AML compliance and fraud prevention are often treated as separate functions. They shouldn't be. Here's how the two disciplines intersect and why integrating them produces better outcomes for both.
AML and fraud prevention overlap significantly in the fraud-to-money-laundering pipeline
AML compliance and fraud prevention are frequently organized as separate functions within financial institutions, with separate teams, separate systems, and separate reporting lines. This organizational separation reflects the historical development of the two disciplines - AML compliance grew out of the BSA regulatory framework, while fraud prevention grew out of operational risk management. But the separation creates blind spots that bad actors exploit, and the trend in financial crime compliance is toward integration.
Integrated review of fraud and AML signals produces better risk assessments and SAR narratives
The overlap between AML and fraud is most visible in the fraud-to-money-laundering pipeline. When a fraudster steals money from a victim - through business email compromise, elder fraud, romance scams, or other schemes - the stolen funds must be laundered before they can be used. The laundering process typically involves moving the funds through multiple accounts, often at different financial institutions, to obscure their origin. This movement creates AML red flags that a well-designed monitoring program should detect.
FinCEN's national priorities include fraud - AML programs must address fraud-related money laundering
The practical implication is that fraud alerts and AML alerts should be reviewed together, not separately. A customer who is the subject of a fraud alert and who is also exhibiting AML red flags - unusual transaction patterns, structuring activity, or transactions inconsistent with their stated business purpose - presents a higher risk profile than either alert alone would suggest. Integrated review of fraud and AML signals produces better risk assessments and better SAR narratives.
Risk assessments must evaluate exposure to fraud-related money laundering specifically
FinCEN's national AML/CFT priorities explicitly include fraud as a priority area, which creates a compliance obligation to address fraud-related money laundering in your AML program. Your risk assessment must evaluate your exposure to fraud-related money laundering, your monitoring program must be designed to detect the patterns associated with fraud proceeds, and your training program must address the fraud-to-money-laundering typologies relevant to your business.
Small businesses can integrate fraud and AML monitoring through a combined indicator checklist
For small businesses that don't have separate AML and fraud functions, the integration is natural - the same person manages both. The challenge is ensuring that the monitoring procedures address both fraud and AML red flags, and that the SAR filing process captures fraud-related suspicious activity as well as traditional AML red flags. A monitoring checklist that includes both fraud and AML indicators is a practical tool for small businesses managing both functions with limited resources.
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BSA/AML Principal Consultant · Soflo Consulting
Elena Vargas is a BSA/AML Principal Consultant at Soflo Consulting with over a decade of experience building and auditing compliance programs for regulated businesses across the United States. She specializes in enforcement action remediation, risk assessment development, and examination preparation for money services businesses, mortgage lenders, and fintech companies.
5 sections
Key Takeaways
- 1AML and fraud prevention overlap significantly in the fraud-to-money-laundering pipeline
- 2Integrated review of fraud and AML signals produces better risk assessments and SAR narratives
- 3FinCEN's national priorities include fraud - AML programs must address fraud-related money laundering
- 4Risk assessments must evaluate exposure to fraud-related money laundering specifically
- 5Small businesses can integrate fraud and AML monitoring through a combined indicator checklist
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