The act of laundering money involves stealing money through fraudulent means and wrongful transactions, then legalising and concealing it to make it appear clean later on. Anti-money laundering solutions are used in ways that help to separate clean money from concealed or ill-gotten cash. Anti Money Laundering plays a pivotal role in the business and corporate world. We will cover AML solutions, its importance, and how businesses can ensure AML compliance in this blog.
What is Anti Money Laundering (AML)?
AML refers as Anti-money laundering are the set rules and guidelines that stops the illegal transfer of money through malicious activity. Money laundering covers small transactions, but its consequences are significant.
Why do AML Solutions Matter?
Anti Money laundering processes aim to ensure safe transactions, separate wrongdoing thefts, and reduce the level of cybercrime on smaller and larger scales. It keeps the system clean, secure, and compliant.
Putting the right anti money laundering solutions into practice will help the financial sector and businesses ensure their processes are clean, stop money terrorism, money laundering, malicious acts, and help make the world a better place.
How Money Laundering Works?
Money laundering is concealing money illegally and it can be done in various ways. According to FATF, the washing process can be done in three phases.
- The initial stage is the placement of money which can be done by having a lump sum of money, dividing it into chunks, and depositing it into different accounts.
- When money is placed, layering occurs in which it is separated from its original source and dispersed to avoid being caught.
- Layering is replaced by integration, in which funds are reintegrated into the legal economy and invested in different projects.
In three ways, the money gets cleaned, repurposed, and the loop continues.
Anti Money Laundering and Business World
The business world is growing and so are threats evolving with it. From a business standpoint, staying compliant is as critical as air to breathe in the world. AML solutions and business coexist. The larger the company, the greater the chances of theft, money laundering, and terrorism (if AML practices are not in place). If businesses do not incorporate AML, they can suffer the consequences. It could result in heavy fines, sanctions, imprisonment, financial loss, reputation damage, and a permanent exit from the business world.
Banks are at a high risk of money laundering, therefore anti-money laundering regulations apply to them. The UK requires banks to comply with KYC and AML screening to prevent malicious transactions of funds. This is done with eIDAS (Electronic Identification and Trust Services for Electronic Transaction Regulations) and POCA (Proceeds of Crime Act 2002). In contrast, the Bank Secrecy Act (BSA) in the USA and the Fifth Anti-Money Laundering Directive (AMLD5) in the European Union take steps to prevent it.
After banking, capital markets are the second top target of criminals. They use illegal stock and bond illicit activities to do so. In the UK, HM Revenue and Customs (HMRC) and the Financial Conduct Authority (FCA) enforce the regulations. Contrary to this, the Securities and Exchange Commission (SEC) and Customer Identification Program (CIP) in the United States and the Markets in Financial Instruments Directive (MiFID II) of the European Union ensure AML systems are in place.
Since insurance may not have lump sum money or a regulated market, it has to comply with KYC, CDD, and AML rules. In some countries, insurers must file Suspicious Activity Reports (SARs).
The public sector is typically not on the radar for money laundering, but there are some high-profile cases where public officials have been accused of money laundering.
Other institutions like gaming, gambling, FinTech, crypto, eCommerce, healthcare, real estate, FinTech, luxury goods, etc. also have big transactions and deal with large cash volumes so they can be under the radar of criminals. So, AML monitoring is important. In the UK and USA, Financial Conduct Authority (FCA), HM Revenue and Customs (HMRC) and Exchange Commission (SEC), Customer Identification Program (CIP) respectively deal with it.
If you wish to operate in any of these industries, obtaining a license from the respective AML department and implementing KYC and CDD procedures is legally required.
AML, Business world, and cases from the past
Businesses can pay a heavy price for money laundering in the form of fines, penalties, financial reputation damage, and, in some cases, permanent closure. Some of the 2022 AML cases include:
- Santander was fined £108m by the FCA for AML failures in its business bank division.
- 888 UK Limited – an online gambling business with 78 websites – has been ordered to pay a £9.4 million fine issued by the UK Gambling Commission.
- Ghana International Bank (GHIB) was fined £5.8m for failings in anti-money laundering controls by the FCA.
- An Azerbaijani politician was fined £5.6m for suspicious money laundering transfers to the UK after using a laundromat.
- TJM Partnership was fined £2m for failing to ensure it had effective AML systems by the FCA.
- Robeco was fined €2m for failing to check its clients for money laundering sufficiently by AFM – Netherlands financial regulatory authorities.
AML solutions, crime of money laundering, and penalties
Every countries have different ways of dealing with such cases
According to Section 1957 offences, if you are caught with an illicit act in the U.S., businesses will be punished with up to 10 years in prison, with a fine of up to either $250,000 or twice the amount of the illicit act.
In the UK, for money laundering companies can be sentenced to up to 14 years in jail, heavy fines or both depending on the case.
How to ensure business protection under AML compliance
There are several ways that you can implement in your practices to ensure your business complies with KYC, CDD, and AML verifications and regulations. AML compliance and AML security can be ensured:
- Organisations can ensure AML compliance with the Money Laundering Acts by establishing routines and guidelines for AML monitoring, reporting, and processing data.
- Training and education are two other ways to ensure AML screening practices are followed
- Another way to ensure AML compliance is through risk assessments
- Ensure that your books are clean and that you have transaction monitoring
- Inform the authorities and, in case of doubt, report any suspicious activity as soon as possible
Terrorism financing, theft, and laundering can cause businesses to pay a heavy price in the form of penalties, sanctions, fines, financial and reputation loss, credibility issues, and permanent exclusion from the market. It is therefore imperative that I put AML security measures in place and adhered to.