Anti-Money Laundering (AML) consists of regulations, policies, laws, and other measures to curb financial crimes. AML is a globally used term for curbing money laundering. There are global and local regulatory authorities functioning across the globe to impede financial crimes. Each country and region has a different AML law. Businesses have to comply with these AML rules. Complying with these laws can prove to be a complex process for companies. For this, businesses refer to third-party anti-money laundering solutions that ensure AML compliance.
Money Laundering: Why is it Considered a Crime?
To get an understanding of AML procedures, it is first essential to learn what actually the crime is i.e, money laundering. Money laundering, a monetary crime, is the process of legalizing black money. It is also used for covering other crimes and their source so that the whole process looks legitimate. It is a crime that is a base for heinous crimes like terror financing and human trafficking.
Walkthrough of the Anti-Money Laundering Process
Know Your Customer (KYC)
The main goal of AML procedures is to impede money laundering. For this purpose, the regulatory bodies devise a series of rules. One of these regulations is Know Your Customer (KYC). Regulators require companies to check whether their consumers’ information is legitimate.
Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD)
Apart from KYC regulations, businesses apply Customer Due Diligence (CDD) regulations to get to know their customers better. Here, a risk-based approach is taken and customers’ information is understood on an advanced level. Sometimes, CDD measures may not be suitable for some individuals i.e, Politically Exposed Persons (PEPs). For these instances, Enhanced Due Diligence (EDD) procedures are applied which are more investigative in nature than a KYC due diligence process.
AML Transaction Monitoring
The Comprehensive AML program is just limited to knowing your customers. The major part of the AML process is the AML transaction monitoring. It is an ongoing process that stays constant throughout. Any suspicious activity or a transaction is screened against global regulatory watchlists.
Significance of AML Compliance
Almost 2 to 5 percent of global GDP goes to the pockets of money launderers annually. Moreover, it is not only a financial crime because it is used to hide crimes that have serious implications. These crimes range from terrorist financing to human and drug trafficking. These are the reasons for governments to enforce AML procedures. For businesses, the importance of AML lies in the fact that non-compliance will result in financial fines and operative restrictions.
KYC vs AML: Are They Interchangeable?
AML is closely related to KYC, and it can be stated that anti-money laundering includes the KYC process. In fact, it is the first step of the anti-money laundering program. Although one must not assume that they can be used interchangeably. Basically, KYC exclusively relates to the verification of their users’ identities. While AML operates by screening the transactions of the user against AML lists.
How Do Businesses Ensure AML Compliance?
Adhering to the wide set of rules regarding AML can seem to be an impossible task for a business. If businesses keep verifying the identities of their customers through the traditional processes, then it can prove to be impossible to achieve AML compliance. However, if businesses employ the services of digital anti-money laundering systems, they can streamline their compliance process. These AML systems draw from cutting-edge technologies like AI and ML to safeguard businesses from any criminal attempt.
