Anti-money laundering

Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti-money laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA PATRIOT Act.

Today, all financial institutions globally are required to monitor, investigate and report transactions of a suspicious nature to the financial intelligence unit of the central bank in the respective country. For example, a bank must perform due diligence by having proof of a customer's identity and that the use, source and destination of funds do not involve money laundering. United States federal law related to money laundering is implemented under the Bank Secrecy Act of 1970 as amended by anti-money laundering acts up to the present. Many people have confused Anti-Money Laundering (AML) with Anti-Terrorist Financing (ATF). Under the Bank Secrecy Act of USA, Money Laundering and Terrorist Financing are classified into two different categories when financial institutions file Suspicious Activities Reports (SAR) to Financial Crimes Enforcement Network (FinCEN) which is a US government agency. To effectively implement AML and ATF measures, The US government encourages financial institutions to work together for AML and ATF purposes in accordance with Section 314(b) of the USA PATRIOT Act. However, since financial institutions are required by law to protect the privacy of their clients, section 314(b) cooperation has not been generally adopted by financial institutions. To overcome this obstacle, the United Crimes Elimination Network (UCEN) has been established by AML and ATF professionals to achieve this global cooperation goal in compliance with the privacy laws of most countries.

Steps

Money laundering involves three independent and often simultaneous steps :
#Placement - Physically placing bulk cash proceeds.
#Layering - Separating the proceeds of criminal activity from their origins through layers of complex financial transactions.
#Integration - Providing an apparently legitimate explanation for the illicit proceeds.

Additional information

An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions, that may constitute illegal financial activity. Financial institutions face penalties for failing to properly file CTR (Cash Transaction Report) and SAR (Suspicious Activity Report) reports, including heavy fines and regulatory restrictions, even to the point of charter revocation. These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a whole picture to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers, credit card activity, cheques (checks), share (securities) dealing and ACH activity. In the bank circles, these applications are known as BSA software or AML software.

Different standards exist in different countries and dependent on the activity demand, different action. For example; in the US a deposit of US$10,000 or more requires a CTR, in Europe it is EUR 15,000, in Switzerland it is CHF 25,000 in many countries there is no CTR requirement. Suspicion of AML activity in the US requires the submittance of a SAR, while in Switzerland a SAR will only get filed if that activity can be proved. As a result, thousands of SARs are filed daily in the US, while in Switzerland the rate is closer to one or two per year.

The United Nations Office on Drugs and Crime maintains the "International Money Laundering Information Network", a website that provides information and software for anti-money laundering data collection and analysis. [ [http://www.imolin.org/imolin/index.html International Money Laundering Information Network] ]

Costs

The financial services industry has become increasingly vocal about the rising costs of anti-money laundering regulation, and the limited benefits that appears to bring. As one commentator expresses the issue:

"The Economist" newspaper has become increasingly vocal in its criticism of such regulation, particularly with reference to countering terrorist financing, referring to it as a "costly failure". [http://www.economist.com/opinion/displaystory.cfm?story_id=E1_VDVGPPR]

ee also

*Anti-money laundering software
*Bank regulation
*Bank Secrecy Act
*Central bank
*Customer Identification Program
*CYA
*FATF Blacklist
*Financial Action Task Force on Money Laundering
*Financial Crimes Enforcement Network
*Financial Services Authority
*Know your customer
*Money Laundering
*Office of Foreign Assets Control
*Politically exposed person
*Politically exposed foreign person
*USA PATRIOT Act

Notes

External links

* [http://www.worldbank.org/amlcft/ Financial Market Integrity Unit, The World Bank]
*dmoz|Society/Crime/Research/Money_Laundering/|Society/Crime/Research/Money_Laundering/
* [http://www.state.gov/p/inl/rls/nrcrpt/ US Department of State International Narcotics Control Strategy Report (INCSR), annual report issued in March every year. Essential reading for all compliance officers for evaluating country money laundering risk]
* [http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2039&Mode=0 RBI AML & KYC Guidelines]
* For an independent overview of current anti-money laundering trends, view this [http://www.netpractice.org/WorkArea/showcontent.aspx?id=3070 AML Trends] presentation.