Anti-Money Laundering/Combating the Financing of Terrorism

In a recent interview, Ms Sylvana Gatt, Manager at Payments and Banking Office, and Dr Raisa Spiteri, Legal Department Expert shared with us their knowledge about Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT).

What is AML/CFT?

Dr Raisa Spiteri: The Prevention of Money Laundering Act (Chapter 373 of the Laws of Malta) defines money laundering as “[…] the conversion or transfer of property knowing or suspecting that such property is derived directly from, or the proceeds of, criminal activity or from an act or acts of participation in criminal activity for the purposes of concealing or disguising the origin of the property or of assisting any person or persons involved or concerned in criminal activity”. It is the process through which an offender attempts to conceal the true origin and ownership proceeds of a criminal activity whilst retaining such proceeds with the ultimate aim of providing a legitimate and legal cover for the source of income and finance. 

The funding of terrorism involves the receipt or provision of money or other property intended or suspected to be used for the purpose of terrorism. Money or property that is used to fund terrorism may not necessarily be money or property derived from a criminal offence but could very often involve legitimate money or property that is received or provided for such purpose. Funding of terrorism also includes the funding of a terrorist group knowing that such funding will contribute towards the criminal activities of the terrorist group.

What is the compliance function?

Dr Raisa Spiteri: The compliance function is responsible for identifying, assessing, advising, monitoring and reporting on the risk that a firm fails to comply with. The main objective of this function is that of ensuring that an organisation has internal controls that adequately measure and manage the risks that such organisation may encounter. 

What are the elements of a sound AML programme?

Ms Sylvana Gatt: The AML compliance programme must be written, approved by the Board of Directors as the ultimate owners of an entity’s risk, and noted in the Board minutes. Such AML compliance programme must commensurate with the respective AML risk profile of the entity.

A sound AML programme is composed of four pillars as described hereunder:

  • Compliance Officer, who is responsible for co-ordinating and monitoring the day to day AML compliance, and managing all aspects of the AML compliance programme.
  • Independent testing of the AML programme on a periodic basis, which should provide an overall assessment of the adequacy and effectiveness of the entity’s AML programme, in line with the risk profile.
  • Internal controls, which form the core of an institution’s compliance programme to detect and prevent money laundering and terrorist financing. Such controls comprise the institution’s tailored policies, procedures and processes designed to mitigate the inherent AML risks related to customers, products and services, and geographical footprint.  The level of sophistication of the internal controls should be commensurate with the size, structure, risks and complexity of the institution, and it integrates several money laundering defences in order to form an on-going system of controls designed to detect suspicious activity.
  • Training, this introduces and reinforces an entity’s measures to combat money laundering from occurring.

What is the difference between sanction screening and transactions monitoring?

Ms Sylvana Gatt: Sanction screening is the mechanism by which payment messages between entities are screened in real-time against up-to-date and comprehensive sanctions lists.

Transactions monitoring, on the other hand, is conducted ex post to evaluate whether the activities of the customer (the use of their products and/or services and/or their general behaviour) is consistent with the obtained information on the purpose and intended nature of the business relationship.

Both are important controls in the fight against money laundering and terrorist financing.

Date uploaded: 3/10/2019