Everything You Need to Know About Anti-Money Laundering (AML)

What is Anti-Money Laundering (AML)?

Anti-money laundering refers to any effort that seeks to make it harder for criminal networks to disguise illicit funds as legitimate profits. These efforts include laws, regulations, and investigations by both government agencies and private sector financial institutions.  

Criminals turn to money laundering to conceal a number of crimes, ranging from small-scale tax evasion and fraud to larger-scale corruption, terrorist financing, and drug trafficking. Money earned from criminal enterprises is considered “dirty” and the process of injecting the cash into a legitimate business “launders” the money to make it appear as if it came from a legal source.

The United Nations estimates that $800 billion to $2 trillion is laundered globally each year, which accounts for 2 to 5 percent of global GDP. AML legislation came as a response to the growing complexity in the financial industry. 

Why is AML important?

Although your business may not be involved in money laundering, AML efforts are important because money laundering facilitates criminal activities such as illegal arms sales, drug trafficking, human trafficking, funding of terrorist organizations, and more. 

>> Watch our AML Master Class on uncovering Illicit Fentanyl Networks in Mexico and China <<

Beyond the moral reasons for fighting money laundering and its associated crimes, financial institutions should also implement AML tactics for the following reasons: 

  • Ensuring the information a potential customer provides is accurate and legitimate
  • Complying with regulations that require financial institutions to monitor transactions and report suspicious activity
  • Protecting brand reputation and shareholder value
  • Reducing costs related to fines, employee and IT costs, and capital reserved for risk exposure

AML efforts are particularly important for businesses working internationally, where you’re more likely to run into partners and associates that aren’t in compliance with the AML regulations of your company’s home country. Conducting customer due diligence is a critical step for financial institutions and businesses looking to avoid getting tangled in illicit commercial activities. 

What’s happening in the AML industry right now?

The first major piece of AML legislation enacted in the United States was the 1970 Bank Secrecy Act. This law was aimed at thwarting organized crime by requiring banks to report cash deposits of more than $10,000, identify those individuals conducting large transactions, and maintain thorough records. 

Since 1970 much has transpired in the AML industry. In the late 1980s, money laundering became a global concern and as a result several countries and international organizations banded together to form the Financial Action Task Force with a mission to standardize AML efforts internationally. Since its inception, the FATF has expanded their guidances to combat money laundering, terrorist financing, and weapons smuggling. Another organization that creates international AML standards is the International Monetary Fund, which has a focus on terrorist financing.

>> Read Treasury’s War author Juan Zarate thoughts on financial crime reform <<

Recently, the Anti-Money Laundering Act of 2020 was the most sweeping overhaul of AML regulations in the United States since 2001. This piece of legislation, which was passed in early 2021, included the Corporate Transparency Act which aims to make it harder for shell companies to evade economic sanctions and corporate regulations. 

Meanwhile in the European Union, the 6th Money Laundering Directive (6AMLD) came into effect in late 2020 and aims to ​​empower financial institutions and governments to do more in the fight against money laundering and terrorism financing. It expands the scope of existing legislation and toughens criminal penalties across the region. In 2022, the EU announced it will create a dedicated Anti-Money Laundering Authority (AMLA) to coordinate AML efforts within the member countries.

How can I participate in AML efforts?

Whether you’re working for a financial institution looking to meet compliance requirements or a government investigator tracking down illicit actors, information is the key to success with AML. 

That’s why Sayari Graph utilizes open source records and graph technology to map out connections and establish links between illicit financial actors, their infrastructure, and related business structures and transactions.

Want to see AML and due diligence investigations in action? Watch our Master Class: Data and Graph Analytics for AML and KYC for a real world example.

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