What is Anti Money Laundering – AML
Anti-money-laundering refers to a set of procedures, laws and regulations designed to stop the practice of generating income through illegal actions. Though anti-money-laundering laws cover a relatively limited number of transactions and criminal behaviors, their implications are far-reaching. For example, AML regulations require institutions issuing credit or allowing customers to open accounts to complete due-diligence procedures to ensure they are not aiding in money-laundering activities. The onus to perform these procedures is on the institutions, not on the criminals or the government.
BREAKING DOWN Anti Money Laundering – AML
Anti-money-laundering laws and regulations target activities that include market manipulation, trade of illegal goods, corruption of public funds and tax evasion, and the activities that aim to conceal these deeds.
Criminals must clean money obtained illegally through actions such as drug trafficking. To do so, the money launder runs it through a series of steps to make it appear like the criminal earned it legally. Once there’s a record to show how the criminal earned the money, he or she hopes it will not arouse suspicion.
One of the most common ways to launder money is to run it through a legitimate cash-based business owned by the criminal organization. Money launderers may also sneak cash into foreign countries for deposit, deposit it in smaller increments or buy other cash instruments. Launderers often want to invest, and brokers will occasionally break rules to earn larger commissions.
It’s up to financial institutions that issue credit or allow customers to open accounts to investigate customers to ensure they are not taking part in a money-laundering scheme. They must verify where large sums of money originated, monitor suspicious activities and report cash transactions exceeding $10,000. Besides complying with AML laws, financial institutions must make sure clients know about these laws and guide people with them without prior active government orders.
AML rules and regulations rose to global recognition during the 1989 formation of the Financial Action Task Force, setting international standards for fighting money laundering. The aim of enforcement groups like the FATF is to maintain and promote the ethical and economic advantages of a legally credible and stable financial market.
Since money is a limited resource, money accumulated illegally and with no regulation prevents capital from flowing into socioeconomically productive industries. The imbalance in money flow also inevitably leads to further printing of money, harming the purchasing power of a country’s currency. If not controlled, this inflation can cripple and erode an economy.