Developing a risk-based investigation program involves identifying potential risks to an organization and prioritizing investigations based on the level of risk they pose. The risk-based AML investigation program is a set of processes and procedures and part of board approved compliance program and policy to be implemented by the compliance team, for the investigation of identified suspicious activities and transactions.
The risk-based AML investigation program can be viewed as a ‘blueprint’ that describes how a transaction should be investigated, considering relevant transaction risk factors, money laundering and terrorist financing risks, and other possible financial crime risks around it.
The investigation program is to be translated into tangible actions for the compliance investigation team, to achieve the key AML investigation objectives, including identification, appropriate investigation, and reporting of suspicious transactions to relevant regulatory authorities.
Developing a Risk-Based Investigation Program
Components of Risk-Based Investigation program. The risk-based investigation program should contain different key components including but not limited to:
- possible suspicious transactions and scenarios
- implications of possible suspicious transactions
- investigation procedures for different scenarios
- evidence in different scenarios
- process of evidence corroboration
- possible outcomes
- mapping of investigation procedures with applicable laws and regulations
- internal and external reporting requirements
The transactions investigation program of a financial institution should, among other things, also focus on creating and encouraging a viable regulatory risk and compliance culture across the financial institution, developing which may take considerable time and subject matter expertise.
Broader Consideration for the Compliance Management Team to Develop a Risk-Based Transactions Investigation Program:
While developing a risk-based investigation program financial institutions should note the fact that non-compliance with the applicable laws and regulations may have a significant adverse impact on the reputation, customer base, and/or profitability of the institution.
This may lead to soundness and may lead to increased regulatory intervention as well, therefore the investigation program to be developed should be a comprehensive scenario-based, regulations-linked procedures document, to be followed for the investigation of existing and emerging compliance risks inherent in different transactions initiated, processed or executes by the financial institution.
The risk-based transactions investigation program needs to be reviewed by the MLRO and the Compliance Committee, to ensure that all possible ML/TF risks and other financial crime risks are covered, with procedures and mapping with laws and regulations.
The development of a risk-based investigation program, particularly in the Anti-Money Laundering (AML) context, is crucial to ensuring a robust and effective framework for identifying, investigating, and reporting suspicious transactions. Its structure should comprise various key components such as investigation procedures, evidence management, internal and external reporting requirements, and a deep understanding of applicable laws and regulations. Moreover, fostering a strong regulatory risk and compliance culture within the institution is indispensable.
The program should be sufficiently comprehensive, and its emphasis should be on the potential consequences of non-compliance, which can significantly impact an institution’s reputation, customer base, and profitability. Furthermore, regular reviews by the Money Laundering Reporting Officer (MLRO) and the Compliance Committee are vital to ensure the program’s continued relevance and efficacy in addressing emerging risks related to money laundering, terrorist financing, and other financial crimes.