Anti-money launderingAML

The rules and controls that stop illicit money entering the system.

Banks and other regulated businesses are required to watch for money that comes from crime and to report it, so criminals cannot use the financial system to hide their proceeds.

The regulatory framework and program controls for detecting, preventing, and reporting money laundering. Money laundering is the process of disguising the origin of illicit money so that it appears legitimate.

Money laundering is often described in three stages:

• Placement, in which illicit cash first enters the financial system.
• Layering, in which the money is moved through transfers and accounts to hide its trail.
• Integration, in which the cleaned money re-enters the economy as apparently legitimate funds.

An AML program typically rests on several pillars:

1. Written policies and controls, which set out how the institution manages the risk.
2. A designated compliance officer, who is responsible for the program.
3. Training, so staff know what to look for and what to report.
4. Independent testing, which checks that the program works.
5. Customer due diligence, which assesses and monitors customer risk.

Typical controls include customer verification, sanctions and watchlist screening, transaction monitoring, and reporting suspicious activity to the authorities.

AML sits next to terms that are easy to mix up:

• Know your customer (KYC) is one component of an AML program, focused on knowing who customers are.
• Suspicious activity report (SAR) is the filing an institution makes when it detects activity that may be money laundering.
• Money mule is an account used to move illicit money, which AML controls aim to detect.

For more, see Understanding the Stages of Money Laundering and AML vs. KYC: Differences & Similarities.