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Jun 8, 2020

AML (Anti-Money Laundering) and its compliance guidelines

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AML (Anti-Money Laundering) and its compliance guidelines

AML, Anti-Money Laundering, also known as Prevention of Money Laundering, is closely related to the KYC (Know Your Customer) process.

It is important to understand the magnitude of the risks associated with money laundering. These criminal practices are a really considerable offence for society, companies and individuals, and therefore compliance with the practices of prevention of money laundering is mandatory and is strictly regulated.

AML and KYC are two closely related concepts and should be understood as part of the identification process. Thus, the relationship between the KYC and AML processes is essential to prevent money laundering in contractual relationships and transactions.

What is AML (Anti-Money Laundering)

AML is an acronym for the term Anti-Money Laundering. It is mainly used in the financial, legal and compliance sectors to develop the standard controls that companies and organizations must carry out in order to avoid, identify and report suspicious behaviours of money laundering.

Anti-Money Laundering, AML compliance practices focus on performing procedures that discourage and prevent potential violators from engaging in money laundering fraud or crime. In this way, criminals cannot hide the illicit origin of money in any type of transaction.

This is especially noticeable in the context of online and remote services and products. On many occasions, services and / or products are purchased and / or contracted through the Internet, which payment is made with money from sources, companies or individuals of dubious legitimacy. However, if the processes are AML compliant with the guidelines established by the money laundering prevention procedures, this risk is mitigated until it becomes non-existent

Practices and requirements established by the AML compliance regulations on Money Laundering Prevention not only help businesses not to get involved in possible frauds and crimes but also their assessment improves, optimizes and automates their usual processes.

AML regulations and legal framework

AML practices have been legislated widely in recent years both in Europe and worldwide and are a mandatory legal requirement for businesses, organizations and institutions so that their activities are allowed. Compliance with AML standards is not an option, but a legal obligation, especially in the financial, FinTech and banking sectors.

The legislation is responsible for guiding the regulated sectors on how to operate and proceed. Compliance and legal departments or RegTech partner business are responsible for ensuring that all company processes meet the requirements requested by the AML regulations of each state and country.

AML5 (Fifth Anti-money Laundering Directive)

The Fifth Anti-Money Laundering Directive, AML5 (or 5AMLD), which entered into force on January 10, 2020, requires a wide range of organizations, highlighting those in the financial sector, to comply with a series of standards in their processes.

This European Directive on the Prevention of Money Laundering expands the list of subjects appointed to carry out AML compliance controls in their processes. Likewise, the standard gives companies the possibility of contracting, selling and onboarding users in a totally online, safe, optimized and legal way.

Due to AML5’s timeliness and characteristics, it actually is the regulatory framework of reference for the rest of worldwide legislation on the prevention of money laundering in any state on any continent. A company, business or institution in Asia or America will comply with the AML regulations of their state and countries taking 5AMLD as a reference.

Download here for free this complete guide on AML5.

AML, KYC (Know Your Customer) and related concepts

Anti-Money Laundering is a set of procedures and ways of acting that directly influences the usual processes of, for example, financial, banking, real estate, insurance or telecommunications companies. Among others, the following activities are affected by AML:

  • KYC (Know Your Customer): AML checks solutions are accompanied by the KYC process. A company or institution is obligated to verify the identity of a client before providing services and / or products. This dual KYC-AML procedure is essential to carry out the controls that allow knowing whether a subject has committed, is committing or intends to commit a money laundering crime by establishing a business relationship with him.

Find out in this article why image-based solutions do not meet the AML compliance and KYC guidelines.

  • eKYC standards: Just linking to the previous point, the electronic Know Your Customer process is nothing more than the digital transposition of the KYC process. Know Your Customer taken to the online and digital world, and performed remotely, must also be AML compliant.
  • KYB (Know Your Business): On the same basis as the AML-KYC process, KYB procedures focus on identifying a business, organization or institution rather than a consumer, customer or user, with its own differences and distinctions.
  • Due Diligence: The audit and investigation process prior to the acquisition, purchase or sale of a business, or the performance of any important negotiation, requires the inclusion of Anti-Money Laundering compliance controls. In this way, potential risks are evaluated and the goodwill of the parties in the negotiation is corroborated. 

Anti-Money Laundering Regtech Partners 

Compliance processes present two main challenges: their conception and understanding and their application in the normal activities of the company or institution. That is why committing its implementation and management to specialized experts is the best way to ensure that we comply with AML compliance requirements and take full advantage of its assets and benefits.

Electronic IDentification, eID, is a RegTech and GovTech established partner that accompanies dozens of businesses and financial institutions in their needs related to the prevention of money laundering.

All eID solutions comply with guarantees with all AML regulations anywhere in the world, including AML5, the future AML6 (or 6AMLD) and eIDAS. This not only involves adapting business processes to the mandatory regulations in each sector, but optimizing and digitizing processes to boost customer acquisition and reduce costs.

Request a free demo of our AML compliant solutions here.

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