AML

In simple terms, AML policies are intended to prevent criminals from disguising illicit funds as lawful income and utilizing them freely.

Legislative measures aimed at combating money laundering are implemented by both individual governments and multinational organizations, such as the FATF (Financial Action Task Force) and the IMF (International Monetary Fund). Their adoption was a response to the growth of the financial industry, the removal of international capital controls, and the ongoing simplification of intricate financial transaction networks. The issue of money laundering is significant: according to the United Nations Office on Drugs and Crime (UNODC), annual money laundering flows range from 2 to 5% of global GDP.

Laws aimed at combating money laundering apply to all legal entities and individuals involved in any capacity in financial transactions. This primarily applies to banks, credit institutions, exchanges, payment systems, and gambling operators, among others.

History of AML

The first anti-money laundering laws were enacted in the United States during the 1970s.

This effort became more systematic and comprehensive in 1989 with the establishment of the international organization known as the FATF (Financial Action Task Force). It took on the responsibility of developing standards and recommendations to combat money laundering.

In 2001, in response to the September 11 attacks, the organization expanded its mission to include countering the financing of terrorism. As a result, the 40 primary recommendations established by the global regulator FATF have become the international standard for AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism).

Additionally, the European Union has its own set of regulations known as the European Union Anti-Money Laundering Directives (AMLD). As technology advances, new methods of money laundering continue to emerge, leading to the constant updates and expansions of relevant laws and regulations. Consequently, companies involved in activities related to digital assets, such as cryptocurrencies, have also become subject to AML laws.

The major components of AML measures

The primary objective of all AML measures is to prevent the financial system exploitation for money laundering and to mitigate risks for financial institutions. Well-established rules and their diligent implementation are crucial factors in maintaining financial stability.

The AML policies that all companies exposed to AML/CFT risk must adhere to include:

• verifying the identity of clients and/or counterparties, for which they are expected to provide truthful information and documents;
• obtaining confirmation of the client’s sources of income;
• monitoring changes in user data;
• tracking and reporting suspicious transactions to the relevant authorities;
• establishing and regularly updating the company’s internal policies, including appropriate control measures;
• implementing a robust records management system.

One of the important components of the AML policy is the KYC principle, which is short for “Know Your Customer” or “Know Your Client”. This principle implies mandatory identification of the counterparty before conducting a financial transaction. Follow the link to read more about the term KYC.

Regulating the financial sector through AML laws is essential; their wide implementation not only benefits honest companies but also reduces risks for users.