Anti-money laundering, which is also referred to as anti money laundering or AML, refers to programs typically put in place by financial institutions to prevent the act of money laundering. These programs often are created to ensure that the organization is compliant with relevant laws and regulations.
What is money laundering?
Money laundering is a process criminals use to hide the origin of illegaly obtained funds. The process consists of three stages – placement, layering, and integration – passing illegal money through legitimate financial systems to ‘launder’ it.
- Placement. Illegal money, “dirty cash,” is placed in a legitimate financial system. This can include making multiple small deposits of cash into accounts, opening insurance policies, or purchasing securities.
- Layering. To further hide the source of the money, layering involves making a series of transactions and other methods of moving the money around.
- Integration. The final stage of money laundering, criminals withdraw the now “clean” funds from legitimate sources. Due to the previous steps, the source of the funds’ acquisition is now hidden and the cash can be used by the criminals however they’d like.
What does an anti-money laundering program look like?
Anti-money laundering programs are a necessity for financial services institutions, very often due to regulations governing the activities of these companies. These regulations are intended to prevent money laundering activities supporting organized crime, terrorism, and other illegal activities.
AML programs are built on a combination of policy, procedure, and technology designed to identify and stop financial activities that appear to fall under one of the three stages of money laundering. Common elements of these programs include monitoring technology that flags potentially suspicious activities, mandatory employee training programs, and escalation mechanisms for employees to report possible money laundering to prevention teams.« Back to Glossary Index