By Mariana Almeida Marques
Regulations on money laundering are constantly being upgraded to mitigate risks and deal with the rising pressure of money laundering crimes. There are various institutions focused on preventing and combating ML around the globe, both at an international and national level.
AML regulations are all the regulations set in place to prevent and combat money laundering crimes. These sets of regulations are often long and detailed documents, that contain all the specifications of ML crimes, requirements and sanctions. They have a direct effect in payments, as it is a key sector of any financial company. Though each country has different regulations set by their own regulatory body, they must also comply with global regulations.
Firstly, it is important to get to know the institutions responsible for setting AML regulations in your country and globally. Both national and international AML regulations have a clear list of policies and procedures that businesses should follow- you can read about AML regulators below.
Regulations can vary from country to country, but in general they require companies to have written AML policies tailored to the specifications of their business, and have them reviewed regularly. These policies often include:
Carrying out reports to assess the risk of Money Laundering.
Carrying out Strong Customer Authentication (SCA) procedures to verify the legitimacy of every bank account holder.
Financial institutions are obliged to share any suspicions of ML with the relevant regulatory body.
Keeping records of all customer identification documents and transactions, to more easily investigate possible ML threats.
These are some of the tasks you are obliged to perform so your business is in line with AML requirements.
Financial institutions should behave lawfully and respect a framework of high ethical standards. Being compliant with money laundering crimes can have irreversibly damaging effects on the business’ reputation as it loses integrity and trust from its customers. It also impacts the economy as a whole, some of the consequences being changes in money demand, increased instability of international capital flows and loss of revenue and economic control. It goes without saying- complying with money laundering crimes enables criminal groups to expand their illicit activities, risking the safeguard of the population.
So, to ensure that your company is not allowing or supporting any ML crimes, your business must respond to national and international organisations and closely follow the regulations they set. Having an anti-money laundering policy is the first step in preventing ML crimes, and helps all stakeholders know exactly which steps they need to take in order to be fully AML compliant.
The Financial Action Task Forces (FATF) is a financial watchdog that operates on a global level, implementing an international anti-money laundering policy and ensuring that banks and financial institutions are complying with regulations to combat terrorist financing, money laundering and other related threats. It was established by the G7 in 1989, initially as a temporary forum to solve global ML threats. Now, it counts with 39 country members that are spread across continents, including most European countries, the US and Australia.
The European Union established the AMLD (Anti-Money Laundering Directives) in 1990 to closely monitor and prevent ML crimes within the EU. The 6th AMLD was introduced in December 2020, and must be implemented by banks and financial institutions by June this year.
It is an amended version of the 5AMLD that focuses, amongst others, on higher liability and tougher punishments for financial companies that fail to comply with the AML regulations. The 6AMLD introduced a minimum of 4 years of imprisonment for ML offences and extended the list of possible ML crimes to 22 predicate offences, in order to provide a more standardised understanding of the scope of ML amongst all EU financial institutions.
The UK has opted out of the 6th AMLD. It has its own independent regulatory institution, the FCA (Financial Conduct Authority) that delivers all regulations on ML crimes, taking into account the global standards set by the FATF and 5AMLD regulations set by the European Union (as the UK was still part of the EU when the 5AMLD came into force).
The latest amendment is based on Customer Due Diligence (CDD) measures that strengthen customer verification to ensure the legitimacy of every account holder. It also enforces a requirement for financial firms to update their records and to share account information should it be requested by the FCA. Depending on the nature of the offence, ML criminals can face up to 14 years of imprisonment. The FCA has full power over the future of financial companies that fail to comply with AML regulations, and it performs checks and audits regularly.
There are other parties focused on preventing ML and other financial crimes in the UK, such as the HMRC (Her Majesty’s Revenue and Customs), the UK government’s tax authority, the NCA (National Crime Agency), that prevents organised crime in the UK, and the POCA (Proceeds of Crime Act), that oversees the process of recovering and freezing assets obtained illegally, as well as defines ML offences.
Administered by the Financial Crimes Enforcement Network (FinCEN), the Bank Secrecy Act (BSA) is a piece of legislation aimed at preventing ML and Terrorist Financing crimes in the United States.
In order to do so, companies and individuals must file a Form 8300 if they receive more than $10,000 in either a single transaction or separate transactions. Companies listed on major North America stock exchanges and government departments are exempt from this rule. As with any other country, failure to comply to BSA legislation can lead to imprisonment or heavy fines.
These are just a few examples of prominent regulatory bodies that have a direct impact on the financial services industry. Each country has their own regulator, so depending on where your business operates, it is important to check both global and national regulations.
Money Laundering crimes account for 2.7% of the global GDP, which corresponds to around $1.6 trillion per year (United Nations report). It is impossible to determine these figures precisely, as there are many ML crimes still going unnoticed. Corruption, tax avoidance and other money laundering crimes are rapidly growing, which means that, to this day, there are still banks actively participating in criminal activities.
This type of crime is considered a global threat, and institutions around the globe are focusing their efforts on combating it. Therefore, AML compliance has never been so urgent. It is fundamental that all financial companies strictly follow AML requirements in order to prevent any compliance with illegal activities, safeguard their customers, maintain their integrity and reputation and protect the global economy.
You can visit the FATF website for global policies, or your own national organisation for national policies. They will have all the documents and AML information needed.
Payments is, naturally, a sector of high importance when it comes to Money Laundering crimes- and Imburse can help you effectively monitor your payment transactions to easily detect any suspicious activity. If you would like to find out more about how you can comply with AML regulations, and how Imburse can help you with payment tracking and reporting, drop us a message below.