AML

AML, or Anti-Money Laundering, is the set of laws, controls and processes used to prevent criminals from disguising illegally obtained funds as legitimate money. In identity verification, AML checks help firms assess customer risk and meet compliance duties.

AML refers to the compliance framework intended to detect and deter money laundering, terrorist financing and related financial crime. Banks, payment firms, crypto asset businesses and other regulated organizations use AML programs to understand who their customers are, monitor activity and report suspected crime.

Identity verification is an important part of AML, but the terms are not interchangeable. IDV establishes or helps confirm that a person is who they claim to be, while AML combines identity checks with risk assessment, screening and ongoing monitoring.

How AML relates to identity verification

A risk-based AML program commonly begins with customer due diligence, often called CDD. This process collects and verifies identifying information, determines the purpose of a business relationship where required, and assigns a level of financial-crime risk. Higher-risk cases can require enhanced due diligence, or EDD.

• Identity verification, such as validating an identity document and checking that the applicant is its legitimate holder.
• Sanctions screening against applicable government and international sanctions lists.
• Politically exposed person, or PEP, screening. A PEP is an individual entrusted with a prominent public function and may present elevated corruption risk.
• Adverse-media checks for credible reports that may indicate financial-crime risk.
• Transaction monitoring to identify unusual or potentially suspicious patterns after onboarding.

Regulatory context

AML obligations vary by jurisdiction, business type and risk. In the United States, many requirements stem from the Bank Secrecy Act and are overseen by the Financial Crimes Enforcement Network, or FinCEN. In the EU, AML rules are being further harmonized through the EU anti-money-laundering framework, alongside national supervision and implementation.

When a firm identifies suspicious activity, it may be required to file a confidential report with the relevant financial-intelligence authority, such as a Suspicious Activity Report in the United States. AML controls should be proportionate to risk and designed with privacy, data-protection and anti-discrimination requirements in mind.