Anti-Money Laundering (AML) Checks - Meaning and Definition

Anti-Money Laundering (AML) refers to a set of laws, regulations, and procedures designed to prevent the illegal use of the financial system for the purposes of money laundering and financing of terrorism. The primary goal of AML is to ensure that financial institutions, including banks and other financial services companies, do not knowingly or unknowingly facilitate the flow of illicit funds and to promote the integrity of the financial system.

AML regulations require financial institutions to implement policies, procedures, and systems to detect and prevent money laundering, dirty money, and terrorism financing. This includes conducting customer due diligence to identify the beneficial owner of a transaction, monitoring transactions for suspicious activity, and reporting suspicious activity to the relevant authorities. Financial institutions must also appoint AML compliance officers to oversee their AML screening programs and provide training to employees to ensure they are aware of AML requirements and how to identify suspicious activity.

In addition to financial institutions, AML regulations may also apply to other businesses, including money service businesses, casinos, and dealers in precious metals and stones. The success of AML efforts depends on close collaboration between financial institutions, law enforcement agencies, and regulators. By working together, these entities can help to prevent the illegal use of the financial system for money laundering and financing of terrorism and maintain the integrity of the financial system.

What are AML checks?

AML checks are processes and procedures implemented by financial institutions and other regulated entities to detect and prevent money laundering and other financial crimes including terrorist financing. AML check services typically involve screening against global sanctions lists, Politically Exposed Persons (PEPs) lists, and adverse media to identify potential risk. It is a regulatory requirement in certain industries to perform AML checks on every customer during the onboarding phase and to also perform AML monitoring, otherwise known as re-screening, to identify any increased risk of money laundering.

How long do money laundering checks take?

The AML check process varies significantly depending on the methodology used. Entities should perform manual verification by using various data sources to identify if the customer in question is present on sanctions or PEPs lists. AML software has evolved in the last decade and emerged as the most efficient method to perform AML checks as customers can be verified instantly against multiple data sources at onboarding. By utilising AML software, regulated entities can perform swift verification of customers whilst achieving compliance with AML regulation.

How frequently should companies carry out AML checks?

AML checks must be performed on every customer at the account opening stage. In the context of re-screening customers, financial institutions and regulated entities will typically have their own risk appetite which will include how often Anti-Money Laundering checks should be conducted.

Software providers such as FullCircl will offer customisable thresholds on how often clients can perform AML monitoring. This will include enabling clients to configure frequency of re-screening different risk groups. For example, clients assign a group of clients as high risk, and this subset of customers will be re-screened more frequently than the low risk category.

As the intensity of money laundering has increased in the last few years, it has become even more important to use technology to assist in the process of screening and monitoring. For example, AML in banking has become more complicated as the amount of customers attempting to onboard with large banks daily coupled with rising checks has meant that reliance on legacy systems or manual verification is no longer fit for purpose. Even those entities who have had their AML program in place for a significant amount of time are rethinking their strategy.

What are the consequences for failing to comply with AML regulations, such as not reporting suspicious activity?

Failure to comply with AML regulations can have serious consequences. The specific consequences can vary by jurisdiction by generally include legal penalties including fines and sanctions, loss of license or charter, reputational damage, operational disruptions, and increased regulatory scrutiny.

Is Anti-Money Laundering (AML) part of Know Your Customer (KYC) policy?

Anti-Money Laundering (AML) and Know Your Customer (KYC) are closely related concepts in the financial services industry. Verifying the identity through KYC is a process of screening customers and understanding their financial activities to ensure that they are not involved in illegal activities. KYC helps financial institutions to comply with AML regulations by providing them with a comprehensive understanding of their customers, including their source of funds and the nature of their business.

During the process, KYC is used by financial institutions to monitor transactions for suspicious activity, as required by AML regulations. This information also helps financial institutions to make informed decisions about whether to accept or reject a customer and to assess the risk associated with each customer relationship.

In short, KYC is a critical component of an effective AML program. Thorough KYC helps financial institutions can fulfil their obligations under AML regulations, and help to prevent their services from being used for illegal activities such as money laundering and financing of terrorism.

How FullCircl can help

FullCircl offers a full suite of AML and KYC checks through a single API integration. 700+ clients trust FullCircl for AML checks globally to comply with evolving money laundering regulation and ensure efficient customer onboarding. Click here to book a demo with the team and find out more.