Anti Money Laundering - AML

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What is 'Anti Money Laundering - AML'

Anti-money laundering (AML) refers to a set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions.

In most cases, money launderers hide their actions through a series of steps that make it look like money that came from illegal or unethical sources was earned legitimately.

Though AML laws cover only a relatively limited number of transactions and criminal behaviors, their implications are extremely far-reaching. For example, AML regulations require institutions issuing credit or allowing customers open accounts to complete due-diligence procedures to ensure that these institutions are not aiding in money-laundering activities. The onus to perform these procedures is on the institutions, not on the criminals or the government.

BREAKING DOWN 'Anti Money Laundering - AML'

AML laws and regulations target activities that include market manipulation, trade of illegal goods, corruption of public funds and evasion of tax, as well as all activities that aim to conceal these deeds. Financial institutions are expected to comply with AML laws, make sure that clients are aware of these laws and guide people with them without prior active government orders.

Adverse Effects of Money Laundering

Money laundering activities typically aim to generate income with no regulation to maximize income for as little cash outflow as possible, with no regard for the probable negative economic, political and social implications. These activities also include income-generating actions that aim to raise funds for separate illegal activities.

Since money is a limited resource, money accumulated illegally and with no regulation prevents capital to flow into socioeconomically productive industries. The imbalance in money flow also inevitably leads to further printing of money, harming the purchasing power of a country's currency. If not controlled, this inflation can cripple and erode an economy.

Recent Anti-Money Laundering Developments

AML rules and regulation rose to global recognition when the Financial Action Task Force (FATF) was formed along with a framework for international standards for fighting money laundering.

The aim of enforcement groups like the FATF is to maintain and promote the ethical and economic advantages of a legally credible and stable financial market.

At the beginning of the 21st century, the FATF used a name-and-shame system that publicly recognizes and announces countries that fail to produce and enforce comprehensive AML laws and activities and have minimal to zero participation in the international crusade against illegal moneymaking activities.

What Makes a Sufficient Anti-Money Laundering Action?

International AML bodies expect jurisdictions to criminalize all money-laundering activities and produce a healthy amount of enforcers, regulators and tools needed for constant investigations, exchange of needed information with the international community and the use of law to order financial institutions to control risk, keep records and report any money laundering activity on their watch.