When it comes to money laundering, banks are the primary target because
- Huge amount of cash involvement
- Numerous customers and millions of transactions
- Provide ease in the circulation of illegal money
- Use of traditional customer verification methods
That’s why banks are under the global AML regulations and financial watchdogs always keep an eye on the AML compliance program. The increase in financial crimes has made AML laws more stringent and automated. Under the AML laws, a banking industry must take measures to identify and confirm customer information and screen them against criminal watch lists. The first step is to recognize monetary crimes and make practices controlling them. There are numerous native and global regulatory authorities implementing AML in banking. All the businesses are responsible to control the illegal flow of cash in the system. The AML laws vary from business to business and country to country.
What is AML in Banking - Understanding the Concept
Before going to AML, the idea of money laundering should be clear. Funds gathered from illegal businesses like selling drugs, human trafficking, and corruption are needed to be covered with legal sources to use them freely without leaving a mark. A criminal can’t go to a bank and deposit his illegitimate money in his account. The bank will demand proof of the sources from him and upon not presenting a piece of valid evidence, he can get arrested by the law enforcement authorities. So, first, the money should be shielded from legal sources. The whole act of giving legitimate sources to black funds is called money laundering.
The practices and laws that are intended to control money laundering in the system are known as anti-money laundering. It is a comprehensive process that starts from customer identification and ends at background screening.
It is very difficult to calculate the exact amount of laundered money because it is mixed with legitimate funds. But it is true that the amount is in the billions of dollars. The non-estimation of the amount of London Money is the biggest hurdle in the way of the aml program. Now there are not only individuals in financial crimes but businesses that are involved in the financial crimes. Now criminals have built whole businesses that are intended to convert black money into white. These businesses took advantage of the loopholes in the system and thus fraudulent activities keep rising.
Significance of KYC Verification and AML Screening
KYC is the process of confirming customer identities by analyzing their government-issued ID documents. The data that customers give during sign-up is then cross-managed with their identity card or driving license. KYC is performed by AI-powered software that verifies the identity of a customer through an online medium. The customer does not need to visit a bank branch to open his accounts whether he has to upload the images of his ideas along with a life official selfie. The software will extract data from the document and perform facial recognition on the selfie. The expected data is then confirmed with the customer given data, if it matches then the customer is allowed to create a bank account otherwise not.
In Modern Times all banks are obliged to conduct KYC on new customers before onboarding them. If a bank does not follow the guideline provided by the regulatory authorities, it can be penalized. KYC helps banks in maintaining authentic customer profiles which ultimately assists in smooth audits.
Why is AML Screening Necessary?
KYC ensures authentic data while AML screening helps In recognizing potential money launderers by scanning their name against global and local criminal lists. The name is also scanned against PEP lists and people getting adverse media attention. This guarantees that the customer is not involved in financial crimes and his criminal record is clean.
Wrapping it Up
Businesses should integrate a robust AML solution into their systems to control the illegal transfer of cash. This will help them in maintaining a good reputation and save them from fines.
AML In Banking - How Illegal Cash Flows Can Be Controlled
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