Money laundering is described as the act of camouflaging profits from illegal activities into legitimate funds. Governments are working actively with financial institutions to combat money laundering and stop it from happening. These efforts have caused many anti-money laundering (AML) policies to be put into place around the world.

In recent years, money laundering has become a significant issue. This is because it is becoming easier for criminals to perform money laundering activities online. In today’s global financial environment, AML regulations are more stringent than ever. The requirements for verification have become increasingly complex, while the penalties for non-compliance can threaten the very existence of your business.

Money Laundering Activities

Money that has been obtained through illegal means needs to be cleaned before it can be used. If, for example, a drug trafficker wants to use their illegal income, they must clean their money through a series of steps that makes it appear that they obtained that money legally. Criminals think that once a record of how the money was earned exists, that money will not cause suspicion.

One of the most common ways criminals launder money is by running it through a legitimate cash-based business operated by the criminal enterprise. Money laundering also occurs when criminals deposit cash in foreign countries or deposit cash in smaller increments. Money launderers will often want to invest their funds, and brokers will break the rules on occasion to make money themselves.

Where does Money Laundering Occur

Money laundering occurs all over the world. Money launderers generally seek out countries where their risk of being detected is low. Countries with low money laundering detection usually have weak or ineffective AML programs. Money launderers typically want their illegal funds to be returned to them. For this reason, they tend to prefer moving their funds through stable financial markets.

Why AML is Important

Money is a limited resource. If money is accumulated illegally, this can prevent capital from flowing into a productive sector of a country’s economy. If an imbalance in money flow occurs, more money gets printed by the government. This can harm a country’s economy by hurting the purchasing power of their currency.

Furthermore, if left unchecked, organized crime can infiltrate financial institutions. They can also acquire control of large sectors of an economy though investment or bribes to public officials. If a criminal organization has economic and political influence in a country, it can degrade its ethical standards and whole society. In some instances, criminal activity can dampen the advancement of a country into a democratic system of government.

Ultimately, money laundering allows criminal activity to continue freely.

What is AML?

AML is a set of regulations and laws aimed at preventing people from generating income through illegal actions. AML laws fight specific activities such as market manipulation, drug trafficking, trade of illegal goods, fraud, extortion of public funds and tax evasion.

Through these regulations financial institutions are forced to proactively monitor their customers to help fight against money laundering and corruption. Financial institutions must report any financial crimes they discover within their systems under AML law and do everything in their power to stop the illegal activity in its tracks.

History of AML Regulations

The Financial Action Task Force (FATA) set the stage for most anti-money laundering laws. Formed in 1989, it is a group of global country leaders and organizations who creates laws to prevent money laundering. Because of the close ties between money laundering and terrorist activities, the FATF also helps fight terrorism financing through implementation of standards aimed at combatting money laundering.

How IDMERIT Can Help

IDMERIT’s solutions for Anti-Money Laundering allow you to quickly and easily identify high-risk applicants and then to manage them in an appropriate manner. Our electronic identity verification solutions—IDMverify, IDMvalidate and IDMrisk—help you meet the AML demands for both existing and new clients.

IDMERIT’s global Identity Verification platform allows you to greatly streamline your AML process. Our data identifies and focuses on key markets across the world, while staying current on even the most stringent identity management models. Our identity verification solutions allow you to approve the credibility of more than 520 global record formats, including driver’s licenses, passports and national ID cards.