What is anti-money laundering?
Anti-money laundering (AML) refers to the laws, regulations, and processes designed to prevent, identify, and stop the transaction of illicit funds, which is known as money laundering. These include customer due diligence (CDD) and know your customer (KYC) checks.
Learn more about money laundering and the processes involved.
What laws exist in anti-money laundering?
Although laws have been in place since the 1930s to combat money laundering, it wasn’t until the 1980s that countries started passing dedicated anti-money laundering laws. The US passed the Money Laundering Control Act in 1986, Australia made money laundering illegal in The Criminal Code Act 1995, and the UK specifically mentioned money laundering in the Proceeds of Crime Act in 2002.
Anti-money laundering guidelines became more prominent globally with the formation of the Financial Action Task Force (FATF) by the G7 in 1989, and the promotion of an international framework of anti-money laundering standards. The European Commission and eight other countries were also included in the original establishment.
However, it wasn’t until 2000 that the framework really took off, once the FATF began publicly identifying countries and jurisdictions that were deficient in their anti-money laundering laws and international cooperation. This process continued into 2001, which further strengthened the resolve of countries around the world to improve their processes.
This process has continued to the present day with the FATF’s regularly updated “black and grey” lists, which identify jurisdictions with weak anti-money laundering regulations.
With anti-money laundering becoming ever more complex, amid a world where payments are faster than ever before, and much of global banking occurs online, countries are doing more than ever to combat money laundering. In 2024, the EU chose Frankfurt to host AMLA – its newly created Anti-Money Laundering Authority – to address weaknesses in the EU’s current Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) framework.
Who do the anti-money laundering laws apply to?
Anti-money laundering laws apply to everybody. For example, the US government states that all money laundering provisions apply to ‘all US persons and all foreign persons’. However, it isn’t just criminals that can be prosecuted for money laundering. People and businesses that help facilitate the transfer of illicit funds can also be held responsible. As such, all those working in financial services – banks, financial institutions, and professional services providers such as lawyers and accountants – can be held liable if their anti-money laundering processes are not robust enough to prevent money laundering. Other industries that must enforce AML software includes payment providers, gaming, and insurance.
This is why it is important for organizations to use financial crime prevention software that assists with KYC/CDD, sanctions screening (name screening and transaction screening), payment fraud, and anti-money laundering transaction monitoring.
Why do banks need to do anti-money laundering checks?
All banks need to do anti-money laundering checks to ensure that the person depositing the money is who they say they are, and that the money was obtained legally.
Banks do this because they are heavily regulated. If they are seen to have been involved in money laundering, albeit unknowingly, they can still risk big fines. Not only does this affect the bank financially but it can also worsen their reputation. This is why many financial institutions have an AML compliance program in place.
AML checks can occur at any time but are most likely to occur if you are depositing or sending large amounts of money. A check doesn’t mean that anyone is under suspicion; it’s purely a precautionary measure, and everyone sending large sums of money will be given one.
What is an AML compliance program?
As the name suggests, an anti-money laundering compliance program helps organizations with their AML compliance. In the US, it is a legal requirement to have an AML compliance program in place as per the Bank Secrecy Act. In essence, the act states that financial institutions must have financial crime detection processes in place to detect illicit activities, and must alert the government to any wrongdoing using suspicious activity reports (SARs). The USA Patriot Act extended this requirement to other organizations beyond financial institutions.
The five pillars of anti-money laundering that helps organizations reach AML compliance are:
- Designating an AML compliance officer to take responsibility for the company’s anti-money laundering controls.
- Create internal policies and procedures to improve and implement AML compliance. This might includes improved training for staff or purchasing improved financial crime prevention software.
- Implement continuous AML program training across the organization to reflect changes in global laws and regulations. This is also important if a business expands to new countries.
- Provide independent review by a third party to ensure that there are no biases in place or oversights in the anti-money laundering compliance program
- Enforce robust KYC and CDD processes to ensure that the organization is doing all it can to fight money laundering.
Potential AML compliance issues for financial institutions
Financial institutions face many anti-money laundering compliance challenges in today’s complex regulatory environment. One major issue is keeping pace with rapidly evolving regulations and global standards, alongside local laws, which require constant updates to compliance programs. This makes a cohesive strategy difficult to implement for multinationals. A solution for this is for organizations to move to and benefit from a SaaS financial crime prevention software.
Another concern is the increasing sophistication of money launderers, who exploit technological advancements and cross-border transactions to conceal illicit activities. Data quality and management also pose challenges as institutions struggle to break down silos, and integrate and analyze information from disparate sources. Alongside this, resource allocation can be difficult, with compliance departments often understaffed and/or underfunded meaning genuine threats may be overlooked if too many false positives in transaction monitoring occur.
Although technology can help in the anti-money laundering effort, it can also present problems; the rise of digital currencies and fintech innovations introduces new risks that traditional AML frameworks may not adequately address.
How is AI helping with anti-money laundering?
AI is revolutionizing anti-money laundering efforts, enhancing the efficiency and effectiveness of financial institutions’ compliance processes. AI-powered systems can analyze vast amounts of data in real-time, identifying suspicious patterns and transactions that human analysts might miss.
As well as this, machine learning algorithms and AI-driven predictive analytics continuously improve their ability to detect anomalies and adapt to new money laundering techniques, enhancing the combatting of AML with proactive measures. Natural language processing also helps scrutinize unstructured data from various sources, including social media and news articles, to uncover potential risks.
AI is useful in almost every facet of anti-money laundering as it is also proven to reduce false positives, allowing compliance teams to focus on genuine threats while automated customer risk scoring and CDD processes streamline onboarding and ongoing monitoring.
By augmenting human expertise with AI capabilities, financial institutions can significantly strengthen their AML defences and financial crime prevention, stay ahead of sophisticated criminals, and maintain regulatory compliance in an increasingly complex financial landscape.
What are anti-money laundering checks?
AML software allows for basic searches to ensure that the person depositing or investing money is doing so for themselves with legitimate funds, and not on behalf of someone else who has obtained the money illegally.
These anti-money laundering checks often start with a simple KYC questionnaire that can be compared to an electoral register. Alternatively, a person may be asked for identification that proves their identity and their address. The following documents are normally used and accepted:
For your identity
- Passport
- Driving license
- Birth certificate
- National identity card
For your proof of address
- Driving license
- Recent utility bill
- Recent bank statement
- National identity card
Why should organizations use the best anti-money laundering software?
Organizations that are susceptible to money laundering must have KYC/CDD and AML software in place to help combat the problem, or else they face legal consequences alongside criminals.
Money laundering is a big problem globally with $800 billion to $2 trillion estimated to be laundered each year. Because a lot of instances of money laundering are never discovered, it is difficult to accurately measure the true cost.
Even so, the above figures represent 2-5% of annual global gross domestic product (GDP), a monetary measure of the market value of all goods and services produced each year.
Because money laundering costs countries so much money, the fines that can be placed on businesses for not having robust anti-money laundering software in place can be large. Cryptocurrency exchange Binance was fined a record $3.4 billion by the US AML agency FinCEN in 2023 for non-compliance with anti-money laundering regulations, while the Malaysian government fined AmBank $700 million for its part in the 1MDB scandal.
As such, using the best anti-money laundering software available can help organizations avoid such possibilities.
How does SymphonyAI help with anti-money laundering?
SymphonyAI offers many anti-financial crime tools that help combat money laundering. The full anti-money laundering software offering includes NetReveal Transaction Monitoring, NetReveal Customer Due Diligence for KYC/CDD, and SensaAI for AML, which augments detection engines to immediately enhance a financial institution’s understanding of entities and risk detection.
SymphonyAI works with many customers to enhance their AML offering using predictive and generative AI, including Absa Group, one of the big three South African banks. Absa were able to reduce false positive alerts by 77% while also capturing all suspicious activity found using their current transaction monitoring system.
As well as this, a large European bank has seen average potential effort savings of approximately 20% in Level 1 and Level 2 investigations by using Sensa Investigation Hub. Alongside these findings, the bank will achieve significant cost savings with SymphonyAI and Microsoft Azure – approximately €3.5m per year, including a 5x decrease in spending with a leading technology provider (~€1.5m per year down to ~€300k per year).
Contact us to find out more.
