AML is an acronym commonly used for anti-money laundering, which is a criminal activity that many nations are fighting. Those nations generally have legislation that requires certain businesses to comply with AML guidelines that help prevent criminals from using their services for illicit financial reasons. In the United States, AML compliance can vary to some degree because businesses are allowed to implement their own programs. The Internal Revenue Service (IRS) says that each business’ program should be commensurate with the risks posed by its location and size, and the nature and volume of financial services provided.
Money laundering is regarded as a major risk to society because it provides criminals with the financial strength to fund and expand their illicit activities. To help prevent this, various nations have established anti-money laundering laws that regulate how certain types of businesses interact with their clients. For example, in the United Kingdom (UK), a body of legislation known as the Proceeds of Crime Act, outlines a number of anti-money laundering measures. When a business or individual adheres to these laws, it is generally referred to as AML compliance.
After suffering from terrorist attacks in 2001, the US strengthened its AML laws. Since 2002, a wider range of businesses are subject to a stricter set of regulations. These include money services providers, asset management firms, and law firms. To be AML compliant, such businesses must implement anti-money laundering programs. Although a business is allowed to develop its own program, it must meet certain minimum standards.
To begin with, certain businesses must comply with the Bank Secrecy Act (BSA). To do so, their AML programs must outline procedures for requiring identification to verify customers and the business must file reports and maintain certain records. It is also necessary for the business to develop methods and procedures to detect suspicious activity.
Each business subject to these regulations must designate a compliance officer who is knowledgeable and properly trained. AML regulations are subject to change. For this reason, in addition to the daily oversight of the AML compliance program, the officer bears the responsibility of making sure that the program is always current according to standards outlined by the Department of Treasury. Businesses are also required to conduct an independent review of the programs they implement. Although it is not necessary to employ a third party, it is necessary to assign the task to a person other than the compliance officer.
Anti-money laundering laws around the globe can vary but many of them are similar to those in the US. One aspect of AML compliance requirements that tends to be almost identical is the goal. It is believed that without such regulations criminals would have far greater financial capabilities than they currently do.