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Top Reasons BSA/AML Programs Fail and How to Ensure Yours Doesn’t


Cash on a clothesline graphic_iContactFinancial institutions of all sizes were levied with high fines over the past few years due to non-compliance with anti-money laundering requirements resulting in increased supervisory attention on BSA/AML regulations by federal banking agencies. Money laundering and terrorist financing undermine the integrity and stability of financial institutions and systems. They lead to slower economic growth by reducing productivity in the economy's real sector, diverting resources and encouraging crime and corruption. Having an effective anti-money laundering program in place will provide comfort to your customers in a challenging environment. Equally important, an AML program will help support compliance with regulations to prevent large fines, expensive legal battles and PR damage that can have a long-lasting effect on the organization.

A robust BSA/AML program tailored to the financial institution’s risk profile, and paired with effective governance and oversight, can detect red flags and suspicious activities and avoid the penalties that come with non-compliance.

The most common reasons AML programs are ineffective or fail, resulting in regulatory penalties, include:

  1. Lack of understanding of how modern technologies and payment systems influence Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) procedures – Often, programs are designed to have due diligence procedures at the establishment of the customer relationship, but fail to provide adequate monitoring of this relationship after the initial client contact. New technologies have changed how customers open accounts and make transactions, but customer due diligence procedures have not always kept up with the demand for faster and more mobile transactions.
  2. Inadequate suspicious activity identification and reporting – Financial institutions still struggle to file SARs on a timely basis because of insufficient record-keeping and filing processes, lack of employee training and oversight, or insufficient systems that do not allow suspicious activity to be identified easily.
  3. Inadequate assessment of customer risk exposure – Banks often underestimate the importance of adequately assessing risk exposure for their customer base from the opening of accounts to transaction activities periodically thereafter. This results in insufficient risk assessments and lack of customer risk profiles.
  4. Lack of adequate employee training – Employee training‒one of the key pillars of any robust BSA/AML program‒is designed to help employees identify red flags and suspicious activities and be knowledgeable about the appropriate reporting mechanism. When employees are not familiar with the organization’s BSA/AML program and policies, as well as regulatory requirements, they might not understand the significance of compliance. This can result in suspicious transactions and activities by customers not being identified.
  5. Inadequate system support – Institutions sometimes struggle to find the right BSA/AML compliance systems that are also cost effective. Due to budget constraints, institutions often use inappropriate systems for their risk profile and number of customers and customer transactions. The failure to merely “adopt” a system and rely on the third party vendor to have appropriate rules are additional mistakes too many organizations have made.
  6. Inadequate compliance support, including rule validation – Integrity and accuracy of the data and rules within the BSA/AML compliance system are critical to ensure suspicious activity and red flags are quickly identified. Compliance support and oversight of the program is essential for any institution. In addition, regulators have focused on independent rule validation of the BSA/AML program. If there is insufficient compliance support or inadequate validation to show the rules system is set up accurately based on the defined rules, there could be additional regulatory comments or inappropriate reporting.

Perform Rule Validation to Avoid AML Compliance Issues

Sound monitoring systems are essential to assist in the detection and prevention of money laundering practices. Financial institutions should identify the areas that require system support and perform a cost-benefit study to identify the best system on the market for their risk profile. At the same time, just using the rules as provided by a vendor without independently validating them can result in not all suspicious transaction or red flags being identified. Rule validation should be a significant part of ongoing monitoring of systems and practices.

Amy Ribick, CFE, CRMABianca Sarrach, CIA, CFSA, CRMA

For more information or questions on these and other articles please contact Amy Ribick at 314.983.1347 or, or Bianca Sarrach at 314.983.1365 or


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