What are the anti-money laundering regulations businesses must comply with?
ST
Last updated 06/06/2024 by
SuperMoney TeamEdited by
The United States Sentencing Commission claims that instances of money laundering have decreased 12% since FY 2018. However, the United Nations Office on Drugs and Crime paints a different picture.
The organization estimates almost 2 to 5% of the global GDP (gross domestic product)—a whopping $800 billion to $2 trillion—is laundered annually. While the estimated sum is higher than the GDP of some nations, the dark movement of money makes it difficult to determine the exact amount being laundered.
Add over-enthusiastic government agencies and complex anti-money laundering (AML) regulations to the mix, and businesses need to navigate the minefield carefully to avoid being complicit and paying hefty penalties.
Why Should Businesses Comply With Anti-money Laundering Regulations?
Businesses, especially ones in the finance sector, should adopt AML regulations to avoid helping criminals whitewash black money through their organization.
Criminal organizations make a lot of money by:
- selling drugs,
- trafficking humans and endangered animals,
- smuggling weapons,
- extorting money from innocent individuals or businesses, and
- stealing it from innocent individuals or businesses.
Since cash generated from these activities is illegal and often a substantial amount, it’s difficult for them to move these funds without alerting multiple government agencies. This is where money mules come in.
The process begins with an individual mule trusted with a small amount of cash and directed to deposit it in the bank. The placement stage is the first step towards hiding the unsavory origins of the illegitimate funds.
As the action is simple and carried out by numerous individuals and organizations on a daily basis, it doesn’t warrant the attention of the financial institution or the government.
Now, the money is carefully layered to avoid detection. This is often done by transferring the deposit sum to other bank accounts (generally offshore) and shell corporations at a future date as a loan or payment. Note that this step might be repeated a couple of times to evade government agencies.
Finally, in the integration stage, the money is funneled back to the respective criminal organization through investments and extravagant purchases. Though time- and effort-intensive, the laundering process allows criminals to fly under the radar and wash the stain off their black money.
Money laundering is disadvantageous for businesses because they might unknowingly help criminal organizations and flout AML regulations, inviting hefty fines and risking their goodwill in the market. The only way out is to become aware of the necessary AML regulations and follow them closely.
Get Competing Personal Loan Offers In Minutes
Compare rates from multiple vetted lenders. Discover your lowest eligible rate.
It's quick, free and won’t hurt your credit score
AML regulations businesses must know to combat money laundering
There’s no one-size-fits-all approach to AML regulations. The laws and their directives differ from one country to the next, so become aware of the regulations pertinent to your business to avoid becoming a casualty of money laundering. However, simply knowing the regulations isn’t enough.
Businesses must apply them to combat money laundering and stay ahead of crafty criminals. Unfortunately, keeping an eye on individual transactions or suspicious customers can seem akin to chasing an elusive rat through an elaborate maze.
So, to make things more manageable, you should look into AML case management to:
- identify suspicious transactions or accounts,
- examine the red flags better to ascertain if they’re false positives or not, and
- report unquestionable red flags to the responsible entities.
Using this clear framework, businesses can own a case from the initial suspicion and monitoring to reporting and verdict.
Although the framework is designed to make things easier for businesses and help them comply with AML regulations, it’ll look different for each company based on its internal policies and rules.
For instance, organizations dealing with a large number of transactions or significant transaction volume daily might not find it productive to follow a basic AML case management framework to inform its forensic accounting to detect fraudulent activities.
Instead, they might opt for an AML case management solution to automate the elaborate process and identify signs of money laundering before it progresses to the layering stage. The best part, though? You don’t just benefit from real-time fraud identification but also prevention.
Most robust solutions combine digital footprinting, device intelligence, bespoke machine learning algorithms, and artificial intelligence (AI) to help you flag suspicious activities.
Better yet, you get an uninhibited view of the reasons the solution flagged a particular transaction so that you can make informed decisions. You also don’t have to spend hours filing a suspicious activity report (SAR).
Generative AI can fill out the required fields and file them with the authorities. Now that you know the steps after, here are the AML regulations businesses must be aware of to combat money laundering.
The US Bank Secrecy Act (BSA) of 1970 and the Anti-Money Laundering Act (AMLA) of 2020
Businesses based in the US must be familiar with the BSA. The act aims to counter money laundering and cut off financing for terrorism. It also includes the directives of the USA Patriot Act. Consequently, it dictates the record maintenance and reporting needs of:
- national banks,
- federal branches of foreign banks, and
- federal savings associations.
On the other hand, the AMLA is an extension of the United States’ older AML regulations, including the BSA. Its goal is to improve and modernize existing AML laws through technology, regulatory reforms, and business engagement.
One of the most notable ways AMLA improves the gaps in the BSA is by recognizing that criminals don’t just use traditional financial institutions to launder money. They also rely on businesses that deal in luxurious goods, such as art galleries and dealers selling antiquities.
As such, AMLA recognizes these businesses as non-bank financial institutions. It classifies cryptocurrency exchanges and other such organizations under the same group.
Since knowingly helping money launderers is a punishable offense—around 10 years in prison, a penalty of up to $1 million, or both—organizations must be aware of the regulations, follow them religiously, and report suspicious activities to the Financial Crimes Enforcement Network (FinCEN) within 30 days of identification.
Further, it’s FinCEN’s mission to weed out shell corporations. So, it has made it mandatory for several entities to file the Beneficial Ownership Information form to declare the individuals who own or control these companies.
European Union’s (EU) Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) directive
For businesses in the EU, being aware of and complying with the sixth AML/CFT directive is necessary. Known as AMLD6, this version doesn’t leave any scope for errors and is more strict to discourage money laundering and terrorism financing.
Like the US’ AMLA, this directive also recognizes crypto platforms and other possible venues of money laundering, monitoring the activities of precious metal and stone dealers, jewelers, and goldsmiths, to strike the iron where it’s hot.
Moreover, the sixth directive raised imprisonment time from one year to four years. That’s not all. Organizations found guilty of laundering money will also have to contend with hefty fines and penalties, with sanctions up to €5 million.
Given the large area under jurisdiction, the Parliament and Council have agreed to form a new European agency to monitor and promote the enforcement of AMLD6.
The UK’s Economic Crime (Transparency and Enforcement) Act 2022
An amendment of the Criminal Finances Act (CFA) 2017 and Sanctions and Anti-Money Laundering Act (SAMLA) 2018, the Economic Crime (Transparency and Enforcement) Act aims to curb money laundering carried on through property.
Since fraud accounts for 40% of all crimes in Wales and England, the government is taking measures to eliminate money laundering. Consequently, it targeted the real estate sector to promote transparency and pluck out the bad apples.
All businesses and individuals falling under the ‘overseas entities’ category will have to register with Companies House in the UK. Failing to do so will result in criminal sanctions. Registering the names of the company owners or managing directors will lead to a decimation of shell corporations used by criminals to launder money.
Varied regulations in the APAC region
The 42 member nations of the Asia/Pacific Group on Money Laundering (APG) have come together to help each other implement global AML regulations as directed by the Financial Action Task Force (FATF) and minimize financial crimes.
Although the participating members have varied regulations to better serve their individual needs, the APG undertakes the following:
- Mutual peer review program: to assess the compliance of AML/CFT regulations.
- Technical assistance and training: the APG secretariat offers donor-agency and mutually beneficial technical help to its members.
- Typologies research: research and analyze the latest money laundering and terrorist financing venues.
- Global engagement: the group augments international AML/CFT policy development, partakes in multiple FATF working groups, and networks with the FATF-Style Regional Bodies (FSRBs).
- Private sector engagement: the group doesn’t just engage with global organizations. It also engages with private sector financial and non-financial institutions, training centers, NPOs, and universities to educate the public at large about money laundering.
Businesses must comply with AML regulations to counter terrorist financing
Money laundering is no longer an isolated crime. It’s a global problem, and businesses can save their skin by being aware of the anti-money regulations. However, this isn’t enough. With criminals becoming bolder by the day, businesses have no choice but to take preventative measures.
Businesses should also apply the regulations in-house, make the policies a part of their internal policies, educate their employees and customers, and hire expert analysts to avoid being complicit.
Share this post: