Anti Money Laundering - Comprehensive Process flow Explained

Posted by Emma John on April 19th, 2021

As obvious by the name, anti-money laundering is the collection of policies, rules, and regulations against money laundering and other financial crimes. Money laundering has caused numerous effects on the economic sector. From commercial disorders to tax evasions and from corruption to illegal funds transfer, all are the impacts of money laundering.

In simple words, the transformation of black money into white is known as money laundering. Below are the three-step process i.e. Placement, Layering, and Integration.

In placement, the ill-gotten funds are deposited in the system by multiple means. The ideal entrance points of illicit cash are those businesses that have anonymity of owners and involve large transactions. The financial records of these businesses can easily be manipulated. After this, the funds undergo several transitions for successful layering of it. This is done to break the link between illegal sources and funds. In layering the funds may be split and gathered again. In the final step, the ultimate beneficial owner receives the white money in hand. After the cycle completion, the money is white with all financial and legal supporting documents.

History of Anti Money Laundering

The primary and standard structure of anti-money laundering came into place in 1989 with the founding of FATF. This organization was founded to study money laundering, monitor financial laws, and make effective AML policies to combat money laundering. After 9/11, FATF operations expanded to terror financing also. The latest industry that came into the observation of global watchdogs authorities is cryptocurrency.

Now digital currency will no longer have anonymity and all the transactions will be verified according to AML rules and policies. It is done because it was predicted that the growing usage of virtual currency can also open doors for illegal funds transfer.

Process of Anti Money Laundering

Criminalization

Criminalization is the process in which crime and criminals are categorized. First and foremost, the definition of financial crimes is stated by governments and global law enforcement agencies. Normally below questions are answered in the step:

• What is money laundering?

• Who are money launderers?

• Who are money mules?

• What is black money?

• How will it be pointed?

• What will the process of prosecution be?

UNTOC has issued ahead guidelines that assist the governments in convicting money launderers.

Know Your Customer

To terminate anonymous and identity fraud all the persons are verified. In KYC, t is confirmed that the individual is the same who he declares to be. 

In modern times, KYC is performed by automated software which completes the verification process remotely. A person does not have to visit a specific location or office for it. He will be verified by just uploading a picture of himself holding an id card. 

The KYC process involves facial identification and document verification. The data on the document is retrieved and analyzed. Facial recognition is done on the image present on the document.

AML Screening

After KYC, the names are screened through AML watchlists. The database which contains information of financial criminals, money launderers, and other suspects is known as the AML watchlist. For instance, if someone wants to open a bank account, he will be filtered through aml watchlists for it. The data is collected around the globe that includes information from all countries and businesses.

Record Keeping

This method is used by businesses like banks to spot suspicious transactions. This is also done by software, the business set criteria and flags on the irregular activities. If a transaction meets the specified criteria, a flag will be set on it. The flag setting varies by the level of suspicion.

Holding Phase

Although this step is not widely used, it is still very helpful. Some banks utilize it in which a customer has to keep his deposit in the account for at least five days. This period assists in identifying the hazards linked with it.

Conclusion

Every business is under the commitment of global law enforcement agencies to block money laundering through their channels. As financial institutions are the foremost target of money laundering, they need to implement effective and advanced AML solutions. This will encourage legitimate businesses and legal funds transfer.