Anti-Money Laundering, shortened as AML, refers to a set of laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income. Though AML laws cover a relatively limited range of transactions and criminal behaviours, their implications are far-reaching.
AML 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. 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.
One rule in place 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.
AML vs. KYC
While closely related, there is a difference between AML and KYC (Know Your Customer). 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.
