5 Common AML Compliance Mistakes and How to Avoid Them

The Stakes of AML Compliance

Anti-money laundering (AML) compliance isn't optional—it's a legal requirement for financial institutions, money services businesses, and increasingly, fintech companies. The penalties for violations are severe: fines can reach billions of dollars, and individuals face personal liability including imprisonment.

Yet organizations continue to make preventable mistakes. Having led security and compliance programs at Circle and Ondo Finance, I've seen these patterns repeatedly. Here are the five most common AML compliance mistakes and how to avoid them.

Mistake #1: Treating KYC as a One-Time Event

The problem: Many organizations conduct Know Your Customer (KYC) verification at onboarding and never revisit it. Customer circumstances change—businesses expand into new geographies, ownership structures shift, risk profiles evolve.

Real-world impact: A customer onboarded as low-risk may become high-risk over time. Without ongoing monitoring, you're operating with outdated risk assessments.

The solution:

• Implement periodic KYC refresh cycles based on risk tier (annually for high-risk, every 2-3 years for lower risk)
• Monitor for trigger events: large transaction volume changes, new jurisdictions, negative media
• Automate screening against updated sanctions lists and PEP databases
• Document all refresh activities and risk reassessments

Mistake #2: Inadequate Transaction Monitoring Rules

The problem: Organizations deploy transaction monitoring systems but fail to tune rules appropriately. Either rules are too loose (missing suspicious activity) or too tight (generating excessive false positives that overwhelm investigators).

Real-world impact: FinCEN examinations consistently cite inadequate transaction monitoring as a top deficiency. Meanwhile, investigation teams drowning in false positives may miss genuine suspicious activity.

The solution:

• Start with industry-standard rule sets, then customize based on your customer base
• Establish baseline transaction patterns before flagging anomalies
• Track and analyze false positive rates—target below 90% ideally
• Conduct regular rule tuning based on actual alert outcomes
• Document the rationale for rule thresholds and any modifications

Mistake #3: SAR Filing Failures

The problem: Suspicious Activity Report (SAR) filing requirements are strict—most jurisdictions require filing within 30 days of detection. Organizations fail by filing late, filing incomplete reports, or failing to file when required.

Real-world impact: Late or missed SARs are among the most common AML enforcement triggers. Regulators view SAR failures as fundamental program breakdowns.

The solution:

• Establish clear SAR decision escalation paths with defined timelines
• Create SAR templates to ensure completeness
• Track all alerts from detection through disposition
• Implement multiple review stages for SAR/no-SAR decisions
• Maintain detailed documentation supporting filing decisions
• Build in buffer time—aim to file within 20 days to avoid deadline pressure

Mistake #4: Insufficient Independent Testing

The problem: Organizations conduct internal compliance reviews but lack truly independent testing. Internal teams may miss issues or unconsciously minimize findings. Examiners expect rigorous, independent assessment.

Real-world impact: Regulatory examinations often uncover issues that internal reviews missed, raising questions about program effectiveness.

The solution:

• Engage external parties for annual AML program audits
• Ensure testers are independent from the compliance function
• Test the full program scope: policies, procedures, training, transaction monitoring, SAR filing
• Include sample testing of actual transactions and customer files
• Require management responses to findings with remediation timelines
• Track finding closure and validate remediation effectiveness

Mistake #5: Inadequate Training Documentation

The problem: Organizations provide AML training but fail to document it adequately. When examiners ask for training records, incomplete documentation suggests inadequate programs—even if training actually occurred.

Real-world impact: Examiners request training records in virtually every examination. Missing or incomplete records create immediate credibility issues.

The solution:

• Maintain training completion records with dates, attendees, and topics
• Document training content and materials
• Require acknowledgment signatures or electronic confirmations
• Track training completion rates and follow up on gaps
• Tailor training to roles—front-line staff need different training than executives
• Update training materials when regulations or procedures change
• Conduct training at onboarding and at least annually thereafter

Building a Defensible AML Program

Beyond avoiding these specific mistakes, focus on building a program that's defensible under examination:

Documentation is everything. If it's not documented, it didn't happen. Maintain comprehensive records of all AML activities, decisions, and rationale.

Stay current. AML regulations evolve constantly. Subscribe to FinCEN advisories, engage with industry groups, and update your program accordingly.

Right-size your program. Your AML program should be proportionate to your risk profile. A small fintech has different needs than a multinational bank, but both need effective controls.

Invest in technology. Manual AML processes don't scale and introduce human error. Modern AML platforms dramatically improve efficiency and effectiveness.

Culture matters. Everyone in your organization should understand their role in preventing money laundering. This isn't just a compliance team responsibility.

PartnerAlly helps financial services organizations build and maintain effective AML programs. Our platform streamlines transaction monitoring, case management, and regulatory reporting. Schedule a consultation to discuss your AML compliance needs.