Anti Money Laundering (AML)
AML refers to a set of regulations, laws and procedures that are designed to prevent criminals from disguising – or ‘laundering’ - illicit money into legal funds in financial systems.AML Background
The structured set of international rules and procedures now known as AML first rose to prominence in 1989, when a group of countries and organizations established the Financial Action Task Force (FATF) as a means of combating international tax evasion, money laundering, criminal financing and terrorist funding.
There are now a broad array of national, international, governmental and non-governmental regulatory organizations that create and/or apply AML rules and procedures. Governments, financial institutions, regulated organizations and vendors are expected to apply and adhere to them.
Who needs to know about AML?
- Financial institutions and funds
- Any individuals or businesses engaging in transactions, in particular if they are international
- Crypto-related businesses or enterprises
What is AML in practice?
Most banks and financial institutions are required by law to monitor their customers’ transactions, and to report to the relevant authorities in their respective jurisdictions if they notice anything suspicious. These include large transactions or deposits, their customers moving location to a red-flagged destination, and deposits from unknown or unfamiliar sources.
What are the main activities AML tries to counter?
- Criminal funding
- Tax avoidance
- Corruption
- Criminal manipulation of legal businesses as a means to illicit ends
- Terrorist funding (CTF/CFT)
How does AML work?
Government agencies and financial institutions on the one hand, and criminal and terrorist groups on the other, are engaged in a perpetual ‘arms-race’ to develop techniques and technologies to give themselves an edge over the others when it comes to the transfer and monitoring of financial transactions. For this reason, AML procedures and requirements are constantly evolving, to keep up to pace with new criminal tactics.
However, that being said, these are some of the key AML principles that regulatory authorities expect financial institutions to follow and implement.
- Customer Due Diligence & KYC
Banks and businesses are now expected to obtain a comprehensive understanding of their customers before they agree to do business with them
- Monitoring
Financial institutions are expected to consistently monitor their customers’ transactions.
- Money-Laundering Risk Assessment on Products
Certain products carry different levels of risk of being manipulated for money laundering. Banks are expected to understand the risk of both their own products, and the business of their customers.
- Advanced IT Systems
Banks are expected to integrate advanced analytics and IT processes into their AML frameworks, in order to successfully keep up to date with expanding black lists and risks.
When banks fail to adequately screen their customers’ transactions, and it emerges that money laundering has taken place, the consequences can be devastating, and may range from heavy fines to even criminal proceedings. The same applies to businesses that have unwittingly become conduits in a money-laundering scheme.
Why is AML important?
AML is important because it is the most effective means governments and international organizations have in preventing criminals from amassing wealth and power.
But beyond this obvious point, it is also essential for businesses to be aware of AML, as the rules that govern financial transactions can often have profoundly important financial and legal implications on you and your business.
Keeping apace with the constantly-evolving, and jurisdictionally-diverse set of rules known as AML can be a daunting task for any business. However, tools like KYC-Chain allow you to receive, manage and evaluate customer data as quickly as possible, and to mitigate your risk in the face of a rapidly-changing global financial system.