Internal Control Systems for Anti-Money Laundering and Terrorist Financing
Establishing Effective Internal Controls
The Proceeds of Crime (Prevention) Act, No. 19 of 2009 (S.R.O. 10 of 2014), emphasizes the importance of establishing and maintaining a written and effective system of internal controls to prevent money laundering and terrorist financing activities.
Key Requirements for Establishing Internal Control Systems
According to Section 12(1) of the Act, an entity or professional must:
- Tailor their internal control system to their specific circumstances, business relationships, and risk profile (Section 12(2)).
- Include a comprehensive set of controls that address various aspects of anti-money laundering and terrorist financing compliance.
Components of a Robust Internal Control System
A robust internal control system should include the following components:
Risk Assessment
- Provide increased focus on vulnerable operations: Identify areas with higher risks of money laundering and terrorist financing.
- Review risk assessment policies regularly: Ensure that policies are up-to-date and effective in mitigating risks.
- Designate a senior manager for anti-money laundering and terrorist financing compliance: Assign a senior manager to oversee compliance initiatives.
Compliance Function
- Establish an anti-money laundering and terrorist financing compliance function and review program: Develop a comprehensive compliance program that includes regular reviews and assessments.
- Ensure money laundering and terrorist financing risks are assessed and mitigated before new products are offered: Conduct thorough risk assessments for new products to prevent potential misuse.
Senior Management Involvement
- Inform senior management of compliance initiatives, identified deficiencies, corrective actions, and suspicious transaction reports: Ensure that senior management is aware of all aspects of compliance.
- Provide for business continuity despite changes in management or employee composition: Develop strategies to maintain business operations during periods of change.
Regulatory Breaches
- Expedite recommendations for regulatory breaches and anti-money laundering and terrorist financing compliance: Take swift action when faced with potential breaches or non-compliance issues.
- Meet record keeping and reporting requirements, including timely updates in response to changes in regulations, policies, and initiatives: Maintain accurate records and report any changes or updates.
Customer Due Diligence
- Implement risk-based customer due diligence policies, processes, and procedures: Develop a risk-based approach to customer due diligence.
- Establish additional controls for higher-risk customers, transactions, and products: Implement enhanced controls for high-risk customers and transactions.
Suspicious Activity Reporting
- Timely identification of reportable transactions and accurate filing of required reports: Identify suspicious transactions promptly and file accurate reports.
- Adequate supervision of employees handling currency transactions, complete reports, grant exemptions, or engage in other activities related to anti-money laundering and suppression of terrorist financing: Ensure that employees handling sensitive information are adequately supervised.
Training and Disciplinary Measures
- Provide periodic training for key staff, including front office staff: Regularly train staff on anti-money laundering and terrorist financing compliance.
- Establish mechanisms for disciplining employees who fail to report suspicious activity: Develop a disciplinary process for employees who fail to report suspicious transactions.