What is AML?

Anti-Money Laundering (AML) refers to a set of laws, regulations and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. AML measures are crucial for financial institutions to detect and report suspicious activities, ensuring that money laundering and related financial crimes are minimised.

AML is aimed at crimes like tax evasion, drug trafficking, human trafficking, public corruption and the financing of terrorism. Effective AML procedures are crucial because criminals and terrorists heavily depend on laundered money to fund their operations. Robust AML measures can significantly reduce the overall incidence of these crimes.

AML compliance laws and requirements

AML compliance requirements vary by region, with the specific laws and regulations governing financial institutions and other organisations differing depending on where they are operating. In the European Union, AML compliance is primarily governed by the EU Anti-Money Laundering Directives (AMLD), which are periodically updated to address new threats and enhance compliance.

Key requirements include:

  • Customer Due Diligence (CDD) – Covered entities must conduct thorough checks to verify the identity of their customers
  • Beneficial ownership transparency – Central registers of beneficial ownership must be maintained, providing information on who ultimately owns or controls corporate and other legal entities
  • Reporting obligations – Suspicious transactions must be reported to the Financial Intelligence Units (FIUs)
  • Risk assessment – Entities must conduct regular risk assessments to identify and mitigate money laundering risks
  • Politically Exposed Persons (PEPs) – Individuals holding prominent public functions who may be at higher risk of bribery and corruption (PEPs) must be identified, and enhanced due diligence applied
  • Record keeping – Detailed records of transactions and customer information must be maintained
  • AML compliance officer – Appointment of a dedicated AML compliance officer responsible for overseeing the AML programme
  • Training and awareness – Regular training for employees on AML laws and procedures

In the US,AML compliance is primarily governed by the Bank Secrecy Act (BSA) and its subsequent amendments, including the USA PATRIOT Act and the Anti-Money Laundering Act of 2020.

Key requirements include:

  • Customer Identification Program (CIP) – Financial institutions must verify the identity of their customers
  • Suspicious Activity Reports (SARs) – Institutions must file reports on suspicious transactions
  • Currency Transaction Reports (CTRs) – Reports must be filed for transactions over $10,000
  • AML programme – Institutions must develop, implement and maintain an effective AML programme, which includes internal policies, procedures and controls
  • Independent testing – Regular independent testing of the AML programme to ensure compliance
  • Training – Ongoing AML training for relevant employees

Both the US and EU frameworks share obvious similarities, emphasising the importance of robust internal controls, regular monitoring and reporting to combat money laundering and terrorist financing effectively.

History of AML regulation

Although it hasn’t always been termed ‘anti-money laundering,’ the recognition of the need to intercept criminal proceeds has been present for a considerable time. Formalised AML measures began in the mid-20th century, with the US enacting the Bank Secrecy Act (BSA) in 1970. This law introduced recordkeeping and reporting obligations for financial institutions. The Money Laundering Control Act of 1986 prohibited structuring transactions to evade reporting requirements.

Following the 9/11 attacks, the USA PATRIOT Act of 2001 expanded AML measures to include combating terrorist financing. The Anti-Money Laundering Act of 2020 introduced new requirements for beneficial ownership reporting and enhanced penalties for non-compliance.

In the EU, AML compliance has evolved through a series of directives, culminating in the 6th Anti-Money Laundering Directive (6AMLD), adopted on 30 May 2024. These directives emphasise customer due diligence, reporting obligations and risk assessments.

Why AML matters for companies

Companies should be concerned about AML for several reasons. AML compliance is a legal requirement in many jurisdictions, and failure to comply can result in severe legal and regulatory penalties.

Effective AML compliance can also enhance customer confidence and loyalty. Customers are more likely to trust and do business with companies that demonstrate a commitment to preventing financial crimes. Non-compliance with AML regulations can lead to significant reputational damage. Being associated with money laundering activities can erode customer trust and tarnish a company’s brand image.

AML compliance measures also help protect companies from financial losses associated with fraud and other illicit activities.

By prioritising AML compliance, companies not only meet legal requirements but also enhance their business operations, protecting the company from financial and reputational risks and contributing to a stable and more secure financial environment.

KYC vs. CDD

Know Your Customer (KYC) and Customer Due Diligence (CDD) are both key components of AML compliance, but they serve distinct purposes and have different scopes.

KYC is a broader process that involves verifying the identity of customers to prevent theft, money laundering and other illegal activities. It involves several steps, including collecting and verifying basic customer information – such as name, date of birth, address and identification number – as well as CDD.

CDD is a specific part of the KYC process focused on evaluating the risk associated with a customer. It entails gathering detailed information about the customer’s identity and financial activities and analysing the collected information to determine the customer’s risk level, including checking against sanctions lists, financial watchlists and other risk indicators.

In short, KYC encompasses the overall process of customer verification and risk management, while CDD is a critical component within KYC that specifically addresses the assessment and management of customer risk.

Industries required to be AML compliant and how

Many different industries have AML requirements, and these are based on their specific risk profiles and transaction types.

Industry examples include:

  • Finance – Banks, credit unions and investment firms must implement comprehensive AML programmes, including customer identification, transaction monitoring and reporting suspicious activities
  • Insurance  – Insurers are required to conduct customer due diligence and report suspicious transactions, particularly in life insurance and annuities
  • Real estate – Agents and brokers must verify the identity of clients and report large cash transactions to prevent money laundering through property purchases
  • Casinos and gaming – Gambling organisations must monitor and report large transactions and suspicious activities, ensuring compliance with AML regulations
  • Precious metals – Dealers must implement AML measures to prevent money laundering through high-value transactions
  • Virtual assets – Service providers must implement customer verification and transaction monitoring, to prevent illicit activities involving cryptocurrencies
  • Art – Art dealers are required to conduct due diligence and report suspicious transactions to prevent money laundering through art sales

Ensuring AML compliance and best practices to prevent money laundering

Organisations can ensure Anti-Money Laundering (AML) compliance and avoid money laundering through a combination of regulatory adherence, robust internal controls and continuous monitoring.

Key measures include:

  • Risk assessment – Conducting thorough risk assessments to identify potential money laundering risks, evaluating customer profiles, transaction types and geographic locations to understand where vulnerabilities may lie 
  • Customer Due Diligence (CDD) – Implementing stringent CDD procedures, including verifying the identity of customers, understanding the nature of their business, and assessing their risk level. Enhanced due diligence (EDD) is applied to high-risk customers.
  • Transaction monitoring – Continuous monitoring of transactions helps detect suspicious activities. Advanced software solutions can analyse transaction patterns and flag anomalies that may indicate money laundering.
  • Training and education – Regular training programmes for employees ensure they are aware of AML regulations, red flags and reporting procedures
  • Internal policies and procedures – Establishing comprehensive AML policies and procedures that align with regulatory requirements, including reporting, record-keeping and internal audits 
  • Independent audits and reviews – Regular independent audits and reviews of AML programmes assess the effectiveness of AML controls and identify areas for improvement

Impact of technology on AML software solutions

Advancements in technology, particularly artificial intelligence (AI), have greatly improved AML software solutions by enhancing detection, monitoring and compliance processes. AI-driven systems  can analyse vast amounts of transaction data in real-time, identifying suspicious patterns and anomalies that traditional methods might miss. This improves risk assessment and reduces false positives, making detection more accurate and efficient.

AI also automates many compliance tasks, such as customer due diligence (CDD) and Know Your Customer (KYC) processes, streamlining operations and lowering costs. Real-time monitoring allows for prompt detection and response to suspicious activities, preventing money laundering before it escalates.

AI systems continuously learn and adapt to new money laundering techniques, ensuring they remain effective as threats evolve. Collaboration with data science teams enhances the ability to detect complex schemes and improves overall compliance strategies. AI also helps institutions meet regulatory requirements by automating tasks and providing detailed audit trails.

AI-powered AML solutions offer a dynamic and adaptable approach to combating financial crime, enabling more sophisticated detection, increasing efficiency, improving risk prediction and enhancing compliance.

Consequences of non-compliance

Non-compliance with AML regulations can have severe consequences for organisations, including financial penalties, legal repercussions and reputational damage.

Financial penalties

Organisations that fail to comply with AML regulations can face substantial fines. These penalties can vary depending on the severity of the violation and the willingness of the institution to correct the issue. For example, Standard Chartered was fined $1.1 billion in 2019 for violating sanctions and anti-money laundering laws.

Legal repercussions

Non-compliance can lead to criminal proceedings against the organisation and its employees. Penalties can include imprisonment, especially if insider involvement is discovered. For instance, individuals involved in money laundering schemes can face up to 20 years in prison per violation.

Reputational damage

Failure to adhere to AML regulations can severely tarnish an organisation’s reputation. This damage can lead to loss of customer trust, reduced business opportunities and long-term impacts on profitability.

Restricted access to financial services

Non-compliant organisations may face restrictions on their access to financial services. This can include limitations on their ability to conduct certain types of transactions or operate in specific markets. International sanctions can also be imposed, further hindering business operations.

Money laundering and terrorism

Money laundering and terrorism are often closely related. Terrorist organisations, like any operation, require funding for various activities, such as recruitment and training, travel and accommodation and weapons and explosives.

While some terrorist financing may originate from legitimate sources like donations or businesses owned by sympathisers, a significant portion can come from the proceeds of criminal activities. These criminal activities can include drug trafficking, kidnapping for ransom and cybercrime.

The relationship between money laundering and terrorism has significant geopolitical ramifications and substantial risks for organisations. Terrorist groups and their facilitators may use cyberattacks to raise funds, move money or target financial institutions. In addition, organisations with complex global supply chains may be subject to risk due to their partners or suppliers being involved in activities that could directly or indirectly finance terrorism.

Being linked, even inadvertently, to terrorist financing can be catastrophic for an organisation’s reputation, leading to customer boycotts, investor flight and difficulty in attracting talent.

Threat intelligence plays a vital role in understanding these connections, identifying vulnerabilities and developing effective strategies to mitigate these threats.

FAQs

What is the meaning of AML and money laundering? 

Money laundering is the process of hiding the origins of illegally obtained money to make it appear legitimate – typically by means of transfers involving foreign banks or legitimate businesses.

AML stands for Anti-Money Laundering, which refers to laws, regulations and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.

What are the three stages of AML?

  1. Placement: Introducing illicit funds into the financial system.
  2. Layering: Concealing the source of the funds through complex transactions.
  3. Integration: Making the funds appear legitimate by re-entering them into the economy.

What happens in an AML check? 

An AML check involves verifying the identity of clients, monitoring transactions for suspicious activity, and ensuring compliance with AML regulations to prevent money laundering.

Is AML aimed at financial crime?

Yes, money laundering is a financial crime, and AML refers to the laws, regulations and procedures designed to prevent this and other related illicit financial activities.

Silobreaker and AML intelligence

Silobreaker provides a unified view of security risks by aggregating data from multiple sources. This includes monitoring geopolitical events, cyber threats and regulatory changes that could impact AML compliance.

Silobreaker helps you identify emerging risks earlier, based on real-time data. It automates the collection, aggregation and analysis of unstructured data in a single platform, enabling intelligence teams to produce and disseminate timely, actionable reports in line with priority intelligence requirements (PIRs).

The Silobreaker platform for intelligence production integrates all your intelligence operations and centralises all your information to serve multiple use cases across cyber, geopolitical and physical threats in one place. It enables analysts to collaborate better to deliver high-quality intelligence efficiently. These capabilities, powered by Silobreaker AI, empower stakeholders to make informed decisions faster, to safeguard their enterprise, mitigate risks and maximise business value.