Anti-money laundering (AML) refers to a set of procedures, laws and regulations designed to stop criminals from generating income through illegal actions. Directives such as the Bank Secrecy Act (BSA) in the U.S. require financial institutions to prevent, detect, and report money laundering activities. Though anti-money laundering laws cover a relatively limited number of transactions and criminal behaviors, their implications are far-reaching. AML software lets companies meet their regulatory requirements by screening customers, monitoring transactions and detecting suspicious activity.
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. These companies must practice enhanced due diligence and ensure their customers are not taking part in a money laundering scheme. They must also verify where large sums of money originated, monitor financial transactions and report suspicious activity.
Many financial institutions often blur the lines between KYC processes and AML practice, and as a result incur regulatory fines. Know Your Customer (KYC) is primarily the identity verification process. 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:
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 procedures include verifying the Ultimate Beneficial Ownership information (UBO) and politically exposed persons (PEP).
After customers are onboarded, companies must perform ongoing account and transaction monitoring to ensure their customers do not participate in money laundering schemes. If suspicious activity is detected, the company must report it to the appropriate regulatory agency. For example, you must file a suspicious activity report (SAR) with the Financial Crimes Enforcement Network (FinCEN) in the U.S and with the National Crime Agency (NCA) in the U.K. In Singapore, you must file a suspicious transaction report (STR) with the Suspicious Transaction Reporting Office (STRO).
Regulators confirm whether organizations are complying with regulatory AML rules. These safeguards help to detect suspicious activity like money laundering and terrorist financing.
Online identity verification is the starting point for AML compliance in the digital world. If the EU’s Sixth 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, 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:
Any organization that enables its users to exchange funds is subject to regulatory oversight and must adhere to the compliance requirements of AML laws.
Financial services such as banking and fintech are the most common industries affected by AML requirements. However, AML laws are becoming broader all the time and impact many industries including gaming, ride sharing, online marketplaces, art exchanges, cryptos, and many more.
AML compliance is the responsibility of the entire senior management team, with an AML compliance officer (such as a Chief Compliance Officer) leading the effort. AML training must be provided across the company so that all employees know how to comply with AML laws.
Your anti-money laundering compliance program should identify a customer’s money laundering risk before they ever do business with you. It should also reassess their risk throughout the entire customer journey. This risk-based approach allows you to tailor your AML rules to ensure higher-risk customers are treated with greater scrutiny.
Jumio helps companies meet their regulatory requirements through effective risk management, from KYC compliance to ongoing transaction monitoring and reporting. The data ingestion APIs allow you to get real-time answers, which eases friction during onboarding. Our AML rules were built by experts and are fine-tuned over time through machine learning. And our powerful case management solution helps your compliance team investigate and report suspicious activity with greater speed, accuracy and efficiency.
Jumio AML Solutions provide an end-to-end AML compliance platform that helps you meet your regulatory obligations and mitigate AML risk throughout the customer journey, from onboarding to ongoing monitoring.