What is anti-money laundering (AML) and who does it affect?
‘Anti-money laundering’ refers to all policies and regulations that are in place to prevent the abuse of legitimate financial systems to hide or disguise the proceeds of crime. It prevents criminals from recovering illegal gains of their crimes, as well as using the money for future criminal activity.
Why is it important?
It is critical that your business, company, entity or organisation follows AML requirements strictly, to ensure that you are not subject to regulatory compliance issues from government bodies.
It also prevents the possibility of ‘terrorist financing’. Countering the financing of terrorism (CFT) involves preventing the provision of any form of assets towards the financing of terrorists, terrorism and terrorist organisations. Such forms of assets may include bank credits, traveller’s cheques, bank cheques, money orders, shares, securities, bonds, drafts, and letters of credit.
What are the consequences of failing to comply with AML laws?
It has been estimated that over USD$400 billion dollars have been paid in fines by financial institutions since 2008 for failing to comply with AML/CFT laws.
In addition to fines and penalties imposed by AML regulators, the consequences for non-compliance are far-reaching and could include:
- Civil and/or criminal penalties imposed on Boards and Senior Executives;
- Enforceable undertakings to act or cease acting in a certain way;
- Reputation damage resulting from negative media exposure;
- Revocation of operating licenses;
- Falling share prices; and
- Extensive remediation programs to address compliance deficiencies.
Who does anti-money laundering laws apply to?
Anti-money laundering (AML) laws have been around for over 30 years. It impacts millions of companies operating in the financial services, gaming, bullion and designated non-financial businesses and professions (DNFBP) sectors in over 200 countries. AML laws apply to businesses in the following sectors:
- Building Societies and Credit Unions
- Asset Managers and Investment Advisers
- Foreign Exchange and Money Services Businesses
- Superannuation and Insurance Companies
- Emerging Technology Companies
- Accountants and Bookkeepers
- Gaming and Wagering
- Lawyers and Conveyancers
- Real Estate Agents
- High-Value Dealers
- Other Regulated Businesses
Who enforces anti-money laundering laws?
The Financial Action Task Force (FATF) was established in 1989 to set global standards for the prevention of money laundering across various member countries who have made a commitment to combat financial crime by adhering to these standards. Every 3-5 years, the FATF conduct mutual evaluation reports on the progress that each country has made to reduce money laundering vulnerabilities, and publish these findings including where governments are falling short on their commitments.
The FATF, various Financial Intelligence Units (FIUs), and other AML regulators moved away from a prescriptive one-size-fits-all approach, that treated all risks equally, to a risk-based approach (RBA). This requires regulated businesses to conduct initial and ongoing risk assessments, to identify and assess risks across several defined risk categories. It then requires businesses to develop and maintain an AML Program, that outlines the controls that have been implemented to mitigate and manage the identified money laundering and terrorism financing risk exposures.
AML regulators generally require AML Programs to be independently reviewed to assess the design and operational effectiveness of controls in mitigating and managing AML/CFT risks.