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What is Anti Money Laundering and Why Does it Matter?

What is Anti Money Laundering and Why Does it Matter?

The amount of money laundered globally in a year is estimated to be between 2% and 5% of global GDP, or US$800 billion and US$2 trillion and that is a rough figure. Smuggling, illegal arms sales, embezzlement, insider trading, bribery, and computer fraud schemes are all common examples of money laundering. Money obtained through unlawful activity such as drug trafficking is frequently “laundered” by criminals so that it cannot be traced back to them. It’s also prevalent in organized crime, such as human and weapons trafficking. Individuals and institutions pay a high price for money laundering, which can have far-reaching societal effects. To avoid these repercussions, strict anti-money laundering (AML) policies must be implemented.

What is Anti Money Laundering?

Anti-money laundering (AML) refers to laws, policies, and procedures that prevent criminals from masking unlawfully obtained money as legitimate earnings. Anti-Money Laundering (AML) aims to deter criminals by making it more difficult for them to conceal their illicit funds. Otherwise, criminals would use money laundering to hide their crimes and the proceeds of their crimes. Financial institutions must monitor their customers’ transactions and report any suspicious financial behaviour under AML regulations.

The Financial Action Task Force (FATF)

In 1989, the Financial Action Task Force was founded by a coalition of governments and organizations from around the world to combat money laundering. Its purpose is to develop and promote international standards for money laundering prevention. Following the 9/11 terrorist attacks, FATF expanded its scope to encompass counter-terrorism financing in October 2001.

Why AML is Important?

Market manipulation, illegal goods trade, public-funds corruption, and tax evasion are all targets of AML rules and regulations. This also includes the methods used to conceal these crimes and the money gained from them. Running the money through a legitimate cash-based business owned by the criminal organization or its associates is a popular method. The money is deposited by the seemingly legal firm, which the crooks can then withdraw. Money launderers may also smuggle cash into foreign nations to deposit, deposit cash in smaller quantities to avoid attracting suspicion or buy other monetary instruments with the unlawful funds. When money is laundered, it is sometimes invested through dishonest brokers ready to break the rules in exchange for big commissions. This will hurt the economy and affect the livelihoods of honest citizens.

Fighting Money Laundering

Financial institutions must have a thorough grasp of how money laundering occurs in order to detect and report potential money laundering and meet compliance obligations. Placement, layering, and integration are the three stages of money laundering. This is a complicated series of transactions that begins with the deposit of money and progresses through the transfer of funds into what appear to be real assets.

  • Placement: How and where illegally obtained finances are placed. This includes payments to cash-based businesses, payments for bogus invoices, “smurfing,” which involves depositing small amounts of money (below the AML threshold) into bank deposits or credit cards, using foreign bank accounts, and terminating transactions shortly after funds are lodged with an attorney or a bank.
  • Layering: Identifying the source of illegal finances. It entails changing the illegal proceeds into a different form and layering financial transactions to conceal the funds’ origin and ownership. Criminals do this to conceal the trail of their illicit funds so that AML inspectors will have a difficult time tracking them down.
  • Integration: Laundered funds are reintroduced into the system through what appear to be routine, a legal company, or personal transactions. This is sometimes accomplished through purchasing real estate or other high-end assets. It allows money launderers and criminals to expand their fortunes.

Employee training

Employees are frequently used by criminals to transfer black money. It is critical to train personnel on how to recognize such consumers and what the implications of supporting them would be. This would be an effective approach to curbing money laundering at the initial stage.

Securing the Financial Community

Stopping unlawful conduct under this financial ecosystem is critical to protecting genuine consumers of financial services, because even if they aren’t participating in money laundering, the actions of money launderers could have a negative impact on the product or services they use.

How the Ordinary Citizen is Affected

Consider a bank account. Anyone who meets the minimal requirements can open a new bank account, which is a simple process. People who want to launder money can take advantage of this accessibility if the bank does not conduct any type of Anti Money Laundering (AML) check. Furthermore, if the bank became recognized for having significant levels of money laundering activities and did not take steps to stop it, the authorities could suspend the bank’s license, forcing it to cease operations. Not only would this be disastrous for the bank, but it would also be problematic for legitimate clients who would lose access to their accounts.

How Can IDcentral help?

IDcentral’s AML compliance solutions help you to know your customers, detect suspicious activity, manage investigations, and submit regulatory filings. IDcentral meets the FATF guidelines. IDcentral’s Global Screening and Monitoring raises a red flag immediately and helps prevent financial crime and money laundering with automated customer watchlist screening. We keep an eye on the following lists:

  • Sanctions Watchlists
  • PEP
  • Adverse Media

IDcentral also offers case review and reporting that helps you make better decisions in choosing who can use your services. The program automatically scans through the account, customer information, transactions made, Know Your Customer data (KYC), and other related information to determine if there is any suspicious activity that needs reporting and provides a score for prioritizing. Apart from this, IDcentral’s AML Transaction Monitoring solutions allow financial institutions to monitor the transactions made by their customers in real-time. These solutions not only look at the current transactions, but also analyze a customer’s historical information and account details including transfers, deposits, and withdrawals. From there, an analysis of a customer can be provided, which can include risk levels and predicted future activity.

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