AML Training to the Employees: Strengthening the AML Compliance

Financial criminals are developing sophisticated methods of laundering funds and exploiting various legitimate business organizations. To tackle this, the entities must ready the teams across all the business fronts to effectively detect the potential risk indicators and take necessary actions to prevent the same. Here comes the need for adequate AML training  for employees, arming them with the necessary knowledge and skills to handle money laundering and terrorism financial risks.

Further, the regulated entities subject to compliance with the Prevention of Money Laundering Act, 2002 (PMLA) and the International Financial Service Centre Authority (AML, CFT, and KYC) Guidelines, 2022 (IFSCA AML Guidelines) are obligated to develop and maintain a robust AML training program for the employees. This regulatory requirement aims to ensure that the staff of the regulated entities is well aware of the financial crime risk the business is exposed to and understands the need to contribute towards combating money laundering and terrorism financing.

This article discusses the significance of AML training, the AML training program, and some of the best practices the regulated entity should follow for effectively implementing the AML training program to yield the desired outcome.

Why is AML training an essential element of the AML Program?

To effectively implement the AML program across the organization, the support of the entire workforce is crucial. In this context, here are some of the key grounds for including a robust AML training program in the entity’s overall AML framework:

To effectively comply with internal AML policies

The regulated entities subject to AML compliance under PMLA or IFSCA AML Guidelines must develop necessary policies and procedures to identify the money laundering and terrorism financing risk and deploy necessary risk mitigation measures. The penetration of the launderers may be detected at the entry level or during regular business operations. For example, the potential risk indicator may be identified when onboarding the customer, or any unusual transaction pattern is identified in the case of an existing business relationship. Here, the role of the customer onboarding team, customer relationship management team, and the back office (accountant) are equally significant in identifying the possible financial crime at different stages of the customer lifecycle.

Thus, it is important to bring every department of the company on board the AML function to create a holistic shield. This warrants adequate training to the team across all fronts of business, creating awareness around the internal AML/CFT policies and systems, the roles and duties of each employee to combat the financial crime, empowering the concerned employee to effectively perform Customer Due Diligence or implement transaction monitoring program or other necessary AML tasks.

To stay regulatory compliant

As discussed above, the AML regulations in India (PMLA and IFSCA AML Guidelines) mandate the regulated entities to implement AML training to ensure that the team knows the ML/FT typologies the business is exposed to and supports overall AML compliance. The absence of AML training for employees would be treated as AML non-compliance, resulting in heavy fines and penalties in the regulated entity, risking the overall AML efforts.

To protect the business against financial crime risk and safeguard the reputation

Assume the customer has been executing large cash transactions without justifying the source. Here, the personnel handling the customer did not understand the AML requirements and did not perceive it as a red flag. Later on, it was found that the said customer laundered huge funds generated from narcotics activities through the regulated entity’s business. This led to AML non-compliance, misuse of the business for financial crime, and irreversible damage to the business.

Had the concerned client-facing employee been aware of the AML measures and the risk indicators, he would have flagged off this to the AML Principal Officer for him to investigate and take necessary actions on a timely basis, preventing the business’s exploitation and reputation amongst the stakeholders. This illustration vividly highlights the significance of AML training to promote the entity’s AML compliance, safeguarding the business’s integrity and good standing.

Having discussed the importance of AML training, let’s explore what an ideal AML training program must look like.

What AML aspects must be included in the employee training program?

The employees must align themselves with the business’s AML goals. This requires an understanding of the overall AML compliance framework, starting from awareness of the basic concepts around financial crime, the regulatory obligations imposed upon the business, the regulated entity’s internal AML program, the red flags associated with the nature of the business undertaken, etc.

Further, a structured AML training program must be designed, adopting a risk-based approach and considering the entity’s business risk assessment outcome.

To develop a comprehensive and effective AML training program, the regulated entity must consider general training as well as job-specific training, covering the following aspects:

  • Discussing the basic concepts of money laundering and terrorism financing
  • ML/FT typologies (on how financial criminals can slip into the business unannounced)
  • India’s AML regulatory framework and the compliance obligations imposed thereunder (PMLA and IFSCA AML Guidelines)
  • What is the role of India FIU
  • Understanding the FINGate registration process
  • Risk factors and methodology necessary for conducting Enterprise-Wide Risk Assessment
  • Customer Due Diligence (including the Know Your Customer (KYC) process, customer risk assessment, circumstances, and timing of applying CDD measures)
  • Decoding the beneficial ownership structure in case of corporate customers
  • Enhanced Customer Due Diligence (EDD), including the scenarios warranting application of EDD and the increased measures to be applied
  • Significance of ongoing monitoring program (transaction monitoring as well as business relationship) and the system implemented by the entity
  • Understanding the red flags
  • Recognizing and reporting the Suspicious Transactions
  • Other AML-related reporting requirements
  • AML documentation requirements
  • Appointment of AML Principal Officer and Designated Director and the AML functions entrusted upon
  • Roles of senior management and discharging oversight function
  • Compliance with AML Audit
  • Implementation of the sanctions program and the screening systems
  • Roles and responsibilities of employees and the consequences of non-compliance

When the AML training program is comprehensive and effective, the entity’s AML Compliance Framework can be implemented effectively and in the true sense.

What are the best AML Training practices the regulated entity must follow?

While developing the AML training program, the regulated entities must consider the following to enhance the effectiveness of the training efforts:

1. Participants

AML Training program must cover the front-line employees managing the client relationship and the back-end function, looking after accounting and payment clearance. AML Compliance Officer (Principal Officer) and the Designated Directors must actively get involved in the training. Further, the Senior management should also participate in and contribute to the overall learning session.

All the employees must be trained in AML, with the degree and extent of AML awareness depending on the role of the employees. No exception shall be allowed, whether the full-time employee or the staff is working part-time or on a contractual basis.

AML Training to the Employees

2. Training content

The training content must be comprehensive, covering the general concepts and the specific areas relevant to the employee’s routine job or the AML aspects where the team is assessed to have weak clarity. The training sessions should be more relatable to the employee’s routine business functions, where the AML compliance and business tasks can be aligned.

Further, to enhance the quality of training, the regulated entity must consider including real-life case studies. This will provide practical insights into the AML concepts, empowering the team to use these measures when a peculiar situation arises in the course of a routine job.

The possibility of including workshops and quizzes must also be explored to make the training more interactive to retain the participant’s attention.

3. Training methods

The regulated entity must consider involving experienced faculties for conducting AML training for employees, be it an in-house AML Principal Officer or an external professional. Further, the training format could be in nature of online modules or a live session (classroom or through virtual mode).

For a better retention rate among the staff, the regulated entity must consider splitting the training program into smaller modules spread across weeks or a month instead of putting all on the employees’ plates in one go, which is difficult to absorb.

4. Adequate Timing and Frequency

The frequency of the AML compliance training largely depends on the nature of business activities carried out by the entity and its assessment of financial crime exposure. However, the entity must ensure that mandatory AML training is imparted to the new employees upon their joining and to the existing employees once a year. Not restricted to the annual plan, the regulated entity must consider scheduling the awareness session upon a significant change in the regulations impacting the business or identifying the new ML/FT trends relevant to the business.

Further, the training must be scheduled when the regulated entity implements new systems or controls. Educating the team on a timely basis can improve the utilization of new resources and effectively combat financial crime.

5. Assessment

The AML Principal Officer must assess the knowledge of the employees before and after the training. The pre-training assessment shall help the entity understand the employees’ existing AML awareness level and modify the training agenda accordingly. The post-training assessment will enable the entity to determine if the training agenda has been achieved or if there are some gaps requiring an extension of the training program. This can be done through surveys, interviewing the team, or conducting tests.

Further, the employee’s feedback must be sought to identify the gaps in the learning program and immediately attend to resolve the same.

6. Regularly reviewing and updating the training program

It is important that the team’s AML knowledge and understanding are up-to-date. The regulated entity must periodically review the training program and the content used during the sessions to check its quality and relevance. The outdated information and examples must be eliminated, incorporating the regulatory updates and emerging ML/FT red flags.

7. Maintaining AML Training Records

The regulated entities should maintain the following records about AML training to comply with regulatory requirements and use such records for future enhancements of the training program:

  • Training topics discussed
  • Details for the trainer
  • When was training conducted
  • Training material used
  • Who all participated in the training
  • Outcome of the pre and post-training assessment

Let AML India be your Guide to AML Compliance!

Training the employees is crucial to support the AML Principal Officer’s efforts to stay compliant and safeguard the business from potential financial crime risks. Let AML India assist you in designing a robust AML training program, considering the nature and size of your operations, AML regulations, and the risk the business is exposed to. AML KYC training should be imparted to the employees, who perform day-to-day KYC and CDD activities, which we offer at AML India to maximize the AML compliance efforts. Besides that, we impart training to the team, including the AML Principal Officer and the senior management, discussing the basics to advanced AML compliance aspects.

Let’s create awareness around AML/CFT to combat these financial crimes!

About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 25 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.

He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.