Anti-money laundering (AML)
Concepts, regulators and laws, tooling and practice ecosystem
What is AML
Anti‑money laundering (AML) is the broad term for laws, regulations and institutional measures designed to prevent criminals from making or moving illicit funds. While AML laws cover many illegal activities, prominent targets include tax evasion, public corruption and market manipulation (e.g., wash trading).
Regulators and standards
Many agencies and laws shape AML expectations. In the U.S., the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) provide information and resources to help broker‑dealers and futures commission merchants establish AML standards.
Core laws (U.S.)
- Bank Secrecy Act (1970)
- Money Laundering Control Act (1986)
- USA PATRIOT Act (2001)
Technology and tooling
Given complexity, financial institutions rely on AML software to detect suspicious activity. Capabilities include name screening against sanctions/denied‑party lists, transaction monitoring, records and reporting required for compliance, plus case management and audit trails.
KYC and AML
Know‑Your‑Customer (KYC) requirements are closely related, focusing on verifying identity and sources of funds and continuously monitoring customer activity. Modern onboarding flows collect necessary identification evidence and automate much of CDD.
Crypto compliance
As regulators focus more on crypto markets, many exchanges align with AML/KYC requirements. While critics worry about privacy and centralised data stores, others note designs that satisfy regulatory needs while preserving user privacy.
Emphasis
- AML efforts aim to make hiding criminal proceeds more difficult
- Criminals use laundering to make illicit funds appear legitimate
- Regulation requires robust CDD and mechanisms to detect suspicious activity
FAQ
Q: Can money laundering be stopped?
A: With flows estimated near 3% of global GDP, aggressive enforcement often aims to curb rather than eliminate laundering. Even so, AML measures materially raise costs and difficulty for offenders.
Q: What are common laundering methods?
A: Inflated invoicing via revenue‑generating businesses or shell‑company trades; layering to obscure origins; structuring (smurfing) to split large transfers into smaller ones to evade thresholds and scrutiny.
Q: Differences between AML, CDD and KYC?
A: AML is the umbrella for laws, rules and processes to stop laundering; CDD is the diligence institutions perform to prevent, identify and report violations; KYC applies CDD to screening and validating prospective customers.