What is Anti Money Laundering?

Anti Money Laundering is a term used across the globe for a set of laws and regulations designed to stop criminals from disguising illicitly acquired funds as lawful profits.

According to the AML law, financial institutes such as banks, investment firms and real estate are required to monitor their customers proactively to prevent any possible money laundering and corruption.

What is Know Your Customer?

Companies associated with the financial sector must verify the identity of their customers and monitor their transactions. They are not just accountable for monitoring transactions but also report suspicious activities such as a sudden increase in funds or withdrawal to the authorities.

This entire process is the part of KYC (Know Your Customer).

All the financial institutions like banks, payment processing companies, and insurance companies need to comply with KYC guidelines to prevent their businesses from being used by criminals for money laundering activities.

The KYC process usually involves identifying and verifying the identity of customers via trustworthy sources of data, documents, or information. To comply with KYC, a customer may need to provide proof of address, recent photographs, and a valid identity document.

What is Financial Action Task Force?

Initiatives for anti-money laundering were first observed in the year 1989 when numerous organizations across the world formed FATF (Financial Action Task Force).

The primary aim of this task force is to establish universal standards for combating money laundering and encouraging the application of those standards within organizations.

The FATF advises financial and legal agencies to conduct KYC (Know Your Customer) identity verification of clients by requesting their identity proof.

What are the industries affected by AML?

Firms that come under the financial sector, such as banks, payment processing companies, and insurance firms need to comply with AML regulations.

However, there are some other companies that need to follow AML regulations.

These include:

  • Law firms
  • Real estate offices
  • Tax advisors
  • Casino & gambling operators
  • Virtual currency exchange
  • Loan companies
  • Payment providers
  • Exchange service providers

According to the European Union anti money laundering authoritative instructions, all the companies mentioned above need to employ e-KYC or electronic identity verification to validate their customers remotely.

What are the effects of money laundering?

Worldwide, a lot of people strive to launder money to manipulate financial systems and gain an illegal benefit. Such unlawful acts are not only a threat to the financial stability of a country but also give birth to various social and security-related issues.

Money laundering plays a significant role in powering corrupt public officials, terrorists, and arms dealers.

How does money laundering affect the economy?

Money launderers make companies less productive, which leads to a lower level of tax revenue for the country.

In addition to this, businesses involved in laundering have an unfair business advantage. Such businesses can afford to sell their products at a lower price, which is the biggest threat to the existence of small-scale businesses.

Small companies lose customers as they can’t compete this way.

How does money laundering affect the society?

If money laundering acts are not coped successfully, it may have political and social consequences as well. Money launderers can infiltrate and take control of prominent financial institutions of the country by making investments and offering bribes to public officials.

Thus governments and legal authorities will have to spend more funds on law enforcement and AML regulations that will reduce public spending.

What does AML do in practice?

Anti-money laundering laws and regulations are intended to keep an eye on illicit activities that include trading in illegal goods, misuse of public funds, tax dodging, and market manipulation.

Criminals often try to “launder” the money they earn via unlawful acts such as drug trafficking. One of the primary techniques they use to disguise their illegal cash is, they run their money through a legitimate business.

Consequently, every company is advised to detect and prevent illicit transactions.

While anti-money-laundering laws are applicable to certain types of payment transactions and criminal behaviors, it should be practiced in every financial firm to detect and prevent illicit activities.

So what’s the solution?

Undoubtedly, complying with AML is important for all businesses. However, not every company has a budget for the implication of the AML setup.

Well, such businesses can invest in advanced technology that can improve their AML defense mechanism without breaking their bank.

Fortunately, there are some AML compliance software solutions out there that not just simplify the complicated AML compliance process but also are pocket-friendly.

VeriFace provides a wide range of identity verification solutions such as face recognition, liveness detection, identity document check, anti money laundering check and more.

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Roland Kraslan

Since 2001, an experienced expert in the field of AML & CFT with the demostrated history of working at the Financial Intelligence Unit and the Counter Terrorist Unit. He has obtained a lot of knowledge, experience and skills in this area and continues to provide a comprehensive AML solutions for all obliged entities.