What is an AML Check? (Anti-Money Laundering)

23/12/2022
Written by: Ieuan Leigh 

Introduction

Ever wondered what is an AML check? Anti-money laundering (AML) checks are procedures and processes that financial institutions and other regulated entities follow to prevent, detect, and report money laundering activities. Money laundering is disguising the proceeds of illegal activity as legitimate funds. It is a significant problem that threatens the integrity and stability of the UK economy and can often be linked to other things, such as terrorist financing and organised crime. AML checks are an essential tool in the fight against money laundering and are a legal requirement.

What does an AML check involve?

AML checks typically involve the following steps:

  • Customer due diligence: This involves verifying the identity of customers and assessing their risk level based on factors such as the nature of their business, their source of funds, and their geographic location. Financial institutions must perform customer due diligence when establishing a new business relationship or suspect a customer may be involved in money laundering.
  • Transaction monitoring: This involves ongoing monitoring of customer accounts and transactions for suspicious activity. Financial institutions use automated systems to detect and flag unusual patterns of activity that may indicate money laundering.
  • Suspicious activity reporting: If a financial institution or law firm detects suspicious activity, it must be reported to the relevant authorities. This helps to identify and investigate money laundering schemes and to take appropriate action to disrupt them.

AML checks are designed to identify and prevent money laundering and terrorist financing. To this end, financial institutions must maintain robust AML programs that include policies, procedures, and controls to detect and report suspicious activity. These programs must be reviewed and updated regularly to ensure they remain effective in identifying and preventing money laundering.

Why is an AML check necessary?

AML checks are also crucial for the reputation and integrity of financial institutions and law firms. Money launderers often use financial institutions as a conduit for their illicit activities, and if a financial institution is found to be involved in money laundering, it can suffer significant damage to its reputation and financial stability. By implementing robust AML checks and a compliant AML policy, financial institutions can protect themselves from being used for money laundering and maintain the trust and confidence of their customers and the wider public.

AML checks are not limited to financial institutions. Other regulated entities, such as casinos, real estate agents, and lawyers, must implement AML checks as part of their regulatory obligations. These entities may also be used as a conduit for money laundering, and it is important that they have the necessary controls in place to detect and report suspicious activity.

Several international organisations help to set standards and best practices for AML checks. The Financial Action Task Force (FATF) is an intergovernmental organization that develops and promotes policies to combat money laundering and terrorist financing. The FATF has published a set of recommendations that are widely adopted by countries around the world as a benchmark for their AML frameworks.

In summary, AML checks are essential in the fight against money laundering. They involve verifying the identity of customers, ongoing monitoring of transactions for suspicious activity, and reporting suspicious activity to the relevant authorities. Financial institutions and other regulated entities must implement robust AML programs to ensure that they are not used for money laundering and to maintain the trust and confidence of their customers and the wider public. Many of the same rules and regulations are transferable from one industry to another; here we discuss the checks estate agents use for AML compliance.

Automating your AML checks

Traditionally, AML checks have been carried out manually, requiring significant time and resources. However, with the increasing use of technology, there is an opportunity to automate some of these processes using identity verification software, such as the one we have built at Validient.

Identity verification software uses various methods to verify an individual's identity, including document verification such as driver's licence and passports, facial recognition, and biometric data. 

This technology can be used to automate the process of verifying the identity of clients at the onboarding stage, reducing the risk of fraudulent activity and streamlining the process for financial institutions.

One benefit of using identity verification software for an AML check is the ability to quickly and accurately verify the identity of clients. This can help to prevent fraudulent activity, as individuals using fake or stolen identities are more likely to be detected. In addition, automated identity verification can reduce the risk of human error, as it is less prone to mistakes than manual processes.

Another advantage of using identity verification software for AML checks is the real-time monitoring of transactions and the status of a company registered with an a governing body such as Companies House. You can read more here about whom you must register with for Anti-Money Laundering purposes.

This can help financial institutions and law firms to detect suspicious activity more quickly and efficiently, as automated systems are able to analyse large amounts of data in a short period of time. 

This can be particularly useful for detecting patterns of suspicious activity that manual processes may miss.

In addition to automating the process of verifying identities and monitoring transactions, identity verification software can also be used to automate the reporting of potential violations to regulatory authorities.

This can help financial institutions to comply with AML regulations more effectively, as they are able to quickly and accurately report any potential violations.

Overall, the use of identity verification software can significantly improve the efficiency and effectiveness of AML checks. 

By automating manual processes, businesses can reduce the risk of fraudulent activity, detect suspicious activity more quickly, and comply with AML regulations more effectively. As such, identity verification software is likely to become increasingly important in the financial and legal industry as technology advances.

Get in touch today to find out how Validient can help automate your identity verification and AML checks.

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