AML (Anti Money Laundering)

What is AML ?

Before comprehending the rules, one must first grasp what money laundering is. Money laundering, a serious crime that affects the financial sector, is the practise of hiding the sources of unlawfully obtained funds in financial systems, such as human and drug trafficking, fraud, and corruption. There are several ways to launder money, and as technology advances, these ways get more sophisticated. The International Monetary Fund (IMF) estimates that 2% to 5% of global GDP consists of laundered funds. As a result, local and international authorities adopt legislation to combat financial crimes and lessen their harm.

What is the definition of Anti-Money Laundering?

What is the AML Process?

AML legislation’ main objective is to stop money laundering. To do this, regulators publish a number of methods. These processes must be followed by businesses. The Know Your Customer method is one of these steps (KYC). Companies are required by regulators to gather more client information. Companies can develop a risk-based strategy based on the information provided by their consumers. An individual who requests a money transfer, for instance, can be included on a nation’s list of terrorists. If the company does not already know this client, it will probably contribute to funding terrorism. As a result, it will constitute a serious financial crime with severe consequences. Screening software may be used by organisations to stop this from happening. Companies are obligated to notify regulators about financial activity and questionable transactions.

Organizations can use Customer Due Diligence (CDD) processes in addition to KYC measures to comprehend their clients’ risks and get to know them better. New clients may pose hazards, which CDD methods can identify and address. It is riskier to conduct business with some clients than others, such as Political-Exposed Person (PEP).

Reviewing customer transactions is just as crucial to compliance programmes as identifying clients and their hazards. Organizations can rapidly identify fraudulent transactions and provide reports by closely monitoring the transactions of their consumers. For precisely this reason, financial institutions employ AML Transaction Monitoring Software.

Financial institutions can also establish guidelines for consumer transactions and get notifications if they are breached. In such cases, Transaction Monitoring automatically terminates the transaction. If they deem it essential, compliance officers can examine the transaction and submit a report known as a Suspect Activity Report (SAR) to authorities.

Why is AML compliance important?

Money laundering allows criminals to cover up their actions and make better use of stolen funds. The battle against financial crimes requires the cooperation of financial institutions. If financial institutions don’t follow the rules, financial crimes will keep rising. The GDP of the world is made up of 2% to 5% money laundering. That’s a significant sum. Additionally, firms that violate regulations are subject to a number of fines from the regulators. In 2018, AML fines totaled $4.27 billion. In 2018. By the end of 2019, the fines had nearly doubled from the previous year, totaling around $8 billion. Penalties are increased from 2019 to 2020. The most penalised financial institutions are banks.

How do companies ensure AML compliance?

Companies may find it challenging to follow AML laws. New laws are constantly being passed. Due to rising audits and penalties, businesses must give compliance first priority. Compliance officers provide businesses compliance procedures. The compliance officer complies with rules and controls activity inside their organisations that do not conform to such regulations. The compliance officer’s job also includes looking for financial fraud. But doing this manually is not an option. Globally, there are hundreds of sanctions and watchlists of more than 200 nations. Individuals on these lists are not the kind of people businesses want as clients. Compliance officers should thus verify if new clients are included on these lists. Compliance officers may instantly check their clients on these lists using Sanction Screening Services like the software developed by Sanction Scanner.

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