Money laundering and AML:
Criminals engage in illegal activities of disguising their black money as legitimate income, a practice known as money laundering. They intend to hide their source from the authorities by the illegal movement of money and gradually mixing it with white money to get away with their white-collar crimes. Banks, stock exchanges and real estate, etc are particularly used to launder money if they lack adequate AML regulatory measures.
The laws and regulations concerned with deterring the criminals from claiming their illicitly obtained money to be legitimate are called Anti Money Laundering (AML). AML regulations have particularly made it mandatory for financial institutions to monitor customers’ transactions, perform strict background screening and take adequate measures to report any suspicious financial activity. Concealing crimes and money derived from it has become a very difficult task due to the strict application of AML solutions.
Statistics explaining AML importance:
As per a study’s finding, the percentage of money laundered each year is about 2% to 5% and the AML authorities could merely recover 0.1% of it. The US is considered the first to make money laundering illegal. The AML regulations have progressed since then and now the AML software market is estimated to reach $1.77 billion by 2023. Since the money laundering procedures are subjected to continuous evolution, the AML compliance procedures need to be frequently updated to cope with them. Considering that, in 2019 banks were charged with the most fines i.e. 60.5% of them were due to AML regulations violation.
AML and KYC:
Anti Money Laundering and Know Your Customer are two interrelated practices. KYC processes engage in getting to know the customer deeply. Background screening of the customer is performed to authenticate his identity. Whereas, AML compliance processes are rather extensive and operate on a broader level. They are the measures particularly undertaken by the institutions to fight multifaceted frauds such as terrorism financing, money laundering, tax evasion, and other financial crimes. Both AML and KYC go hand in hand and effective application of these enables the banks and other financial institutions to maintain financial security.
AML Compliance:
AML compliance programs are entitled to reveal suspicious financial activities, tax evasion, and other financial crimes. It encompasses the combined activities of accounts monitoring and reporting, revealing frauds, reporting money laundering, etc. to fulfill the compliance criteria. A business has to diligently perform these three tasks to form an effective AML compliance program.
- Awareness of customers’ risk status: Detailed background screening before getting the customer on board provides adequate information about his risk status. Businesses must vigilantly maintain and assess their client’s risk profiles and process them by effective application of Customer Due Diligence (CDD) measures.
- Strong reporting system: Maintaining a strong reporting system allows the business to report any suspicious activity detected to the concerned authority, in a matter of seconds.
- Presence of a compliance officer: Hiring a compliance officer helps the company keep its AML compliance laws updated and maintain a strong and effective AML system.
AML Screening:
AML screening is a method of AML verification where the company’s customers are scrutinized for risk assessment. Both the potential and current customers undergo the screening process to ensure that none of them belong to any banned or wanted lists, sanctions, or PEPs. People belonging to any of these lists tend to be high-risk customers for the companies, hence, they refrain from doing business with them. From among the other lists, those belonging to PEPs particularly prove to be more harmful than the others. That is because a Politically Exposed Person has higher chance of being involved in white-collar crimes. Therefore, AML security regulations deter a business from getting such people on board.
Shufti Pro Review:
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