Anti-Money Laundering (AML) is a set of government regulations and financial industry best practices designed to prevent criminals from using the financial system to launder money. The goal of AML is to make it more difficult for criminals to move money around the world, and to make it easier for law enforcement officials to track and seize criminal proceeds.
What is anti-money laundering (AML)? (Definition #2)
Anti-Money Laundering (AML) is a term used in the financial industry to refer to a set of procedures and laws designed to prevent money laundering. Money laundering is the process of disguising the origins of illegally obtained money, so that it can be used without detection. AML programs are designed to make it more difficult for criminals to launder money, and to increase the chances that they will be caught if they do.
How does AML work in the financial industry?
AML initiatives in the financial industry include:
- Customer identification programs.
- Transaction monitoring.
- Reporting suspicious activity.
Money laundering is the process of hiding the origins of illegally obtained money, or “dirty money”, by making it appear as if it has come from a legitimate source. Money laundering is often done in an attempt to evade taxes or to conceal illicit activities, such as drug trafficking or terrorist financing.
AML is related to KYC?
AML It is a key element of KYC (Know your Customer), as it helps to prevent banks and other financial institutions from being used to facilitate criminal activity. The goal of KYC is to protect both the institution and its customers from being involved in illegal activities, such as money laundering or terrorist financing. Learn more about ‘Know your Client’ (KYC).
AML and the CFT relation
AML is a critical component of any financial institution’s compliance program as the ‘Conducting the Financial Transaction’ (CFT). The goal of an effective AML program is to protect the institution from being used to facilitate money laundering or terrorist financing. See also: ‘Conducting the Financial Transaction’ (CFT).
The history of AML legislation
AML legislation has been in place for over two decades, with the first piece of legislation being enacted in 1990. The original purpose of AML legislation was to prevent criminals from laundering money through the use of legitimate businesses and financial institutions. In recent years, however, the focus of AML legislation has shifted to preventing terrorist financing.
Why was it introduced and how has it changed over time?
Despite the shift in focus, the basic principles of AML legislation have remained largely unchanged. The key components of AML legislation include customer identification procedures, record-keeping requirements, and suspicious activity reporting. Financial institutions are also required to establish and enforce policies and procedures to ensure that they are not used for money laundering or terrorist financing.
Over the past two decades, there have been a number of revisions to AML legislation as lawmakers attempt to keep up with the ever-changing landscape of global terrorism.
The current state of AML in the financial industry
Today, anti-money laundering (AML) is a global concern. The Financial Action Task Force (FATF) has set standards and guidelines for preventing the laundering of terrorist funds, the proceeds of crime, and the financing of proliferation activities. AML compliance is mandatory for any financial institution that does business with these high-risk clients or that processes transactions worth more than $10 million.
AML compliance includes tracking all cash and suspicious activity, monitoring customers who may be engaged in irregular activity, and verifying the identity of everyone who handles money.