If you work in an industry that’s considered high risk, you’re probably familiar with the concept of money laundering. Money laundering is a process that criminal enterprises use to hide the origins of illegally obtained earnings. Criminals use these funds to buy assets such as properties, cars or other everyday items without arousing suspicion.According to the United Nations Department of Economic and Social Affairs, about $1.6 trillion — 2.7% of global GDP — was laundered in 2020 worldwide. The UK government estimates that organised crime costs the economy £37 billion per year, largely due to money laundering.Laundered money has even been used to finance terrorist activities. Understandably, this has led to an increased global effort to stamp out money laundering, as cash moves around the world quicker and more freely than ever before.Despite TV shows often depicting money laundering as an easy way to "wash cash", there are strict measures in place to ensure businesses aren’t used to launder money for criminal enterprises. This is where anti-money laundering (AML) comes in.But before we look at exactly what AML is and how technology like open banking can help, it’s worth defining the three main stages of money laundering.
What are the three stages of money laundering?
Money laundering involves these three stages:- Placement: when criminal organisations move money into legitimate accounts or businesses. These could be bank accounts or business accounts owned by legitimate companies (also known as a “front”). AML procedures look to identify any suspicious activity during this stage. Businesses and individuals should always be able to account for where the money has come from.
- Layering: once illegally obtained money has been placed, criminals look to break it down into smaller sums and move it around, including across borders. This makes it much harder for authorities to track the money and prove that it was laundered.
- Integration: the money is then reintroduced into the legitimate economy. At this point, the money laundering cycle is complete and the criminal has successfully laundered their money.
What is anti-money laundering (AML)?
AML refers to the measures that certain businesses must take to mitigate the risk of money laundering.The United States was one of the first countries to introduce AML legislation with the establishment of the Bank Secrecy Act in 1970. In 1989, several countries formed the international Financial Action Task Force (FATF) to combat money laundering on an international level with a specific focus on preventing its use for terrorist financing. Countries set national AML frameworks based on standards and recommendations from the FATF. AML legislation requires businesses to adequately identify customers so the origins of their proceeds can be tracked and traced.What is an AML check?
Customer due diligence obligations, sometimes unofficially referred to as "AML checks", are required under law for regulated businesses. They can include know you customer (KYC) verifications, real-time screenings, enhanced due diligence checks and more. The types of checks required vary depending on the type of business and the risks associated with the clients and transactions.AML — know your customer requirements
At the start of a new business relationship, companies must make an effort to identify and verify customers as part of the AML risk assessment.Banking, financial services and online gambling and betting are a few of the industries required to perform KYC checks on new customers as part of their AML obligations. In the UK, several documents can be accepted from new customers to prove their identity as part of a KYC check. These include:Proof of identity:- Passport
- Photocard driving licence
- National ID card
- UK driving licence with residential address
- UK or foreign bank statement
- UK mortgage statement
- UK tax bill
- Utility bill
- UK TV licence letter
- Voter roll search
What AML checks are required for banks and financial institutions?
Millions of payments are made through banks and other financial institutions every day — some of which move across international borders with varying financial regulation. The movement of this high volume of money naturally makes banks more concerned about the risks of money laundering. To combat this risk, banks and financial institutions are subject to some of the strictest AML regulations across all industries. These include:- Customer due diligence
- Customer and transaction screening
- Suspicious activity monitoring
