Money laundering has been around for a long time. Solo criminals and organized crime groups have long used various schemes to conceal the true sources and make “dirty” money look legitimate. According to the United Nations Office on Drugs and Crime, criminals launder between €715 billion and €1.87 trillion annually – that’s almost 2-5% of the global GDP!
With the rise of various financial solutions such as cryptocurrency, neo-banks, and e-wallets, combating money laundering remains a difficult task and requires risk-based procedures. In response, governments have rolled out Anti‑Money Laundering (AML) rules and regulations that put greater pressure and enforce due‑diligence responsibilities on firms that are handling our money.
What Does AML Compliance Mean in Practice?
Anti‑Money Laundering compliance may sound like a mouthful, but it’s really not that complex to grasp. Simply put, it’s a set of activities that aim at stopping criminals from using your business to legitimize illicitly received cash.
Practically speaking, AML compliance means verifying who your customers are, understanding where their funds come from and monitoring transactions for unusual (suspicious) patterns. Banks, FinTech companies and even law firms use what’s called a risk‑based approach: a method that involves assessing and mitigating risks according to their exposure. In other words, if something looks suspicious, they must file a report with authorities.
What makes AML compliance complex, though, is that it involves specialized staff, sophisticated screening systems, and ongoing training. But this complexity is justified in the long run, as effective anti-money laundering programs protect companies from reputational damage and help keep illicit funds out of the legitimate economy. In a nutshell, strong AML programs protect customers, help curb corruption, and, as a result, build trust.
Why is AML Compliance Critical for Financial Institutions?
When money moves unchecked, bad things can happen.
Unsupervised money flows can be linked to drugs, human trafficking, or even terrorism. Therefore, it’s no surprise that financial institutions, such as banks, credit unions, insurance, and fintech companies, take AML compliance very seriously. For them, anti-money laundering programs is both a reputational foundation and a safeguard against illegal activities creeping in.
According to International Monetary Fund, large‑scale money laundering can make capital flows volatile, undermine good governance and erode public trust. That’s why Know‑Your‑Customer (KYC) checks, transaction monitoring, and risk assessments are all key tools to keep criminals out and protect the integrity of the financial system.
The same can be said about the regulators – they take money laundering risks very seriously. For example, several laws mandate banks to screen clients, report suspicious activity and maintain all records. And violation penalties are real: globally regulators issued enforcement actions totaling about $4.6 billion against financial institutions in 2024.
What Industries are Subject to AML Compliance?
You might think anti-money laundering regulations only apply to financial institutions, such as banks, but they actually cover a lot more. In fact, any business that handles large amounts of money or high-value items is usually subject to AML rules.
Here’s a list of industries that are subject to AML compliance:
- Financial firms and accountants
- Real estate agencies
- Car dealerships
- Casinos and online gambling sites
- Art and antiquities dealers
Key Components of an AML Compliance Program
An effective AML compliance program is a collection of interconnected processes and practices that work together to protect the financial system from being used for illegal activities and, as a result, prevent crime. Here are the core components that make up a strong AML program.
Know Your Customer (KYC) and Customer Due Diligence (CDD)
Organizations must verify the identity of their customers and assess the potential risks they may pose, ensuring that they are not involved in illicit activities. KYC is the first step that involves collecting and verifying a customer’s identity documents, like a driver’s license, passport or ID. CDD is the next step that assesses the risk a customer poses.
Example: When a person opens a new savings account, the bank just asks for a government-issued ID and proof of address, as they are considered low-risk customers. But corporations are considered high-risk. That’s why the bank must also verify the company’s legal status and identify its ultimate beneficial owners to understand the ownership structure.
Sanctions Screening
AML compliance requires businesses to screen customers and transactions against various sanctions lists, including those related to Politically Exposed Persons (PEPs) and individuals/entities subject to international sanctions. This helps avoid doing business with high-risk individuals or organizations, such as financial criminals, terrorists, and sanctioned countries.
Example: If a company is trying to wire money to a business in a country that is on a sanctions list, a bank’s sanctions screening software would automatically block the transaction and flag it for review – this is done to ensure the bank doesn’t violate international law.
Record Keeping and Reporting
AML regulations require businesses to keep detailed records of transactions, customer information, and reports submitted to authorities. This ensures that organizations can provide evidence of their compliance efforts if audited or investigated by regulators.
Example: A bank keeps all the documents from a customer’s KYC process, like their ID, utility bill, and address verification, for several years. Also, they keep a log of every SAR they’ve ever filed.
Transaction monitoring
This is the process of monitoring and reviewing customer transactions for unusual patterns or activities, such as unusually large deposits, rapid movement of funds, or transactions involving high-risk countries, that could be viewed as “red flags” for money laundering or other financial crimes. Most financial institutions use automated systems that analyze such data, because it comes in large volumes usually.
Example: If a customer who normally deposits around $1,000 a week all of a sudden starts making multiple cash deposits of around $10,000, the bank’s transaction monitoring system would flag this activity for review.
Suspicious Activity Reporting (SAR)
If suspicious transactions are identified, organizations must file a suspicious activity report to the relevant authorities, such as FinCEN or other local regulators. Informing the authorities of potential financial crimes doesn’t mean that the person/legal entity is guilty. It’s just a way to provide valuable information to law enforcement agencies for further investigation.
Example: If, after reviewing the flagged deposits from the transaction monitoring system, a bank’s compliance officer establishes that the activity is highly suspicious, then they must prepare and submit a SAR detailing the customer’s activity and their reasoning for the suspicion.
Employee Training and Awareness
AML compliance must include ongoing training for employees to ensure they understand how to detect suspicious activity and comply with regulatory requirements. From entry-level personnel to executives, everyone must understand their role in preventing financial crime. And for that competence to grow, training should be ongoing and tailored to the employee’s specific responsibilities. For example, a new bank clerk must get training on how to spot a fake ID and what to do if a customer asks unusual questions about reporting requirements.
AML Regulatory Requirements by Region
AML regulations are essential to protect financial systems, combat illicit activities, and make sure our economies are stable. While these rules can look a little different depending on the country you’re in, they usually follow the same playbook, because most places use international guidelines, like the ones from the FATF (Financial Action Task Force). After all, we must all be working together to fight money laundering, no matter where we are.
Let’s review the anti-money laundering regulations that are enforced in various regions of the world.
Global
The FATF is an intergovernmental organization that develops global AML and Counter-Terrorist Financing (CTF) standards. FAFT recommendations provide a comprehensive framework for countries to establish strong AML systems. These recommendations focus on:
- Customer due diligence and beneficial ownership.
- Sanctions implementation.
- International cooperation and information sharing.
Countries are regularly assessed by FATF through mutual evaluations to ensure compliance.
The United States
In the United States there are three main laws that fight financial crime and target money laundering in particular.
The Bank Secrecy Act (BSA) is the cornerstone of AML compliance regulations in the US. It requires financial institutions to keep detailed records (a paper trail) and report certain transactions to the government. In particular, the BSA mandates financial institutions to:
- Maintain records of cash transactions over $10,000.
- File Suspicious Activity Reports (SARs) when suspicious activity is detected, regardless the amount.
- Implement AML compliance programs.
The USA PATRIOT Act was passed after the 9/11 attacks to expand the existing BSA regulations to combat terrorist financing on US soil. Key provisions of this law include:
- Enhanced due diligence for foreign financial institutions.
- Prohibition of accounts with shell banks.
- Sharing of information between financial institutions and the government (Section 314).
Financial Crimes Enforcement Network (FinCEN) Rules is a bureau in the U.S. Treasury that enforces the existing AML laws, as well as serves as a hub for collection and analyzing all the AML-related information gathered. FinCEN main functions are:
- Issue guidance and rules on how financial institutions should comply with AML laws, such as CDD rules and ID requirements.
- File all SARs and currency transactions reports.
The European Union
The main legal framework for AML compliance in the EU are the Anti-Money Laundering Directives (AMLD) – a series of rules that instruct EU member states to incorporate AML programs into their national laws.
- 4th AMLD: Introduced risk-based approaches and requirements to identify beneficial owners.
- 5th AMLD: Expanded AML requirements to cover cryptocurrencies, prepaid cards, and high-value goods. It also improved transparency for beneficial ownership registers.
- 6th AMLD: Focused on harmonizing AML offenses and penalties across the EU and holding individuals accountable for aiding money laundering.
The United Kingdom
The UK’s main law for fighting financial crime is the Proceeds of Crime Act 2002 (POCA). Not only does it criminalize money laundering and power law enforcement to recover illicitly obtained assets, but also obliges businesses:
- Report suspicious transactions.
- Seize or freeze assets suspected of being the proceeds of crime.
Australia
Australia’s key is the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), which regulates AML and CTF measures for “reporting entities” – a broad term that includes not just banks, but also casinos, money transfer businesses, and digital currency exchanges. This law requires business to:
- Assess their risks and create a customized AML/CTF program to manage them.
- Identify customers, keep records, and report suspicious activities, including cash transactions over AUD$10,000 and all international transfers, to AUSTRAC.
India
India’s principal AML law is the Prevention of Money Laundering Act (PMLA), which criminalizes money laundering and forces financial institutions to:
- Verify customer identities.
- Maintain transaction records.
- Report suspicious activity and cash transactions to the Financial Intelligence Unit-India (FIU-IND).
The Three Stages of Money Laundering
Money laundering is a process that occurs in three key stages: placement, layering, and integration. Each stage plays a distinct role in trying to hide the origins of “dirty” money gained from illegal activities and to integrate them into legitimate businesses to make them look “clean”.
Placement
The first stage – getting the illegal cash, aka the proceeds of an illicit criminal activity, into the legitimate financial system – is the riskiest. And since large amounts of cash can easily attract attention, criminals try to find clever ways to “place” it without raising suspicion.
First, it’s important to distance the illicit funds from their source. For example, a criminal might make multiple small cash deposits, that are just under the reporting threshold, at different banks over several days. This tactic, called “structuring” or “smurfing”, helps them avoid triggering red flags. Another common method is funneling money through a cash-intensive business , like a car wash, a restaurant or a casino, and mixing the dirty money with the clean, legitimate earnings.
Alternatively, criminals can purchase high-value goods, such as real estate or luxury items, or even smuggle cash abroad to deposit in jurisdictions with weaker AML regulations.
Layering
Once the illicit funds have entered the financial system, the second stage, called layering, begins. This stage requires expertise and strategy. The aim here is to create a confusing trail to hide the money origins by moving it through a series of transactions and accounts and make it virtually impossible for authorities to trace it back to the original crime.
This cover-up can be achieved by:
- Transferring funds between multiple accounts, often across different banks or countries, converting money into different currencies or assets (for example, cryptocurrencies or precious metals).
- Using shell companies, offshore accounts, or trusts to conceal ownership.
- Selling high-value goods purchased in the placement stage.
- Using foreign jurisdictions with weak anti-money laws to further complicate tracing efforts.
Integration
In the final stage, called integration, the money has been successfully laundered and is now “clean.” The goal here is to bring the money back to the criminal in a way that looks like it came from a legitimate source, i.e. earned in a legitimate way.
Here is how “laundered” money can be reintegrated into the economy:
- Criminals may use the laundered funds to buy a legitimate business, a luxury car, a mansion, or financial instruments that generate returns that seem lawful.
- Since the money appears to have come from a legal source, such as a business loan or real estate sale, the criminal can now spend it freely without arousing suspicion.
- The cycle is complete, and the dirty money has been integrated back into the legal economy.
Each stage of money laundering has its own challenges for detection and prevention. Placement is more visible due to the movement of large cash sums, but layering and integration are often more sophisticated and complex. These use international transactions, complex ownership structures, and technological tools to evade scrutiny. Thus, effective AML efforts require robust compliance programs, advanced transaction monitoring systems, and international cooperation to identify and disrupt these activities.
The Consequences of Non-Compliance
The consequences of non-compliance with AML regulations may be grave for both individuals and organizations, especially when it comes to reputation and trust. From hefty financial fines to criminal charges, damaged reputation, and even the loss of business licenses – these consequences are enforced by regulatory bodies like FATF globally, FinCEN in the US, AUSTRAC in Australia, and the FCA in the UK.
Let’s zoom in on what can go wrong when people violate compliance regulations.
Financial Penalties
The most well-known consequence – financial penalties are weighing heavily on money laundering perpetrators. Regulatory authorities can impose massive fines on institutions or persons that fail to meet their AML obligations. Such fines are not only a punishment but also a deterrent, as they can deliver a substantial financial blow; fines can range from thousands to billions of dollars, depending on the severity and scale of the violation.
Real-life example: In 2023, one of the largest cryptocurrency exchange companies, Binance, and its CEO pleaded guilty to federal charges related to willful violations of anti-money laundering and sanctions laws. Binance agreed to pay a total of $4.3 billion in penalties including forfeiture and fines. The case was settled with the US Department of Justice and the US Treasury agencies including FinCEN and OFAC.
Legal and Criminal Consequences
An even more serious level of repercussions for AML non-compliance are the legal and criminal penalties for both the institution and the individuals.
Thus, corporate penalties involve a financial institution facing civil and criminal charges, which can lead to the revocation of business licenses and forcing the company to cease operations. More so, regulatory authorities may take extreme measures in cases of serious non-compliance, such as:
- Banning organizations from participating in certain activities.
- Being prohibited from offering services such as cross-border transactions or handling large-scale transactions.
- Being cut off from global financial networks, such as the SWIFT network, severely restricting their ability to conduct international trade and business operations.
Individuals, such as senior management, compliance officers, and even front-line employees, too can face legal consequences for violations of AML regulations. In some jurisdictions, individuals can be fined, banned from working in the financial sector, or even sentenced to jail time for a pattern of willful non-compliance.
For example, the Bank Secrecy Act (BSA) and AML laws impose criminal penalties (for both individuals and businesses) including fines up to $500,000, and/or imprisonment for up to 20 years for money laundering convictions.
Another type of legal consequence is civil lawsuits that businesses may face from their clients, investors, or other parties for failing to implement proper AML controls. In these lawsuits, the organization may be held liable for any financial losses resulting from their inability to prevent money laundering. The organization may also be sued for damages if their negligence leads to financial crimes being perpetrated through their systems.
Reputational damages
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently,” once famously said Warren Buffett.
The importance of having a good reputation can hardly be overestimated in business. A firm’s reputation is often the most significant long-term consequence of the AML failure. News of a major compliance breach spreads like wildfire and erodes the public’s and investors’ trust. Clearly, a business that fails to detect or prevent money laundering may be perceived as irresponsible, untrustworthy, or complicit in financial crimes.
Here are the most obvious consequences of reputational damages of failing regulatory compliance:
- Loss of trust. Customers and partners may lose confidence in the institution, which usually leads to them taking their business elsewhere.
- Loss of business opportunities. Other financial institutions may be reluctant to engage in partnerships or correspondent banking relationships with a company that has a history of poor AML controls. This, in turn, severely limits a firm’s growth and market reach.
- Decline in share price and investor confidence. For publicly traded companies, a tarnished reputation can lead to a significant drop in stock value as investors react to the negative news and the prospect of future penalties. Typically, investors’s hesitation to fund or support companies with a history of regulatory violations would impact such organizations’ access to capital.
- Increased scrutiny and regulatory oversight. A company that has previously failed to meet AML standards may be subject to more frequent inspections, audits, and ongoing monitoring from regulators – which leads to increased operational costs and strained resources.
How to Build an Effective AML Compliance Program
Building an anti-money laundering compliance program is not so much about creating a process that works, but rather creating an organizational culture that deems the legalization of illicitly obtained money unacceptable. It’s also a safeguard that protects your business from fines and reputational damage.
Here are a few practical steps you can take in order to create an effective AML compliance program.
STEP 1. Ensure the executive buy-in
A successful AML program should start at the top. Senior leadership should set the tone and prioritize compliance. They should be the ones that wholeheartedly support AML requirements and programs and clearly communicate it to other employees.
STEP 2. Appoint your compliance champion
Next, you need a leader for this mission – an AML Compliance Officer. Frequently called a Money-Laundering Reporting Officer (MLRO) or BSA/AML Compliance Officer, this person should be responsible for overseeing the entire program. They’re your go-to expert, whose authority and dedication to enforce AML regulations should be unquestionable. Their job is to make sure all the rules are followed, everyone is on the same page, SAR reports are filed, and the program is working without hiccups.
STEP 3. Write down your policies and procedures
Draft a clear, risk-based AML policy that will define all related procedures and activity protocols. Make sure your writer AML policy explains how your company should handle customer due diligence, transactional monitoring, record-keeping, and suspicious activity reports. After you have created your policy, it should be easily available and explained to your employees.
STEP 4. Conduct a risk assessment
An effective AML compliance program is based on a comprehensive BSA/AML risk assessment of a firm’s products, services, customers, and locations. This will help you identify money‑laundering and terrorist-financing risks and tailor internal controls to mitigate risks.
STEP 5. Choose the right tools and technology
Manual AML checks are no longer efficient, you need technology to keep up with the pace and data volumes. Real‑time transaction monitoring systems and screening tools can identify unusual patterns and match customers against sanctions lists. And AI-powered solutions significantly improve detection and reduce the number of false positives. TIP: Opt for a dedicated software that includes identity verification, sanctions screening, and transaction monitoring.
STEP 6. Train your team
Your program is only as strong as the people who run it. Everyone in your company, from the front-line staff to the executives, needs to understand their role in preventing money laundering. That’s why regular training sessions are key. It’s advisable to tailor training sessions to individuals’ responsibilities, and cover regulatory requirements, internal processes and examples of suspicious activity. Offer webinars, interactive e‑learning, and set up regular meetings to keep everyone up to date.
STEP 7. Perform independent audits
Have an independent third party (or someone from a different department not involved in the AML function) perform regular audits of your program. They should evaluate policies, monitoring systems, reporting processes, and training. Basically, they’ll check if you’re following your own rules, catch any loopholes, and fix inconsistencies before they tun into bigger problems.
STEP 8. Review and update regularly
The world of finance is always changing, and so are the rules. Your AML compliance program shouldn’t be stale, but rather dynamic and evolving. Your anti-money laundering compliance officer should regularly review and update your policies and procedures to reflect new regulations, emerging risks, and changes in your business.
By following these steps you’ll be able to build an effective AML program that both protects your business and contributes to a safer and more ethical economic system.
AML Compliance Services and Technology Solutions
Anti-money laundering legislation and compliance rules may be challenging. But you don’t have to do it alone. There are AML compliance services and solutions available that are designed to help you stay compliant and fight financial crime without unnecessary complexities.
AML compliance services offer expert advice to businesses of all sizes on how to understand and define compliance policies. From customer onboarding and KYC verification to sanctions screening, transaction monitoring, case management and reporting – AML compliance services are there to guide you and alleviate your fears of sketchy financial transactions.
AML technology solutions are reshaping modern compliance. These software platforms are designed to automate and streamline many of the key compliance tasks: monitor transactions in real-time, screen against global sanctions lists, and help you manage and report suspicious activity efficiently. Adding a compliance solution to your toolbox will help you onboard clients quicker, better detect suspicious activities, reduce human error and keep your customer information up to date.
The recent shift from manual AML compliance practices, which used to rely on human review of physical documents, to automated systems was driven by the increase in the volume of financial transactions, which made manual methods inefficient and prone to error.
| Feature | Manual process | Automated solutions |
| Data Processing | Slow, labor-intensive, and prone to human error. | Fast, consistent, and highly accurate. |
| Transaction Monitoring | Reactive. Based on limited, static rules. | Proactive. Uses real-time data and behavioral analytics. |
| Reporting | Time-consuming, manual report generation. | Automated report generation with audit trails. |
| Scalability | Difficult to scale as business grows. | Scales seamlessly to handle increased volume. |
| Cost | Higher operational costs due to labor. | Lower long-term costs due to efficiency gains. |
How Ondato Can Help
AML compliance providers like Ondato help organizations meet regulatory requirements and manage risks related to financial crime. These platforms offer a range of tools designed to detect, prevent, and report suspicious activities. Here’s how they assist businesses:
Streamlined Customer Due Diligence (CDD) and Know Your Customer (KYC)
Ondato automates identity verification, document checks, and biometric authentication, ensuring accurate customer profiles and compliance with global AML regulations, minimizing the risk of onboarding criminals.
Risk-based Approach to Compliance
By assessing customer risk using advanced analytics, Ondato allows organizations to prioritize higher-risk activities, optimizing compliance efforts and resource allocation.
Automated Screening Against Sanctions and PEP Lists
Ondato automates screening against sanctions lists and Politically Exposed Persons (PEP) databases, reducing the risk of engaging in transactions with high-risk individuals or entities.
Enhanced Compliance with Evolving Regulations
Ondato keeps businesses compliant with constantly changing AML regulations by automatically updating its tools to reflect the latest legal requirements.
Reduced Operational Costs
By automating key AML processes, Ondato reduces the need for manual compliance efforts, enabling businesses to allocate resources more effectively and cut operational costs.
Scalable for Global Operations
Ondato adapts to multiple regulatory environments, helping businesses meet AML requirements across different regions without managing separate compliance programs.
Increased Confidence and Trust
Using Ondato enhances trust with customers, regulators, and partners by demonstrating a commitment to AML compliance and protecting against financial crime.
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