Anti-Money Laundering

Definition: Anti-Money laundering policies, procedures, and technologies are designed to detect, analyze and report suspicious transactions or patterns of activity. These systems seed financial information gathered for legitimate business purposes, such as password recovery and customer identity management, with information that may be considered suspicious for AML policies, procedures, and technology.

AML’s purpose is to detect and investigate money laundering through financial transactions. It requires four elements: a system for reporting suspicious activity, admission of data into an anti-money laundering process, training for personnel on recognizing suspicious transactions, and financial information sharing between government agencies and financial institutions.

What is Money Laundering?

Money laundering is the art of hiding or transferring money through a specific series of transactions. It involves creating fake transactions on behalf of a person or entity and giving that fake money a different identity to trace. 

Money laundering can take several forms. Sometimes criminals will launder money through property purchases or bank accounts. Other times, businesses will launder money through payments for goods or services or pay bills with the proceeds. Regardless of the method used, the result is the same: The money is made seem as if it came from legitimate sources but was generated by criminals or other criminals’ employees.

Anti-Money Laundering Controls

  1. Criminalization

    Anti-money laundering controls the flow of funds through financial systems, so it is the best type of control possible for preventing money laundering and financing terrorism. A correctly implemented AML policy can help reduce financial crime. By implementing proper AML measures at the bank, the retailer, and the business, organizations can minimize financial risks while attracting suitable demographic investments in new customers, compliance risks, operational costs, and reduced economic vulnerability to money laundering.
  2. Know Your Customer

    Know Your Customer policies are designed to prevent financial crimes from occurring through the use of financial institutions. Know Your Customer is a United States government concept developed to improve financial literacy among the general population. These policies remind individuals to monitor their financial activities and remember that even though they may appear legal, their activity may not.
  3.  Record Management and Software Filtering

    Anti-Money Laundering (AML) Regulations require a company or institution to implement Know Your Customer (KYC) procedures, check customers’ identities and transaction histories, monitor and control reports of suspicious transactions, and report suspicious activity to appropriate authorities if required. Financial institutions must implement AML policies in their operations and investigate any suspicious transaction reports they receive from their customers. If findings show that a company or institution has violated anti-money laundering guidelines, they could lose their license and face significant fines.
  4. Holding Period

    The holding period is simply a term used in the banking industry to describe the period by which funds from a deposit must remain in an account (deposited by customers) to satisfy regulation. The longer the holding period, the greater the degree of care taken by financial institutions in assuring that money is not laundered without detection.
  5. Latest Technology

    Recently, anti-money laundering laws have been put into place worldwide to fight financial crime by reducing the ability of criminals to launder money through financial institutions. This is done by using computer software and data analytics algorithms to analyze large amounts of financial data to identify unusual or suspicious transactions. The development and use of such technology are essential if we tackle financial crime on time and effectively detect it early rather than late.

Within the financial industry itself, there are various groups established with separate rules and controls. Anti-money laundering regulations set by Financial Action Task Force ensures that financial institutions, no matter where they are located, adhere to internationally accepted standards when dealing with international financial transactions. The organization works with several regulatory bodies such as Financial Action Task Force (FATF) and Financial Crimes Enforcement Network (FinCEN).

Anti-money laundering policies have been implemented in many countries, specifically in the United States, Europe, Singapore, Australia, New Zealand, and Canada. The purpose of the AML policy is to prevent the exchange of illegal funds for any benefit. Implementing or maintaining an anti-money laundering policy can be costly; therefore, individuals and organizations must understand all elements relevant to money laundering and its prevention.