Anti-money laundering (AML) is the process of preventing criminals from using the financial system to launder their illegal proceeds. Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean").
AML is important because it helps to protect the integrity of the financial system and to make it more difficult for criminals to finance their activities. AML laws and regulations require financial institutions to report suspicious transactions to the government.
AML is typically carried out in three stages: placement, layering, and integration.
- Placement: The first stage of money laundering is placement, which involves the physical placement of the illegal proceeds into the financial system. This can be done through a variety of methods, such as depositing cash into bank accounts, making purchases with cash, or investing in assets.
- Layering: The second stage of money laundering is layering, which involves the use of complex financial transactions to obscure the source, location, and ownership of the illegal proceeds. This can be done through a variety of methods, such as transferring money between different accounts, investing in assets, or using shell companies.
- Integration: The third and final stage of money laundering is integration, which involves the introduction of the laundered proceeds back into the legitimate economy. This can be done through a variety of methods, such as investing in businesses, purchasing assets, or using the money to fund personal expenses.
There are a number of measures that can be taken to prevent money laundering, including:
- Implementing strong AML laws and regulations.
- Educating financial institutions and other businesses about money laundering.
- Increasing cooperation between law enforcement agencies and financial institutions.
Money laundering is a complex and ever-evolving crime, but it is important to be aware of the risks and to take steps to mitigate them.
Here are some examples of AML measures that financial institutions can implement:
- Customer due diligence (CDD): CDD is the process of identifying and verifying the identity of their customers. This includes collecting information about the customer's name, address, date of birth, and occupation. Financial institutions may also need to obtain additional information, such as the customer's source of funds and beneficial ownership of legal entity customers.
- Transaction monitoring: Transaction monitoring is the process of monitoring customer accounts and transactions for suspicious activity. Financial institutions may use a variety of methods to monitor transactions, such as rule-based systems and machine learning.
- Reporting suspicious activity: Financial institutions are required to report suspicious activity to the government. This includes transactions that are inconsistent with the customer's known profile or that appear to be related to a crime.
AML is an important part of the fight against crime and financial terrorism. By taking steps to prevent money laundering, financial institutions can help to protect the integrity of the financial system and make it more difficult for criminals to finance their activities.
Policies and legislation to protect against money laundering.
This is related to the Know-Your-Customer regulations that governments put in place.