what is anti money laundering aml 
anti money laundering is an international web of laws regulations and procedures aimed at uncovering money that has been disguised as legitimate income for centuries governments and law enforcement agencies have tried to fight crime by following the money in modern times that comes down to anti money laundering aml laws and activities money laundering is the concealment of the origins of money gained from crimes including tax evasion human trafficking drug trafficking and public corruption it also includes money being illegally routed to terrorist organizations anti money laundering regulations have had an impact on governments financial institutions and even individuals around the world julie bang investopediaknow your customer kyc regulatory compliance at financial institutions starts with a process often called know your customer kyc kyc determines the identity of new customers and whether their funds originated from a legitimate source 1money laundering can be divided into three steps 2the kyc process aims to stop money laundering at the first step when a customer attempts to deposit money a study from verafin a financial crime risk management company estimates that 3 1 trillion in illicit money flowed through the global financial system in 2023 3financial institutions screen new customers against lists of parties that pose a higher than average risk of money laundering criminal suspects and convicts individuals and companies under economic sanctions and politically exposed people encompassing foreign public officials their family members and close associates 45customer due diligence cdd throughout the account s lifetime financial institutions must conduct customer due diligence cdd the practice of maintaining accurate and up to date records of transactions and customer information for regulatory compliance and potential investigations certain customers may be added over time to sanctions and other aml watchlists warranting checks for regulatory risks and compliance issues on an ongoing basis 6according to the u s treasury s financial crimes enforcement network fincen the four core requirements of cdd in the united states are 7cdd may try to uncover and counter money laundering patterns such as layering and structuring also known as smurfing breaking up large transactions into smaller ones to dodge reporting limits for example financial institutions have instituted aml holding periods that force deposits to remain in an account for a minimum of days before they can be transferred elsewhere 8if patterns and anomalies indicate money laundering activities suspicious transactions in u s jurisdictions must be reported in suspicious activity reports sars to relevant financial agencies for further investigation anti money laundering in the u s aml regulations in the u s expanded after the bank secrecy act bsa was passed in 1970 for the first time financial institutions were required to report cash deposits of more than 10 000 collect identifiable information of financial account owners and maintain records of transactions additional legislation was passed in the 1980s amid increased efforts to fight drug trafficking in the 1990s to enhance financial surveillance and in the 2000s to cut off funding for terrorist organizations banks brokers and dealers now follow a complex regulatory framework of conducting due diligence on customers and tracking and reporting suspicious transactions 91011 a written aml compliance policy must be implemented and approved in writing by a member of senior management and overseen by an aml compliance officer the anti money laundering act of 2020 the most sweeping overhaul of u s aml regulations since the patriot act passed after the 9 11 terrorist attacks in 2001 subjected cryptocurrency exchanges arts and antiquities dealers and private companies to the same cdd requirements as financial institutions 1213the corporate transparency act a clause of the anti money laundering act eliminated loopholes for shell companies to evade anti money laundering measures and economic sanctions fincen a u s department of the treasury bureau issues guidance and regulations that interpret and implement the bsa and other aml laws fincen s guidance and regulations provide detailed instructions for financial institutions on how to comply with aml requirements in addition to these federal laws many states have their own aml statutes and regulations these state laws often mirror the federal requirements but may include additional provisions international anti money launderingthe european union eu and other jurisdictions adopted similar anti money laundering measures to the u s anti money laundering legislation enforcement assumed greater global prominence in 1989 when a group of countries and nongovernmental organizations ngos formed the financial action task force fatf the fatf is an intergovernmental body that devises and promotes the adoption of international standards to prevent money laundering in october 2001 following the 9 11 terrorist attacks fatf s mandate grew to combat terrorist financing those standards the fatf s 40 recommendations provide a framework for aml and combating the financing of terrorism cft regulations and policies in more than 190 jurisdictions worldwide covering cdd transaction monitoring reporting of suspicious activity and international cooperation other important international organizations in the fight against money laundering include the international monetary fund imf and the united nations u n and programs include the council of the european union s anti money laundering directive amld and the basel committee on banking supervision s customer due diligence cdd for banks the imf has pressed member countries to comply with international norms thwarting terrorist financing 14 the u n added aml provisions to address money laundering associated with drug trafficking in the 1998 vienna convention with international organized crime in the 2001 palermo convention and with political corruption in the 2005 meridian convention 14the council of the european union s amld a directive that sets out aml cft requirements for all eu member states has been amended several times to reflect the changing risks of money laundering and terrorist financing the basel committee on banking supervision s cdd for banks provides detailed recommendations for banks on how to identify and verify the identity of their customers anti money laundering and cryptocurrencycryptocurrency has drawn increasing attention among aml professionals and regulatory bodies virtual coins provide anonymity to users presenting criminals with a convenient way to store and move money according to cryptocurrency and blockchain analytics firm chainalysis addresses connected to illicit activity sent nearly 39 6 billion worth of cryptocurrency in 2022 up 141 from 2021 this figure dropped to 24 2 billion in 2023 but it was still a significant amount of money it was only about 0 78 of all illicit funds 31516the decentralized nature of cryptocurrency markets makes it challenging to implement and enforce aml regulations traditional aml frameworks designed for centralized financial institutions were not adequate in the past for the decentralized cryptocurrency ecosystem but regulators have made significant progress in addressing the weaknesses that were present blockchain analysis and monitoring tools enable financial institutions and law enforcement to identify and investigate suspicious cryptocurrency transactions crypto forensic services like chainalysis elliptic and trm labs have the technology to flag crypto wallets exchanges and transactions tied to designated terrorist organizations sanctions lists political groups government actors and organized crime such as hacking ransomware scams and contraband trafficking on darknet markets in the u s cryptocurrencies are largely an unregulated market and few regulations explicitly target the asset class by name instead aml enforcement actions such as those against crypto exchanges binance and ftx have been prosecuted under existing laws and statutes such as the bank secrecy act and the foreign corrupt practices act fcpa only under the anti money laundering act of 2020 did u s companies become legally required to comply with financial screening regulations that apply to fiat currencies and tangible assets businesses that exchange or transmit virtual currencies now qualify as regulated entities and must register with fincen adhere to aml and cft laws and report suspicious customer information to financial regulators 17more formal rules on intervening in virtual currency money laundering are expected to be introduced in the u s and abroad recent steps include an internal revenue service irs proposal and several european bills for financial platforms to report digital asset payments and transactions to national and transnational regulatory bodies law enforcement agencies and industry stakeholders 181920on the global stage the financial action task force fatf travel rule an international aml framework that would require collecting and sharing beneficiary information for cross border cryptocurrency flows is being closely watched and gaining traction among regulatory bodies worldwide several countries have implemented or are implementing the fatf travel rule in their civil and criminal codes to increase the transparency and accountability of cryptocurrency transactions 21some aml requirements apply to individuals by law u s residents must report receipts of multiple related payments totaling more than 10 000 to the internal revenue service irs on irs form 8300 2223