What is an anti-money laundering (AML) check?

Find out everything about anti-money laundering (AML) checks, from how they are used to prevent financial crime to how to determine when they are needed.

Anti-money laundering (AML) checks are one of the customer due diligence measures required by regulated businesses to comply with the money laundering regulations and prevent financial crime. AML checks, which can range from basic know your customer (KYC) verification to real-time screening, are designed to identify customers and assess their associated risk.  

AML checks are a safeguard to help prevent businesses from becoming directly or indirectly caught up in criminal activity. Regulated businesses that fail to undertake these checks are likely to be subject to substantial fines as well as other serious consequences.

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AML checks play an important role in meeting the basic regulatory requirement to undertake ongoing customer due diligence. These checks are about knowing your customer; verifying customers are who they say they are, and ensuring an accurate understanding of any risks associated with doing business with them.

AML checks are integral the best practice of perpetual KYC. Perpetual KYC takes a proactive approach to AML compliance by using artificial intelligence (AI) to continuously monitor customer behaviour. Should any anomalous patterns be identified, further additional money laundering checks would be necessary to determine whether the behaviour is truly indicative of financial crime.

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The following type of customer information is typically integral to an AML check:

1. Name
2. Photograph on an official document which confirms their identity, such as a driving licence or passport
3. Proof of residential address
4. Date of birth

Depending on the circumstances, other types of information may also need to be checked, such as:

5. Purpose and intended nature of the relationship
6. Details of customer’s business/employment
7. Source/origin of funds
8. Relationships between signatories and any beneficial owners
9. Expected type and level of activity

The beneficial owner may additionally need to be identified as part of third party due diligence. A beneficial owner is a person who ultimately owns/controls/is entitled to more than 25% of shares/voting rights. 

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As a minimum regulatory requirement, the global money laundering and terrorist financing watchdog, Financial Action Task Force (FATF), recommends that financial institutions should be required to undertake customer due diligence measures when:

• Establishing a new business relationship with a customer  
• There is a suspicion of money laundering or terrorist financing  
• There is uncertainty about previously obtained customer identification information  
• Occasional transactions occur that are above the applicable designated threshold (USD/EUR 15,000) or for certain wire transfers.

It is also good practice to carry out AML checks when necessary for existing customers, for example, when their circumstances change. FATF recommends the extent of customer due diligence should be determined by a risk-based approach.

FATF also recommends additional customer due diligence measures, such as enhanced ongoing monitoring, for specific customers and activities. These include politically exposed persons, correspondent banking, money/value transfers, wire transfers and new technologies.

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AML systems are essential for ensuring businesses have the internal controls, processes and intelligence to identify and protect against the risk of money laundering.

Client screening, transaction screening and transaction monitoring are all AML systems that have an important role in helping to establish when AML checks need to be run in line with the circumstances outlined above.  

Effective client screening, transaction screening and transaction monitoring processes will provide an accurate understanding of the risk and in turn, the level and intensity of the anti-money laundering checks each customer and transaction requires.

• Client screening. Is a customer subject to sanctions? Client screening is the process of screening customer names against sanctions lists to identify sanctioned individuals or entities. Napier’s Client Screening solution helps meet compliance obligations with on-going large-scale screening and re-screening capabilities to give significant operational efficiencies.

• Transaction screening. Is the transaction going to a sanctioned entity? Transaction screening is a real-time process that involves screening all parties involved in the transaction/payment against multiple internal and external watch and sanction lists. The aim is to determine if the money is being sent to a sanctioned person or entity. Transaction screening is important for both AML and trade compliance.

• Transaction monitoring. Is the transaction suspicious? Transaction monitoring is the process of monitoring a customer’s transactions, such as transfers, deposits and withdrawals. The aim is to identify any suspicious behaviour. Effective transaction monitoring requires a fine combination of processes, technology and human expertise to successfully weed good transactions from the bad as criminals constantly evolve their money laundering tactics.

Napier’s Transaction Monitoring system identifies high-risk transactions with the option of machine learning to reduce false positives. With the added benefit of the Client Activity Review module, Napier’s Transaction Monitoring system facilitates perpetual KYC by proactively comparing a customer’s current behaviour with past behaviour to alert of any anomalous activity.

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1. An intuitive dashboard integrating all customer and intelligence data into a single view with automatic alerts, makes it easy to determine when further AML checks are necessary.
2. AI enhanced analytics with machine learning improves monitoring, reduces false positives and increases the efficiency of the alerts that would indicate further AML checks
3. Enhanced KYC matching capabilities across 18 languages with natural language processing and advanced matching algorithms reduces both false positives and false negatives.  
4. Fully managed public sanction list updates, including quality checks. Users can also apply their own private lists and whitelists to reduce false positives.
5. Integrated sandbox to change, test and understand screening configurations before committing changes to the live environment.
6. Full, paperless audit trail.

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Most countries have their own set of AML regulations which are guided by the FATF Recommendations. All businesses that are regulated by the money laundering regulations need to perform AML checks as part of the customer due diligence that’s necessary to help identify and protect against the risk of money laundering.  

Transaction monitoring, transaction screening and client screening are all important tools in the toolkit for establishing the necessary internal controls and monitoring systems to are required to guide and inform the level and intensity of AML checks.

Full details of a business’s procedures for AML checks should be provided in its policy statement. Similarly, meticulous record keeping should be maintained for at least five years to demonstrate compliance with anti-money laundering regulations. These steps will help provide protection should there ever be an investigation or request for information.

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