What is Anti Money Laundering Compliance

Money laundering risk extends beyond your organization's walls. Every vendor relationship, supplier contract, and third-party integration creates potential exposure to financial crime. GRC analysts face mounting pressure to verify that business partners maintain robust AML programs—not just during onboarding, but throughout the relationship lifecycle.

The regulatory landscape demands precision. FinCEN expects documented due diligence. OFAC sanctions change daily. International operations trigger FATF recommendations across 200+ jurisdictions. A single oversight in vendor screening can result in millions in penalties and irreversible reputational damage.

This guide maps AML compliance requirements to your third-party risk management program. You'll find specific regulatory citations, control objectives for vendor assessments, and practical workflows that satisfy both internal audit and external examination.

Regulatory Foundation for Third-Party AML Compliance

The Bank Secrecy Act (BSA) establishes the baseline: financial institutions must implement risk-based AML programs that extend to third-party relationships. Section 326 of the USA PATRIOT Act specifically mandates Customer Identification Programs (CIP) that include vendor verification procedures.

FinCEN's Customer Due Diligence Rule (31 CFR 1010.230) requires four core elements:

1. Customer identification and verification
2. Beneficial ownership identification
3. Understanding customer relationships
4. Ongoing monitoring for suspicious transactions

For compliance officers, this translates to concrete vendor assessment requirements:

Requirement	Regulatory Citation	Third-Party Application
Identity Verification	31 CFR 1020.220	Collect formation documents, tax IDs, operating licenses
Beneficial Ownership	31 CFR 1010.230	Identify 25%+ owners and control persons
Risk Assessment	BSA Examination Manual	Document vendor's customer base and transaction patterns
Ongoing Monitoring	31 CFR 1020.210	Periodic rescreening and transaction analysis

Control Mapping for Vendor AML Programs

Your vendors' AML failures become your regulatory violations. Control mapping ensures third parties maintain equivalent protections:

Customer Due Diligence (CDD) Controls

Map vendor CDD procedures to your internal standards. Request evidence of:

• KYC documentation requirements
• Identity verification methods (documentary vs. non-documentary)
• Enhanced due diligence triggers for high-risk customers
• Record retention policies (5-year minimum per BSA)

Transaction Monitoring Systems

Vendors processing payments or handling customer data must demonstrate:

• Automated transaction monitoring capabilities
• Threshold-based alerts for structured transactions
• Geographic risk scoring for OFAC-sanctioned countries
• SAR filing procedures and escalation protocols

Sanctions Screening Infrastructure

Real-time screening prevents prohibited transactions. Verify vendors maintain:

• Daily OFAC list updates
• Fuzzy matching algorithms (minimum 85% threshold)
• False positive management procedures
• Audit trails for all screening decisions

Industry-Specific AML Requirements

Financial Services

Banks and fintechs face heightened scrutiny. Vendor assessments must include:

• Federal Functional Regulator examination results
• FFIEC BSA/AML Examination Manual compliance
• Correspondent banking due diligence (if applicable)
• Wire transfer recordkeeping per Travel Rule

Healthcare

Medical device manufacturers and pharmaceutical companies encounter AML risk through:

• Foreign distributor relationships
• Clinical trial payments in high-risk jurisdictions
• Reimbursement fraud schemes requiring SAR filing

Technology Sector

Software vendors processing payments must address:

• Virtual currency exposure under FinCEN guidance
• Cross-border data transfer implications
• Marketplace seller verification requirements

Common AML Compliance Failures in Vendor Management

Incomplete Beneficial Ownership Collection Organizations frequently accept vendor-provided ownership charts without verification. Regulatory expectation: independently verify through corporate registries and third-party databases.

Static Risk Ratings Initial vendor risk assessments gather dust. Dynamic risk scoring based on transaction patterns, geographic expansion, and regulatory changes prevents examination findings.

Fragmented Screening Processes Different departments screen vendors against different lists. Consolidate OFAC, EU, UN, and FATF lists into a single screening workflow with centralized recordkeeping.

Building Your AML Vendor Assessment Framework

Structure assessments around measurable control objectives:

1. Pre-Contract Screening

   • OFAC/sanctions list screening
   • Adverse media review
   • Beneficial ownership verification
   • Business legitimacy confirmation

2. Ongoing Monitoring Requirements

   • Annual AML program attestations
   • Quarterly sanctions re-screening
   • Transaction pattern analysis
   • Regulatory action monitoring

3. Escalation Triggers

   • SAR filings involving vendor
   • Material changes in ownership
   • Geographic expansion to high-risk jurisdictions
   • Regulatory enforcement actions

Audit Trail Requirements

Document every AML decision for regulatory examination:

• Screening results with timestamp
• Risk rating justification
• Override approvals with documented rationale
• Remediation timelines for identified gaps
• Communication logs with vendor compliance teams

Integration with Enterprise GRC Frameworks

AML controls map to broader compliance frameworks:

Framework	Related Controls
ISO 27001	A.15.1.1 (Information security in supplier relationships)
SOC 2	CC9.2 (Vendor risk management)
NIST CSF	ID.SC-2 (Suppliers and third-party partners)
COBIT	APO10 (Manage Vendors)

Cross-reference AML requirements during integrated audits to demonstrate comprehensive third-party governance.

Frequently Asked Questions

What's the difference between KYC and CDD in vendor management?

KYC (Know Your Customer) focuses on identity verification at onboarding. CDD (Customer Due Diligence) encompasses the entire relationship lifecycle, including ongoing monitoring and periodic reviews.

How often should we re-screen vendors against sanctions lists?

Daily screening for active vendors processing payments. Quarterly minimum for all other vendors, with immediate re-screening upon contract renewal or material changes.

Do AML requirements apply to non-financial vendors?

Yes. Any vendor handling funds, processing payments, or accessing customer financial data requires AML assessment. This includes IT service providers, payment processors, and collection agencies.

What constitutes "beneficial ownership" for vendor screening?

Natural persons owning some or more equity interests, plus one individual with significant control (CEO, President, or equivalent). Corporate entities cannot satisfy beneficial ownership requirements.

How do we handle vendors refusing to provide ownership information?

Document the refusal and escalate to legal/compliance leadership. Consider contract termination if the vendor poses elevated risk or operates in high-risk jurisdictions.

What's required for "ongoing monitoring" of vendor relationships?

Continuous sanctions screening, periodic risk reassessment, transaction pattern analysis, and monitoring for adverse media or regulatory actions. Frequency depends on inherent risk level.

Can we rely on vendor self-attestations for AML compliance?

Self-attestations provide limited assurance. Supplement with independent verification: regulatory examination results, SOC reports, or direct testing of controls.