What Are the AML CFT Codes؟

Bachir El Nakib Founder Compliance Alert

What Are AML Codes of Conduct ؟

It is important for all companies and organizations to demonstrate compliance with the GDPR. One of the most welcomed methods are codes of conduct and certifications.

Codes of conduct are internal rules that help companies demonstrate and outline the norms and practices that should be taken in certain situations.

The context of anti-money laundering (AML) compliance and its effectiveness, Employee Due Diligence is equally essential as KYE With adequate Employee Due Diligence, the regulated entities can foster the internal financial crime risk management structure. Acknowledge the importance of this process; the AML laws mandate the regulated entities to carry out staff screening and apply the necessary due diligence process. In this article, we will discuss Employee Due Diligence, why it is such a significant aspect of the AML function, and the measures to be adopted to carry out the same effectively.

Issues tied to reputation, like environmental, social and governance (ESG) concerns, now play a central role in financial and business strategies, requiring a more proactive approach. The rise of social media, capable of spreading negative events rapidly, has intensified this shift, posing challenges for risk, finance, and communication departments.

In a consultation to a Reputable Firm, we recommended the screening of all it's Staff in country and overseas, the Idea was dropped till a competitor of our client published in the media that the Firm is supporting an organization flagged by OFAC SDN List as a terrorist organization.

Interestingly, social media has become the most vital means of communication, but C-suite engagement with these platforms has declined, possibly due to concerns about navigating an increasingly polarized political landscape.

Through a comprehensive Due Diligence, it was found that One of the Firm staff posted on his FB Wall an Israeli Tank captured by an organization listed by OFAC.

Reputation Risk is the Risk Number one in Life, you loose reputation you loose Market confidence, as a result, the Firm took a decision to exit the country.

What is Employee Due Diligence under AML?

Employee Due Diligence is not merely restricted to understanding the person’s qualifications and collecting the identity document. Rather, it is a comprehensive exercise involving thorough identification and verification of the employee’s identity, financial background, and professional and criminal history. It also includes obtaining information about employee’s past conduct and attitude towards the organization, compliance, etc. Employee Due Diligence also includes screening the person against sanctions, adverse media, and the global Politically Exposed Person (PEP) database to identify any connection with the designated person or a PEP or negative news.

Employee Due Diligence is necessary for new employees before they are onboarded and for the existing workforce before the change in job profile or promotion. This shall empower the entity to ensure that no employee exploits the offered position to harm the business or adversely impact the entity’s compliance forces.

This comprehensive scrutiny of the employee shall assist the regulated entity in identifying the red flags – general and related to AML compliance – beforehand.

Let’s not limit ourselves to this and explore the importance of Employee Due Diligence.

Why is Know Your Employee Due Diligence a critical aspect of AML Compliance?

Employee Due Diligence offers an opportunity to identify the challenges and risks the employees may pose and mitigate those risks. 

The following are vital merits of adopting strong Employee Due Diligence as part of the AML program:

-Hiring a suitable candidate

-Having conducted background verification and understood the person’s approach to work, compliance, motivations, etc., the regulated entity can make an informed hiring decision.

This will ensure that the right person is in the proper job role, including the AML compliance function.

- Hiring the wrong individual can expose the business to legal consequences and damage the morale of other staff members, impacting the overall work environment

Identifying risks associated with staff

Employees generally have access to necessary resources and business-sensitive information. It is essential to identify the possible risks that employees may pose around the exploitation of confidential data, misuse of business funds, tweaking the controls to help criminals surpass the business with their criminal activities, etc... 

Employee Due Diligence offers perceptions into the individual’s integrity, trustworthiness, and ability to discharge professional obligations diligently.

Further, it can also give insights into the person’s skills to identify and manage the conflict of interest between business and compliance.

The process shall ensure that no person with a questionable background gets access to the business.

Enhancing the entity’s KYE AML efforts

Implementing Code of Conduct KYE AML/CFT policies and controls requires the able team to run the show. When the employee is identified as sharing the same AML goals as the regulated entity, the quality of AML compliance improves. Employee Due Diligence helps in knowing the person’s take on financial crimes, including corruption or bribery, tax evasion, etc. and seriousness towards compliance framework.

Key findings

* Reputational risk is the potential damage to your business if your customers and stakeholders believe you've failed to meet their expectations. Negative perceptions can lead to a loss of trust in your organization, potentially harming your brand, market value and revenue. 

* Reputation priority: Reputation is now a top-three risk for 26% of companies and a top-five risk for 55%, marking a significant increase from 2021.

ESG influence: ESG issues have emerged as major reputation risks, with environmental, social, and governance concerns at the forefront.

Financial preparedness: 95% of companies have allocated budgets for managing reputational damage, and 87% understand the cost of transferring reputation risk from their balance sheets.

* Accountability decline: The percentage of companies linking formal governance processes to board-level KPIs has decreased from 23% in 2021 to 14%.

* C-Suite caution: Engagement with stakeholders and customers on social media has notably decre

ased, reflecting executives' concerns in a polarized media landscape.