What Is Anti Money Laundering?

Anti-money laundering refers to a set of laws, regulations, and procedures intended to prevent
criminals from disguising illegally obtained funds as legitimate income. Though anti-money-
laundering (AML) laws cover a relatively limited range of transactions and criminal behaviors, their
implications are far-reaching. For example, AML regulations require that banks and other financial
institutions that issue credit or allow customers to open deposit accounts follow rules to ensure they
are not aiding in money-laundering.

AML compliance officers are often appointed to oversee anti-money laundering policies and ensure
that banks and other financial institutions are compliant.

How Anti Money Laundering (AML) Works

Anti-money-laundering laws and regulations target criminal activities including market
manipulation, trade in illegal goods, corruption of public funds, and tax evasion, as well as the
methods that are used to conceal these crimes and the money derived from them.

KEY TAKEAWAYS

 Criminals use money laundering to conceal their crimes and the money derived from
them.
 Anti Money Laundering seeks to deter criminals by making it harder for them to hide the
loot.
 Financial institutions are required to monitor customers' transactions and report on
anything suspicious.
Criminals often try to "launder" the money they obtain illegally through acts such as drug
trafficking so that it can't easily be traced back to them. One of the most common techniques is
to run the money through a legitimate cash-based business owned by the criminal organization or
its confederates. The supposedly legitimate business can deposit the money, which the criminals
can then withdraw.

Money launderers may also sneak cash into foreign countries to deposit it, deposit cash in
smaller increments that are likely to arouse suspicion or use it to buy other cash instruments.
Launderers will sometimes invest the money, using dishonest brokers who are willing to ignore
the rules in return for large commissions.

Money launderers often try to disguise illegally obtained money by running it through a
legitimate cash business.
It's up to financial institutions to monitor their customers' deposits and other transactions to
ensure they aren't part of a money-laundering scheme. The institutions must verify where large
sums of money originated, monitor suspicious activities, and report cash transactions exceeding
rs10l. Besides complying with AML laws, financial institutions must make sure that clients are
aware of them.

Money-laundering investigations by police and other law enforcement agencies often involve
scrutinizing financial records for inconsistencies or suspicious activity. In today's regulatory
environment, extensive records are kept on just about every significant financial transaction. So
when police try to trace a crime to its perpetrators, few methods are more effective than locating
the records of financial transactions they were involved in.

AML vs. KYC

The difference between AML and KYC (Know Your Customer). In banking, KYC is the process
that institutions must take in order to verify their customer's identities before providing services.
AML operates on a much broader level and are the measures that institutions take to prevent and
combat money laundering, terrorism financing, and other financial crimes. Banks use AML/KYC
compliance to maintain secure financial institutions.

AML Holding Period

One anti-money laundering method is the AML holding period which requires deposits to remain
in an account for a minimum of five trading days. This holding period is intended to help in anti-
money laundering and risk management.