Anti-Money Laundering (AML) is the prevention of illegal money laundering, requiring financial institutions to verify the origin of large sums of money and report suspicious activity. The Financial Action Task Force on Money Laundering (FATF) creates policies to help members fight money laundering. Governments focus on AML regulation as laundered money is often obtained illegally, including through illegal activities and tax evasion. Financial institutions comply with AML regulations by verifying customer identity, monitoring transactions, and using software to identify suspicious patterns and create Suspicious Activity Reports (SARs).
Anti-Money Laundering (AML) is the effort to stop the illegal practice of money laundering, where a criminal lies about the source of his funds. Under anti-money laundering guidelines, financial institutions are required to take steps to verify the origin of large sums of money passing through their organization and are also required to report suspicious activity. These regulations have become particularly prominent in the United States since the passage of the Patriot Act in 2001, although several countries have adopted anti-money laundering guidelines. The Financial Action Task Force on Money Laundering (FATF) creates policies that help its members, including more than 30 countries, fight money laundering.
Governments of various countries place emphasis on anti-money laundering regulation because, in most cases, laundered money is obtained illegally. For example, some criminals make their money through activities that are illegal in most areas, including drug dealing, prostitution, and gambling. Also, many people launder money to avoid paying income taxes. It was terrorism that prompted the US government to enact the Patriot Act. This regulation gives government officials the freedom to investigate suspicious activity so they have a chance to stop those funding terrorists.
Financial institutions are required to comply with anti-money laundering regulations. They must verify the identity of customers and monitor the transactions made on a regular basis. One of the main anti-money laundering tools most banks use is a Currency Transaction Report (CTR), which is a form that must be completed for every money withdrawal, deposit, and account transfer over a certain amount. In the United States as of 2011, this amount was $10,000, although the amount can vary by country and some countries do not require this form at all. Typical CTR includes tax information, customer personal information, and whether the bank employee thinks the transaction is suspicious.
Most banks use anti-money laundering software to help them comply with regulations. Most CTRs are stored electronically through such software, but another type of software specializes in properly identifying customers in accordance with the customer identification program implemented by the US Bank Secrecy Act. Such software adheres to the “know your customer” (KYC), which involve checking customer account history to get an accurate picture of each customer’s identity and transaction habits. A third type of software focuses solely on monitoring transactions to look for suspicious patterns that could indicate money laundering. This type of software automatically creates Suspicious Activity Reports (SARs) when money laundering or other illegal acts are suspected, resulting in an investigation of the account.
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