AML – Compliance Guidelines

AML or Anti-Money Laundering, is also referred to as the Prevention of Money Laundering. It is closely associated with the Know Your Customer (KYC) process. It’s important to be aware of the magnitude of risks involved with money laundering. Money laundering is crime for individuals, companies, and societies; following regulations aimed at preventing money laundering is not just mandatory but strictly regulated, as well.

The concepts of AML and KYC compliance are closely related and should be understood as part of the identification process. The relationship between the AML and KYC processes is important for preventing money laundering in contractual transactions and relationships.

What is AML?

AML is an acronym for the term Anti-Money Laundering. It’s mainly used in the compliance, legal, and financial sectors to develop standard controls for businesses and organizations to identify, report, and avoid suspicious money laundering behavior. AML -compliance practices focus on performing procedures that prevent and discourage potential violators from engaging in money laundering crime or fraud. This way, criminals can’t hide the illicit origin of the money in any transaction.

This is especially observable in the context of remote and online products/services. On numerous occasions, products/services are bought and/or contracted using the internet, through payment by individuals, companies, or sources of dubious legitimacy. However, if there are AML-compliant processes included in the guidelines established for money laundering prevention, this risk is reduced to the point that it doesn’t exist any longer.

Requirements and practices established by anti money laundering compliance regulations help businesses avoid getting involved in potential crimes and frauds; their assessment automates, optimizes, and improves their typical processes.

AML Regulations and Legal Framework

AML practices have been widely legislated in recent years both in Europe and worldwide. Compliance with AML standards isn’t an option, but a legal obligation, especially in the FinTech and financial sectors.

The main purpose of this legislation is to guide the regulated sectors on how to operate within their respective industry. Their legal and compliance departments are responsible for ensuring that they meet every state’s and country’s AML regulations.

Fifth Anti Money Laundering Directive (AML5)

The European Union’s Fifth Anti-Money Laundering Directive (5AMLD) that came into force on January 10, 2020, needs a range of businesses, especially within the financial sector, to comply with a range of standards in their processes.

This European directive on the prevention of money laundering highlights the list of subjects appointed to conduct AML compliance controls in their processes. Similarly, the standard offers firms the possibility of onboarding, selling, and contracting users in a legal, optimized, safe, and online way. Due to the characteristics and timeliness of AML5, it is the regular framework of reference for worldwide legislation on money laundering prevention in any nation on any continent. An institution, business, or a company in North America or Asia will adhere to the AML regulations of their countries and state, taking 5AMLD as their reference.

AML, KYC, and Related Concepts

AML is a set of procedures which, when acted upon, directly impacts the usual processes of insurance, real estate, banking, financial, and telecommunications companies, etc. Among others, AML is affected by the following activities:

  • Know Your Customer (KYC): the KYC process supplements AML checks and solutions. An institution or company is obligated to verify the identity of a client before offering products/services. This dual KYC-AML procedure is important to carry out the controls that help determine whether a subject has committed, intends to commit, or is committing money laundering by establishing a business relationship with them.
  • e-KYC Standards: Connecting to the previous point, the electronic Know Your Customer process is similar to that of the KYC digital. Know Your Customer performed remotely, and taken to the digital and online world, must also be AML-compliant.
  • Know Your Business (KYB): On a similar basis as the AML-KYC process, the procedures of KYB focus on identifying institution, organization, or business instead of a user, customer, or a consumer, with its own distinctions and differences. 
  • Due Diligence: The investigation and audit process before the sale, purchase, or acquisition of a business, or the performance of any significant negotiation, requires the incorporation of AML-compliance controls. In this manner, prospective risks are assessed, and the parties’ goodwill in the negotiation is corroborated.