What are AML Checks?

AML checks are essential to prevent financial crimes, protect reputations, and ensure regulatory compliance. By scrutinizing transactions and verifying identities, organizations detect money laundering, terrorist financing, and fraud early, disrupting illicit financial networks. These measures maintain the integrity of financial systems, reduce systemic risk, and foster trust among customers and stakeholders.

The growing cases of financial crime highlight the significance of stringent anti-money laundering checks. As noted by FATF,³ financial institutions requiring enhanced AML checks are more prone to money laundering activities because they deal with high volumes of transactions.

Anti-money laundering checks and AML verification processes are a core part of financial compliance and must take place at key trigger points during the customer relationship cycle. The FATF guidelines highlight three times when AML checks and money laundering checks are absolutely critical.

1. Onboarding customers at the beginning stage
Organisations should conduct complete AML checks when onboarding an individual for the very first time. Examples of onboarding include opening new accounts for customers, creating business relationships, professional service engagements, and investment account setups. The onboarding stage is where all due diligence should be done to establish a baseline understanding of the customer's identity, activities, and risk profile. According to the World Bank,⁴ strong initial anti-money laundering checks prevent high-risk relationships from forming.

2. Ongoing monitoring on a regular basis
Ongoing AML monitoring and regular money laundering checks are a significant part of the compliance process. Organisations should review accounts on a regular basis, usually annually, as well as update risk assessments on schedule and verify customer information from time to time. This monitoring also involves regular reviews of transaction patterns and periodic updates of sanctions screenings. Automated AML checks help organisations monitor these changes continuously to identify any change in customer behaviour or risk profiles.

3. Trigger events
Specific events necessitate additional anti-money laundering checks throughout the business relationship. These trigger events⁵ include large or unusual transactions, changes in ownership structure requiring enhanced AML checks, significant alterations in transaction patterns, and cross-border payment activities. Updates to customer information also require fresh AML ID verification. Online money laundering checks must be renewed when such changes occur, as these events often indicate increased risk and require enhanced scrutiny.

4. Regulatory milestones
Organisations also have to do extended AML compliance checks in case of any changes in regulatory requirements, the introduction of new sanctions, or changes in industry recommendations. Any alterations in compliance frameworks and risk assessment criteria require new anti-money laundering checks. These regulatory milestones make sure that compliance measures are updated and relevant against financial crime.

Ensuring robust AML checks revolves around four key areas: Regulatory compliance, reputational protection, avoidance of penalties, and integrity of the financial system. Each focus area underscores the importance of proper procedures in meeting legal standards, safeguarding company reputation, and maintaining financial stability.

Regulatory Compliance
Adhering to robust AML protocols is central to meeting both national and international legal requirements. By integrating standard, electronic, and enhanced AML checks, organizations align their operations with frameworks such as the 6th Anti-Money Laundering Directive (6AMLD) by the EU.⁶. This comprehensive approach not only satisfies stringent regulatory standards but also reinforces an organization’s commitment to ethical practices and legal diligence in combating financial crime.

Reputational Protection
It avoids the association of criminal activities that may hamper the credibility of a company and keep stakeholder trust intact. Reputation consequences from failures in anti-money laundering checks and AML compliance checks are usually very serious and last long, affecting customer relationships and even business partnerships.

Avoidance of Penalties
Organisations that are not performing correct AML checks and money laundering checks are sanctioned with severe fines. For example, NatWest Bank was fined £265 million⁷ in 2022 due to AML failings. These can be disastrous for an organisation in terms of financial stability and market standing.

Integrity of Financial System
Safeguarding the global economy against the use of financial systems for illicit activities. Proper AML and PEP checks deal with the prevention of terrorist financing, tax evasion, and other forms of financial crime that can destabilise economies.

AML checks and anti-money laundering verification processes are composed of various interconnected processes that come together to create a solid compliance framework. Here are the core elements of money laundering checks:

1. Customer Due Diligence (CDD)⁸
CDD is the foundation of AML checks; the process means customers' verification at the onboarding stage and their risk assessment. Whether performing AML checks for estate agents or AML checks for accountants, a business should collect the following information as a minimum:

• Full name and birth date
• Address and proof of residency
• Government-issued ID (e.g., passports)

2. Enhanced Due Diligence (EDD)
For customers regarded as high-risk, enhanced AML checks and additional money laundering checks come into play. These anti-money laundering checks involve:

• The verification of the source of funds and wealth
• Regular reviews of customer accounts
• Approval by senior management for onboarding high-risk clients
• More regular transaction and relationship monitoring

Additional record-keeping is important for customers like PEPs, who could possibly have an increased risk of corruption or money laundering. AML and PEP checks also apply to all customers from high-risk jurisdictions or those involved in complex corporate structures.

3. Sanctions screening
Electronic sanction screenings ensures that businesses are not transacting with individuals, entities, or countries subject to financial sanctions. Key sanctions lists include:

• UN Security Council Consolidated List⁹
• OFAC Specially Designated Nationals (SDN) List¹⁰
• EU Consolidated Financial Sanctions List¹¹
• UK HM Treasury Consolidated List¹²
• World Bank Office of Suspension and Debarment (OSD)¹³

Ongoing AML checks and monitoring are crucial because these lists are regularly changed to reflect geopolitical changes. Organisations should access dependable screening systems that can promptly and rapidly adapt to new sanctions requirements and new regulations.

4. Transaction monitoring
Transaction monitoring systems review customer activities in real-time to learn of abnormal patterns or red flags. When conducting AML checks and enhanced AML checks, organisations must watch for specific patterns. When performing anti-money laundering checks and automated AML checks, examples could include large cash deposits or withdrawals, transactions with high-risk jurisdictions, activities that are inconsistent with a customer's profile, complex patterns of transactions, and unusual frequency or timing of transactions.

The suspicious transactions are highlighted for further investigation through AML compliance checks, then reported to the regulatory authorities with the use of Suspicious Activity Reports (SARs).¹⁴ The modern electronic AML checks and automated AML verification systems use advanced analytics to decrease the false positives without compromising detection rates.

AML checks form part of the wider process called the Know Your Customer (KYC)¹⁵ process. Whereas KYC primarily concentrates on identification upon customer onboarding, money laundering checks extend into continuing monitoring and risk assessments. KYC and AML checks work together, and this consolidation enhances compliance frameworks so businesses can positively identify and mitigate these risks. The integration of processes between AML and KYC develops a comprehensive approach toward risk management, including:

• Initial customer verification through AML ID checks
• Ongoing monitoring of customer behavior
• Regular updates to customer information
• Risk-based approach to customer management
• Unified compliance reporting

In spite of advancements, there are a number of challenges that organisations need to face in implementing effective anti-money laundering checks:

Evolving Regulations
The regulatory demands for AML checks and money laundering checks differ from one jurisdiction to another and continuously change, hence making it difficult to conform to. For instance, the 6AMLD prescribes more stringent sanctions and elaborates on reporting duties.

False Positives
Automated AML checks and electronic verification systems often flag legitimate transactions, creating inefficiencies in investigation processes.

Data Quality
Incomplete or inaccurate customer data undermines the effectiveness of AML checks and KYC AML checks, leading to missed risks or unnecessary alerts.

Resource Constraints
Smaller and medium-sized businesses usually do not have the financial and technological wherewithal for comprehensive anti-money laundering check systems.

For effective AML programs, proper documentation of money laundering checks and anti-money laundering verification is essential. Businesses should maintain comprehensive records of all AML checks performed, including Customer Due Diligence (CDD) records from initial AML checks, transaction monitoring logs from ongoing AML compliance checks, risk assessments including enhanced AML checks documentation, AML and PEP check results, and Suspicious Activity Reports (SARs) from online money laundering checks.

Authorities such as the FCA and FinCEN¹⁶ mandate timely submission of SARs for transactions flagged during AML checks. Failure to comply with anti-money laundering checks and international AML checks can result in severe penalties and reputational damage.