What is Anti-Money Laundering?

Anti-Money Laundering (AML) includes policies, laws, and regulations to prevent criminals' financial crimes and illegal activity. Global and local regulators are established worldwide to prevent financial crimes, and these regulators build policies. Companies must comply with these regulations even though compliance can be complex for companies. That led financial organizations to have compliance departments and buy software solutions.

What is AML?

It is necessary to learn what money laundering is, before understanding the regulations. Money laundering, a major crime affecting the financial sector, is sneaking money obtained illegally into financial systems by disguising the sources like human trafficking, drug trafficking, fraud, corruption etc. There are various money laundering methods, and these methods increase and develop with the development of technology. According to the International Monetary Fund (IMF), laundered money makes up 2% to 5% of the world's GDP. Therefore, local and global authorities impose regulations to fight against financial crimes and minimize their damage.

Anti-Money Laundering History

Financial Action Task Force (FATF) was formed in Paris in July 1989 when a group of countries came together to fight against money laundering. FATF has been imposing regulations since then. FATF expanded its mission and started imposing regulations to fight against terrorist financing after the 9/11 attacks.

Another important global institution in the fight against money laundering is International Monetary Fund (IMF). Like the FATF, the IMF regulates and compels 189 member states to comply with international standards to prevent terrorist financing.

The European Union also released the first anti-money laundering Directive in 1990 to prevent the financial system's misuse of money laundering. The European Union AML Directives are constantly being revised to reduce the risks associated with money laundering and terrorist financing.

The UK AML laws are imposed by the Proceeds of Crime ACT 2002 (POCA). Several organizations were established in the U.K. to prevent financial crime, like NCA, SFO, FCA, HMT. Even though the U.K. has left the European Union, The UK's laws and regulations comply with FATF recommendations and European Union Anti-Money Laundering directives.

Office of Foreign Assets Control (OFAC) is a functional financial sanction organization in the USA. OFAC develops programs to protect U.S. Foreign Policy and national interests.

In Turkey, MASAK has a financial intelligence unit established in 1997 to prevent money laundering and terrorist financing.

Many more countries have regulatory bodies dependent on FATF regulations but with different functions. You can review our Guide Page to learn more about them.

AML Process

The primary purpose of AML regulations is to prevent money laundering. Regulators publish a series of procedures to achieve this goal. Companies have to follow these procedures. One of these procedures is the Know Your Customer (KYC). Regulators require companies to learn more about their customers. According to customers' information, companies can build a risk-based approach. For example, a customer who wants to transfer money can be on a country's list of terrorists. If the firm does not know this customer, it will probably help finance terrorism. Therefore, it will be a substantial financial crime, which will lead to hefty penalties. Organizations can use Screening Software to prevent this from happening. Companies are required to report suspicious transactions and financial activities to regulators. 

Apart from KYC measures, organizations can apply Customer Due Diligence (CDD) procedures to understand their customers' risks and know their customers better. CDD procedures can detect risks new customers might bring and take necessary measures. Doing business with some customers is riskier than the others, such as Political-Exposed Person (PEP)

While knowing customers and their risks is vital to compliance programs, reviewing customers' transactions is just as important. By constantly monitoring their customers' transactions, organizations can instantly detect suspicious transactions and write reports. Financial institutions use AML Transaction Monitoring Software for this exact reason. 

Financial organizations can also set rules for their customers' transactions and get warned if they get broken. Transaction Monitoring stops the transaction automatically in such situations. Compliance officers can review the transaction and write a report called Suspect Activity Report (SAR) to regulators if they find it necessary. 

Why Is AML Compliance Important?

Criminals use money laundering to hide their crimes and use dirty money more effectively. Financial institutions play a critical role in fighting against financial crimes. Financial crimes will continue to increase if financial institutions do not comply with the regulations. Money laundering makes up 2% to 5% of the world's GDP. That's a considerable amount. Besides, regulators impose various penalties for companies that do not comply with the regulations. The value of AML fines in 2018 was $ 4.27 billion. In 2018. At the end of 2019, the penalties increased by approximately two times compared to 2018 and reached around $8 billion. Penalties in 2020 are higher than in 2019. Banks are the most fined financial organizations.

 Take a closer look at AML Fines in 2021.

How Do Companies Ensure AML Compliance?

It can be complicated for companies to comply with AML regulations. New regulations are imposed continuously. With increased audits and penalties, companies must prioritize compliance. Compliance officers provide compliance processes for companies. The compliance officer follows regulations and regulates their companies' activities that violate these regulations. Another purpose of the compliance officer is to detect financial crimes. But it is not possible to do this manually. There are thousands of sanctions and watchlists of more than two hundred countries published globally. Companies don't want people on these lists to be their customers. Therefore, compliance officers should check whether new customers are on these lists. Sanction Screening Service such as Sanction Scanner's software allows compliance officers to scan their customers on these lists quickly. 

Learn more about AML Succes Story

Sanction Scanner AML Compliance Software

Criminals find new ways to launder money as technology advances. Businesses should use more advanced tools to fight against financial crimes and terrorist funding. AML compliance software such as Sanction Scanner's solutions were developed to protect companies from financial crimes. Compliance software has simplified complex compliance processes for companies. 

Sanction Scanner's database consists of over up-to-date global 3000 Sanctions lists, Pep lists, and Adverse Media Data. You can integrate Sanction Scanner into your compliance program easily. If you need more information about Sanction Scanner solutions, you can contact us.

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