Anti-Money Laundering (AML)

In this webpage, We will be discussing the Definition Of Anti-Money Laundering(AML). Anti-money laundering is easily referred to as a set of laws and regulations set aside to prevent the movement of illegal money worldwide. Phases Of Anti-money laundering,
The Anti-Money Laundering (AML) Awareness, The Anti Money Laundering history.

Definition Of Anti-Money Laundering (AML)

Money laundering also can be said to be a process of concealing the origins of illegal obtaining of cash by passing it through a usually complex sequence of transfers or transactions. Generally, these transactions are legitimate and hence would not be flagged, thus allowing the original owner of the illegitimate funds to make use of the funds for lawful purposes. The AML targets are criminal activities like the trading of illegal goods (drugs, contraband, etc.), public office corruption and tax evasion, and so on. It deals seriously with methods of concealing these crimes and the money obtained through these acts.


More InAnti Money Laundering (AML)

This eventually involves the execution of transactions to convert illegally obtained money into legal money. Although you as a company will stick to the rules, this does not mean that your partners and business associates will adhere to the same AML compliance laws as you do. Therefore conducting a due diligence investigation on your partners, and suppliers on your customers are essential.

Phases Of Anti-Money Laundering


The stages involved in this process are; Placement, Layering, and Integration.

1. The Placement stage helps to puts the “dirty cash” into the legitimate financial system while at the same time, hiding its source.

2. The Layering or structuring stage hides the source of the money through a series of transactions and accounting tricks. 

Laws of anti-money laundering are becoming to increase strictly for financial service providers which must be prevented financial crimes, financial action, and/or terrorism.

Then activities of AML aimed to fight this ongoing issue by designating processes, policies, and enforcement of regulations and laws that require businesses to vigorously monitor the entities with whom they do business. Under secrecy, they target such practices as market manipulation, illegal goods trading, tax evasion, bribery, and other forms of financial corruption. 

Significance Of Research In Preventing Money Laundering

The prevention of Money Laundering and Terrorist Financing Act (WWFT) was created to prevent money laundering that finances terrorism. Pursuant to this Act, financial institutions must report suspicious activity or unusual transactions, whether intentionally or not – and maybe sanctioned. The United States Department of the Treasury is fully dedicated to combatting all aspects of money laundering at home and even abroad, through the mission of the Office of Terrorism and Financial Intelligence (TFI).

The tool that gives you the opportunity to screen individuals and organizations to take financial action is the Nexus Diligence, by entering the name of the organization or person and then searching the database for financial statements, and past crimes by adherence to compliance laws and regulations. Ultimately this gives you a professional and safe audit trail.

The  offers Nexis Diligence offers:

They offer Access to more than 400 databases and more than 200 million international, listed, and private companies.

The 5th EU AML Directive

The combination of money laundering and counter-terrorism financing (CTF), the 5th Anti-money laundering directive was adopted recently by the European Parliament. Rather than a new law, this directive is an amendment to the EU’s 4th Anti-Money Laundering Directive, which aims to bring greater transparency to the financial system and prevent using it for the funding of criminal activities. Countries like Afghanistan have the highest money laundering risk score of 8.16 followed by Hait with a score of 8.15, Myanmar at 7.86, Laos with 7.82, Mozambique at 7.82, the Cayman Islands with 7.64, Sierra Leone with 7.51 score, Senegal with 7.30 score, Kenya with 7.18 score, and Yemen with 7.12 score.

Definition Of Anti-Money Laundering(AML)

The directive addresses areas such as:

  • Regulating virtual currencies
  •  Beneficial owner’s information.
  • The use of anonymous prepaid cards.
  • powers of financial intelligence units (FIUs) – help investigate and prosecute serious criminal activities, which are money laundering, terrorism financing, tax evasion, organized crime, and even financial crimes

The EU member states, including the UK, should begin the enforcement of necessary regulations and laws, complying with the directive on 10 January 2020. 

A Due-diligence checks


This is a procedure used for the identification, evaluation, and verification of all available information about an individual or entity.

Due diligence practices are very essential than ever with such widespread risk of corruption on an international scale. In other to protect yourselves from money laundering and regulatory non-compliance programs and ensure successful, above-board business transactions, it is necessary that companies through due diligence checks must make sure they have timely and accurate business intelligence.   
Carrying out robust due diligence checks through a reliable source means that you can have confidence in your business dealings.


The Anti-Money Laundering (AML) Awareness

There are about two to three phases of anti-money laundering, which are:

  1. Placement
  • Cash businesses – involves adding the cash gained from crime to the legitimate takings, which works best in businesses with little or no variable costs, such as car parks, strip clubs, tanning studios, car washes, and casinos.
  • False invoicing – involves putting through dummy invoices to match cash lodged, making it look like payment in settlement of the false invoice
  • Smurfing – this involves lodging small amounts of money below the AML reporting threshold to the bank accounts or credit cards, thereby using it then used to pay for expenses.
  • Trusts and offshore companies – this is very essential for hiding the identity of the real beneficial owners
  • .Foreign bank accounts –involves physically taking small amounts of cash abroad, below the customs declaration threshold, lodging it in their foreign bank accounts, then sending it back to the country of origin.

Definition Of Anti-Money Laundering(AML)

2. Layering

This is essentially the use of placement and extraction over and over again, each time using varying amounts to make tracing transactions as hard as possible.

Integration / Extraction
This final phase involves getting the money out in which it can be used without attracting attention from the tax authorities or law enforcement. In this case, criminals are often content to pay payroll and other taxes to make the “washing” more legitimate and are often happy with a 50% “shrinkage” in the wash.

  • Fake employees – which is a way of getting the money back out. Usually paid and collected in cash
  • Loans – to directors or shareholders, which will never be repaid
  • Dividends – paying the shareholders of companies controlled by criminals

Knowing Your Customer

A process known as knowing your customer (KYC), best for banks to verify and identify new clients. Banks are required to understand the nature of a client’s activity and verify deposited funds. Are from a legitimate source in addition to establishing the customer’s identity. The KYC process also requires banks and brokers to screen new customers. Against any lists of crime suspects, individuals and companies under economic sanctions, and “politically exposed persons”.  

Money laundering divided into three steps;

  • The deposition of illicit funds into the financial system
  •  The transactions designed to conceal the illicit origin of the funds, known as “layering”
  • The use of laundered funds to acquire real estate, financial instruments, or commercial investments


However, The KYC process goal is to stop such schemes at the first deposit window.


Customer Due Diligence

This is integral to the KYC process. For instance by ensuring that the information a potential customer provided is accurate and legitimate. This is also a constant process extending to customers old and new, and their transactions. Customer due diligence requires an ongoing assessment of the risk of money laundering posed by each client. And the use of that risk-based approach to conducting closer due diligence for those identified as higher non-compliance risks. Includes identifying customers as they are added to sanctions and other AML lists.
There are four core requirements of customer due diligence in the U.S. According to the U.S treasury’s financial crimes enforcement network which are:

Definition Of Anti-Money Laundering(AML)

  • Identification and verification of the customer’s identity
  • Identification and verification of the identity of beneficial owners with a stake of 25%. Or more of a company opening an account
  • Understands the nature and purpose of customer relationships in developing customer risk profiles
  • Conducting ongoing monitoring to identify and report suspicious transactions and update customer information 

In foil layering, one rule in place is the AML holding period. Which requires deposits to remain in an account for a minimum of five trading days. Before they can be transferred elsewhere.
Financial institutions are required to develop and implement a written anti-money laundering compliance policy. These programs must specify “risk-based procedures for conducting ongoing customer due diligence. ” and conduct “ongoing monitoring to identify and report suspicious transactions.

The Anti Money Laundering history


The term money laundering is about 100years of age and in wide use less than 50.17. The first major piece of U.S. AML legislation was the 1970 Bank Secrecy Act, passed in part to thwart organized crime. Also required banks to report cash deposits of more than $10,000. And the legislation required banks to identify individuals conducting transactions and maintain records of transactions. In 1974, the U.S.Supreme Court upheld the Bank Secrecy Act’s constitutionality. In the same year “money laundering” entered wide use amid the Watergate scandal. Additional legislation passed in the 1980s to help increase efforts in fighting drug trafficking. In the 1990s to expand financial monitoring. And in the 2000s cut off funding for terrorist organizations.
In 1989, Anti-money laundering assumed greater global prominence. When a group of countries and international organizations formed the Financial Action Task Force(FATF). Its mission was to devise international standards thereby preventing money laundering and promoting their adoption. In October 2001, following the 9/11 terrorist attacks, FATF expanded its mandate to include combating terrorist financing.

Definition Of Anti-Money Laundering(AML)

The most sweeping overhaul of U.S. AML regulations since the PATRIOT Act of 2001, was the Anti-money laundering Act of 2020 passed in early 2021. It included the Corporate Transparency Act. Which made it harder to use shell companies to evade anti-money laundering and economic sanctions measures. Also, the legislation subjected the cryptocurrency exchanges as well as arts and antiquities dealers. To the same customer due to diligence requirements as financial institutions 

Ways To Launder Money

Often times money launderers funnel illicit funds through associates’ cash-generating businesses, or by inflating invoices in shell company transactions.


Ways To Stop Money Laundering

Money launderers never run short of money or accomplices. Therefore given estimated annual flows approaching 3% of global economic output. Increasingly aggressive anti-money laundering enforcement can the best aim in containing money laundering rather than stoping it entirely. 

Deduction

The Difference Between AML, CDD, and KYC is the fact that ;

Anti-money laundering (AML) is the broad category of the laws, rules, and procedures 
aimed at deterring money laundering, while customer due diligence (CDD) which describes 
the scrutiny financial institutions required to perform to thwart, 
identify and report violations. Know your client (KYC) rules apply to customers due 
diligence for the task of screening and verifying prospective clients.

 see the list of things to also learn:

  1. Blockchain Technology
  2. Defi
  3. NFTs
  4. DAOs
  5. Crypto
  6. Web 3.0
  7. Altcoin Tokenomics
  8. Metaverse
  9. Smart Contracts

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