted higher-risk accounts. A strong AML independent assessment can help banks reduce the risk of a client and thereby lowering the overall risk in the bank’s portfolio.

High-Risk Industries & Money Laundering Concerns

High-risk industries often have specific characteristics that make them more susceptible to money laundering risks. For instance, the product offerings in these industries can significantly impact their risk levels.

Cryptocurrency companies, for example, are considered high-risk due to the nature of their products. Fewer banks are willing to partner with crypto companies, and those that do require robust AML programs to mitigate associated risks.

Another example is a client that offers a product similar to a gift card loaded with cash, which can be spent anywhere. In this case, the company only identifies the initial customer but does not track the ultimate recipients of the funds. This lack of due diligence on the end-users increases the risk of money laundering.

Products like gift cards, debit cards, and cryptocurrencies are high-risk areas because they allow funds to be transferred without using formal financial institutions. This ease of transfer makes it challenging to track and monitor transactions, increasing the susceptibility to money laundering.

Banks are particularly focused on businesses that deal with:

• High-value goods: Jewelry, luxury cars, real estate, art, and precious metals.
• Third-Party Payments: Companies that act as intermediaries and facilitate payments for different types of businesses.  
• Cryptocurrency transactions: Even if not an MSB, crypto-related companies face heightened AML scrutiny.
• Cross-border payments: Companies engaging in international transactions or operating in high-risk jurisdictions.

What Can Companies Do?

1. Understand their AML risk profile and how they might appear high-risk to banks. This process involves a thorough assessment of your operations, transactions, and business relationships to evaluate potential vulnerabilities to money laundering activities. Identify specific areas where you might appear high-risk to banks, such as the volume and nature of your transactions or the jurisdictions in which they operate, which often come with different regulatory expectations.
2. Develop a basic AML compliance program, even if not required by law. A basic AML program is a proactive approach to mitigating these actual money laundering and terrorist financing risks, as it establishes protocols for detecting and reporting suspicious financial activities, which, even if not legally mandated, can significantly reduce a company’s money laundering risk and enhance their standing with financial partners.
3. Seek an independent AML assessment proactively to reassure banks and maintain access to banking services. An AML independent assessment acts as a third-party verification to support the company’s AML program, providing banks the confidence to continue offering banking services to the customer.

The bottom line

AML assessments primarily focus on the overall program rather than individual transactions. An independent reviewer will assess policies, procedures, and how transactions are monitored. They do not test every single line item but instead use a sample-based approach to determine if the program is functioning correctly and effectively.

BSA/AML regulation requires AML assessments to be conducted every 12 to 18 months. Most companies prefer to schedule these assessments annually, keeping them in the same month each year to maintain consistency. During these AML assessments, reviewers will conduct testing to determine if the company is complying with regulations and provide recommendations for improvement. The assessment will also provide recommendations for BSA/AML compliance officers to adopt industry best practices within their AML program. For example, auditors might assess whether a company needs to review their customer’s clients more thoroughly, which could involve implementing processes for Enhanced Due Diligence (EDD) on existing customers.

Some companies, especially those not classified as financial institutions, implement AML programs because their partner banks require them to. Many startups may not initially understand the importance of an AML program or whether they need one. However, having a robust AML program in place can significantly reduce this risk of money laundering and terrorist financing within a company’s processes, as well as enhance their chances of securing desirable banking relationships and partnerships, both from a technology and financial standpoint.

Aprio can help guide you through the AML independent assessment process so you can remain compliant and help deter money laundering and financial crimes. Contact our team today.

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