Anti-Money Laundering refers to the framework responsible for combating the financial crimes of money laundering and other illegal funds transfer. AML compliance is generally a government mandate regulated by most countries since it protects the economy from a financial crisis. AML regulations help stop terrorist financing, tax evasion, human trafficking and many other financial crimes. Technological advancements have made money laundering simpler for financial crimes, which is why banking systems and other financial institutions have stepped up with stringent AML regulations.
What is money laundering?
To understand the necessity of an Anti-Money Laundering compliance program, it is first important to understand what money laundering means. Money laundering refers to disguising illicit funds obtained from activities like drug trafficking, embezzlements or corruption, and converting them to legitimate money. Money laundering can be done by individuals, groups of individuals or organizations.
The process of money laundering generally involves 3 stages, placement, layering and integration. In the placement stage, the illicit funds are introduced into the legitimate financial system. The layering stage involves disguising the funds in layers, so that they cannot be tracked to an illicit source, ultimately making them appear as legal money. In the integration stage, the funds which now cannot be traced to an illegal source are retrieved by the financial criminals and then used for their personal activities.
Business owners who obtain funds from illegal activity tend to launder the money to hide its source. This helps them evade taxes and also prevents investigations from legal authorities. The main aim of money launderers is to place these illicit funds into the legitimate banking system so that it can be used for further criminal activities.
What is Anti-Money Laundering?
Anti-money laundering refers to all steps taken by banking systems and financial institutions to comply with regulations as well as protect their organizations from financial crimes. Due to an increase in the amount of money laundered across the globe every year, several governments have stringent AML laws in place that guide banks and financial institutions in their framework of AML compliance regulations. The AML regulations also help fight against terrorist financing, where laundered money is used extensively.
A successful AML program helps banking systems protect their customers, and along with it, their reputation. Numerous financial regulators nowadays have strict AML laws, failing to follow which makes banks and financial institutions face hefty fines.
When must AML checks be performed?
The Financial Action Task Force (FATF) which develops policies to fight against money laundering recommends that certain AML checks must be done when:
- A new business relationship is established
- Large, unprecedented transactions have been performed
- Transactions that seem like a suspicious money laundering case
- There is a change in the customer’s risk profile
How to formulate an efficient AML compliance program?
With the advanced use of technology, AML compliance has become more efficient and cost-effective. Using well-developed software helps in analysing customer data to indicate suspicious transactions. This is why efficient digital AML solutions that are developed using Artificial Intelligence and Machine Learning have become increasingly popular. There are numerous considerations that have to be taken while implementing an effective AML compliance program,
- Using powerful automation tools to reduce manual error
- Assessing high-risk customers more frequently
- Being up to date with the constantly evolving AML regulations
- Ongoing & regular screening processes
uqudo’s state-of-the-art AML process incorporates a digital identity layer that makes all your customer onboarding processes smooth and efficient. Our comprehensive screening solutions help in identifying high-risk individuals from various sources, including a worldwide database of global lists and PEPs. For more information, get in touch with us.