Meet AML Compliance
with Online Identity Verification
What is AML?
Anti-money laundering (AML) describes the legal controls that require financial institutions and other regulated entities to prevent, detect, and report money laundering activities. Directives such as the Bank Secrecy Act (BSA) of 1970 and the more recent USA Patriot Act require financial institutions to comply with AML measures. Anti-money laundering (AML) refers to a set of procedures, laws and regulations designed to stop the practice of generating income through illegal actions. Though anti-money laundering laws cover a relatively limited number of transactions and criminal behaviors, their implications are far-reaching.
Who is Impacted?
AML regulations require financial institutions issuing credit or allowing customers to open accounts to complete due-diligence procedures to ensure they are not aiding in money laundering activities or financial crimes. It’s up to financial institutions that issue credit or allow customers to open accounts to practice enhanced due diligence and verify that customers to ensure they are not taking part in a money laundering scheme. They must verify where large sums of money originated, monitor suspicious activities and report material cash transactions.
AML Compliance and Your Online Identity Verification Process
Online identity verification is the starting point for AML compliance in the digital world. If the EU’s Fourth Anti-Money Laundering Directive is any indication, governing bodies are becoming more comfortable with, and some would suggest even encouraging of, the use of digital customer identity verification.
The European Commission recognizes,
“Accurate identification and verification of data of natural and legal persons is essential for fighting money laundering or terrorist financing. Latest technical developments in the digitalization of transactions and payments enable a secure remote or electronic identification.”
According to Gov.UK, organizations must perform due diligence by carrying out checks on their business and customers, and maintain records to help prevent money laundering. Customer due diligence works hand in hand with customer identification. It is a financial organization's responsibility to check and verify who a customer is. In practice, this means obtaining a customer’s name, photograph on an official document that confirms their identity, and residential address and date of birth. The best way to do this is to ask for a government issued document like a passport, along with utility bills, bank statements and other official documents.
AML and KYC go hand in hand when it comes to the role of online identity verification.
To help meet your AML compliance obligations, look for a solution that offers these features and benefits:
- Convenience for customers
- A high level of assurance that your customers are who they say they are
- Mobile and web-enabled, leveraging on-device technology, biometrics (such as facial recognition with liveness detection), compliant machine learning, and identity experts
- Extra layer of assurance through document verification to help establish proof of address by extracting data from bank statements or utility bills
The Difference between KYC and AML
Many financial institutions often blur the lines between KYC processes and AML practice, and as a result incur regulatory fines. KYC, as we have established, is just the identity verification process Identify the client. Its principal purpose is to better understand your customers and their financial dealings, thus managing risks efficiently.
While an AML program consists of the following:
- KYC procedure: Customer Due Diligence (CDD) and Enhanced Due Diligence(EDD).
- Risk-based AML policies
- Ongoing risk assessment and ongoing monitoring
- AML compliance training programs for staff
- Internal controls and internal audits
Customer Due Diligence (CDD) is a basic KYC process where customer’s data such as proof of identity and address is gathered and used to evaluate the customer’s risk profile.
Enhanced Due Diligence (EDD) is an advanced KYC procedure for high-risk customers. Generally, customers who are classified under the high risk category after CDD are prone to money laundering and financing of terrorism. Hence they are regulated and monitored as per stipulated norms.
EDD procedure includes verifying the Ultimate Beneficial Ownership information (UBO) and politically exposed persons (PEP). Transaction Monitoring is also a key element of EDD.
History of Anti Money Laundering (AML)
AML laws became prominent in 1989, when a group of countries and organizations around the world formed the Financial Action Task Force (FATF). Its mission is to devise international standards to prevent money laundering and to promote the implementation of those standards. In 1990, the Financial Crimes Enforcement Network (FinCEN) was established by the US Department of Treasury "to safeguard the financial system from illicit use, combat money laundering and promote national security." In October 2001, shortly after the 9/11 terrorist attacks on the United States, FATF expanded its mandate to include efforts to combat terrorist financing through the passage of the USA Patriot Act.