Anti-Money Laundering Compliance, Technology and Regulations

To understand the concept of AML compliance, it is essential to know what Anti-Money Laundering is. Money laundering is a major financial crime that involves illegally obtaining “dirty” money and disguising its origin in order to make it seem “clean” and legitimate. AML compliance includes the set of activities and procedures businesses perform to stay in compliance with legal requirements. Let’s start by taking a look at some of these regulations. 

AML Compliance Regulators

By devising the Bank Secrecy Act (BSA) in 1970, the United States became one of the first nations to propose and approve anti-money laundering (AML) legislation. In an attempt to identify and prevent criminals from laundering money, the Bank Secrecy Act has since been changed and strengthened by other advanced anti-money laundering laws. The designated administrator of BSA is now the Financial Crimes Enforcement Network (FinCEN), a bureau that aims to safeguard financial systems from illicit activities, such as money laundering and terrorist financing. 

In 1989, the Financial Action Task Force (FATF) was formed globally by various countries and organisations. The purpose of forming this global institution was to devise and implement international standards to avoid money laundering. Shortly after the attack of 9/11 in the US, the FATF expanded its law to include additional AML and terrorist financing rules. Another notable organisation is the International Monetary Fund (IMF) which comprises 190 member countries. Its mission is to ensure and maintain stability of the international financial sectors while keeping in view money laundering and other such crimes. With all these organisations in place, let’s take a look at what exactly is meant by AML compliance and why its adoption is crucial for business today.

Why AML is Necessary Today

According to the UNODC (United Nations Office on Drugs and Crime), an estimated amount of US$800 billion to US$2 trillion is laundered globally in one year, which makes 2% to 5% of the total global GDP. What makes the subject more concerning is that usually, money laundering is accompanied by other criminal activities as well, such as illegal sale of arms, insider trading, computer frauds and hacks, drug trafficking etc. Therefore, tackling money laundering through AML laws comes hand in hand with fighting off these other crimes as well. 

Additionally, being closely related to Counter Financing of Terrorism (CFT), AML regulations include policies and technologies that combine finding the source and destination of illegally obtained funds. This way, both the business and customer can be protected from becoming a victim as suspicious activity can be detected accurately before any permanent damage is done. Other reasons businesses utilize AML tactics include the following:

1. To protect the reputation of their brand and shareholder value
2. To observe compliance with regulations, negligence of which can lead to companies being levied with hefty fines and penalties
3. For the purpose of reducing costs associated with fines and capital reserved for risk exposure

Measures of Meeting AML Compliance

AML regulations can vary by jurisdiction. However, generally undertaken measures for meeting compliance requirements are listed below:

1. Know Your Customer (KYC) procedures for identity verification
2. Monitoring and reporting of suspicious activity by filing a SAR/STR with the FIU
3. Reporting currency transactions above a predefined threshold
4. Cross-checking companies and individuals against sanctions and criminal watchlists

By now, it has been established that it is imperative for businesses to verify their customers and monitor their transactions to ensure they are not part of a money laundering set-up. AML systems and AML solutions help businesses in this regard by enabling them to comply with financial regulations. Backing up the popularity of AML solutions with facts, it is projected that by 2023, revenue of the global Anti-Money Laundering software market will reach approximately US$1.77 billion. With that being said, let’s take a deeper dive into what these software offer.

Adoption of Anti-Money Laundering Software

After drafting and implementing Anti-Money Laundering compliance policies and programs, an additional safety step that businesses can take is to invest in an AI-powered AML software. These software use advanced analytics and algorithms for real-time fraud detection and have revolutionised the business and customer screening process. Through automated transaction monitoring, enhanced due diligence process, and accurate identification of Politically Exposed Persons (PEPs), tasks that involve data processing, analysing and filtering are accurately and efficiently conducted with the help of Artificial Intelligence. Thanks to this software, the need to hire professionals for manually applying AML and KYC verification is eliminated, resulting in lower costs and faster verification.