You’ve probably heard of Danske Bank. In 2018, its Estonian branch was caught in one of the biggest money laundering scandals. The bank handled over $230 billion in suspicious transactions. Much of this money was linked to shell companies and high-risk individuals.
So, what led to these scandalous processes, which lasted almost seven years? Weak AML and KYC controls across Danske Bank’s international operations. The impact was massive, with billions in fines and leadership resignations, not to mention a reputation that may never fully recover.
Many multinational businesses face the same risk. Without a unified AML and KYC strategy, compliance gaps appear. Unfortunately, that’s where criminals take advantage.
So, how can you stay ahead? The key is harmonisation. Your strategy should align compliance across borders while adapting to local regulations.
Let’s explore how you can get it right.
What is AML and KYC?
You may not have realised it, but you’ve probably gone through AML and KYC checks as a bank account owner. So, what do these terms mean?
AML stands for anti-money laundering. It’s a set of laws and procedures that help detect and prevent financial crimes. Some of such activities are money laundering, fraud, and terrorist financing.
Financial institutions are required to monitor all transactions and report suspicious activity. This allows them to combat crime while maintaining their reputations.
KYC (Know Your Customer) is all about verifying a customer. Before allowing them to transact, checking their identity and background is imperative. It includes ID checks, proof of address, and screening against sanctions lists.
Every country has its regulations. Therefore, multinational companies should manage AML and KYC compliance across different jurisdictions. They can do this by adopting a harmonised approach to remove compliance gaps and discourage criminals.
Best Practices for Harmonising AML and KYC Across Borders
Staying compliant with AML and KYC regulations is already a challenge. But for multinational businesses, the complexity multiplies.
With different countries having varying rules, enforcement, and risk factors, it becomes challenging to create a unified approach. So, how can you maintain strong compliance standards while adapting to local laws?
The key is to balance global consistency and regional flexibility. Here are five best practices for harmonising AML and KYC compliance across borders.
1. Adopting a Risk-Based Approach
Not all transactions or customers pose the same level of risk. A one-size-fits-all compliance model is inefficient and can overwhelm teams with unnecessary checks.
Instead, you should prioritise high-risk transactions using a risk-based approach. Many global regulators, including the Financial Action Task Force (FATF), recommend this method.
One of the main things to do is classify customers and transactions based on their risk profiles. This way, you can focus your resources where they matter most, improving security and efficiency.
2. Leveraging Technology for Compliance
Manually managing AML and KYC across multiple jurisdictions is nearly impossible. But with technology, nothing is beyond your imagination. AI-powered transaction monitoring and digital identity verification can streamline compliance and reduce errors.
For instance, machine learning algorithms can detect unusual transaction patterns in real-time. This technology can help you respond faster and potential threats. Automation also speeds up customer verification, reducing friction while maintaining security.
3. Standardising Internal Compliance Policies
Yes, countries have different AML and KYC laws. However, you should develop a core compliance framework that applies across all operations. This ensures consistency while allowing for localised adjustments.
A centralised compliance team can help enforce those standards. It should also work closely with local teams to address region-specific regulatory requirements. This minimises compliance gaps and prevents operational silos.
4. Collaborating with Local Regulators and Financial Institutions
Understanding local regulations is one thing. But staying ahead of changes is even more important. So, how do you do that?
Build strong relationships with local regulators and financial institutions. These parties can keep you informed about evolving AML and KYC requirements.
Partnering with banks in different regions also helps streamline transaction monitoring and improve fraud detection. Stay in touch with regulators to ensure your compliance strategy remains aligned with the latest laws.
5. Conducting Regular Audits and Compliance Reviews
Regulations change frequently, and criminals continuously adapt their methods. You need to audit your AML and KYC programs regularly to identify weaknesses before regulators do.
Regular internal reviews, third-party compliance checks, and stress-testing fraud detection systems help you stay proactive rather than reactive. This not only prevents fines but also strengthens your overall security posture.
Conclusion
Financial crime doesn’t stop at the borders, and your compliance strategy shouldn’t either. To avoid a situation like Danske Bank’s, you need a strong AML and KYC strategy. Without a consistent approach, gaps will appear, and bad actors will be quick to exploit them.
The solution is harmonisation, which balances global consistency with local adaptability. Strengthen your defences through a risk-based approach, technology, and regulator relationships. Regular audits and standardised policies ensure that your compliance is always up to date.
Are you ready to build a stronger, more resilient compliance framework? The time to act is now.
