AML (anti money laundering) practically refers to a set of regulations, procedures, and laws that aim to stop criminals from hiding illegally obtained funds and making them seem as being legitimate income. Laws do cover numerous criminal behaviors and transactions, with far-reaching implications.
As an example. AML regulations force banks and numerous other financial institutions that have the right to issue a credit card to employ screening in AML in order to verify the identity of the person requesting a new account.
The most important things to remember about AML as a business owner are:
- AML tries to stop criminals by simply making it more difficult to hide illegally obtained funds.
- Criminals now try to launder money in order to hide the funds obtained from crimes.
- Regulations for AML force financial institutions to actively monitor the transactions of their customers and to report activities to authorities when suspicious activity is detected.
How Does AML Work?
AML regulations and laws target the criminal activities that manipulate markets, trade illegal goods, evade taxes, corrupt public funds, and more. The criminals usually try to launder money obtained in an illegal manner (for instance, drug trafficking) so that it is difficult to track the funds. A very common example of a technique used is to run money through a cash-based business that is operated by criminal organizations or by confederates. The “legitimate business” deposits money and criminals can withdraw.
The money launder might also try to sneak cash into a foreign country in order to deposit it. Usually, cash deposits are done in small increments. This has the purpose of making it much less likely to create suspicion. Alternatively, other cash instruments are purchased.
There are even situations in which money is invested thanks to the services of dishonest brokers that ignore rules just to get a larger commission. Due to this, the AML holding period appeared. This requires the deposits to stay in an account for around 5 trading days before a trading activity can start. This helps deal with the necessary AML and risk management tasks and verify the source of the money used.
Why Should Businesses Care About AML?
Anti money laundering is very important nowadays because more and more businesses start to use the internet to transfer funds. The evolution of technology actually made it easier for money launderers to perform illegal activities. This will only get more common as cryptocurrencies become more widely used.
Businesses that deal with money and that service clients need to have strict KYC and AML regulations in place. If this does not happen, the authorities are entitled to issue fines. Also, in the event that the business is actually used to launder money, the fines are just a lot higher.
On the whole, KYC and AML should never be neglected. This is particularly needed for banks and similar financial institutions but even smaller businesses that hold personal data for clients and deal with cash/online transactions have to be careful. Laws need to be respected at all times.