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Nov 15, 2021
Ciberfraude

Basics: Anti-Money Laundering

Before starting to talk about AML or Anti-Money Laundering, let’s remember that money laundering is a crime. A crime that encompasses all kinds of practices that seek to hide where large amounts of money obtained illegally come from.

What is Anti-Money Laundering ?

The Anti-Money Laundering (AML) encompasses the set of laws, regulations and procedures that focus on preventing criminals from hiding the illegal origin of their money.

AML regulations define protocols of action in order to avoid, identify and report suspicious activities related to money laundering.

They arise to minimize the effects and damages of money laundering and serve to identify criminals.

Although very popular in financial or legal fields, AML practices are increasingly present in multiple sectors.

What are the three stages of money laundering?

To tackle the problem, it is interesting to know how people who are dedicated to money laundering act. Broadly speaking, there are three blocks to achieve the same goal: incorporating goods of illegal origin into the legal financial flow.

Installation phase

In this first phase, criminals intend to introduce money of unknown origin into the financial system.

In order not to be discovered by the authorities, they try to hide it, for example, by depositing small amounts in a bank account or inflating invoices in businesses.

Cover-up phase

At this stage, they try to eliminate the evidence of the origin of the money reintroduced into the financial system. They achieve this through multiple bank transfers between branches, acquiring goods, borrowing, investing abroad, and a myriad of techniques that ultimately provide anonymity to criminals.

Integration phase

In this last phase, the money laundering process ends. The objective of converting illicit money into legal money is fulfilled, and this is where you have to have a realistic explanation that explains how to obtain it, to later use it in the financial system.

Who regulates AML?

European Union Directive 2018/843 of the European Parliament and Law 10/2010, of April 28, on the prevention of money laundering and terrorist financing in Spain are responsible for applying the corresponding measures to criminal activities of the AML.

These are regulations designed to protect the financial sector and establish a series of measures that offer banks and institutions shielding and protecting themselves against these threats.

Specifically in Spain, the regulation against money laundering – what is now the AML- has been applied since the late 1980s, as an action by the Spanish authorities in the face of financial crime.

How do AML practices protect people?

Criminals use very sophisticated methods to make illegal money legal. On many occasions they take advantage of people and involve them in their practices. This is common in the sale of goods, in supply contracts, digital services …

AML uses mechanisms that help protect consumers from being potential victims of criminals in illicit money laundering activity. To do this, they use practices such as:

  • KYC (Know Your Customer): Users are required to verify their identity so that a company can establish a business relationship with them.
  • eKYC: Follow the KYC guidelines, but online.
  • Due Diligence: An investigation procedure to assess the existing risks of buying and selling goods or services with potential clients.
  • Money laundering document
  • Etc.

How does identity verification help?

Identity verification guarantees with evidence that there is a real person behind the process and what their intentions are. Also, provide a legitimate contact and location.

AML protocols rely heavily on the Know Your Customer (KYC) to verify the identity of people and to promote compliance with regulations against money laundering.

The KYC is a procedure that serves to identify and verify the identity of a user, it allows entities to ensure that they are dealing with people with legitimate intentions; at the same time that they prevent identity theft or other similar illicit practices that may favor money laundering.

It is a method of customer verification, mandatory for the financial and gaming industry, which is expanding to other sectors, where it is not yet regulated by law, due to the benefits it reports (you can read more here).

What is the difference between AML and KYC?

The AML is a general framework that includes procedures against money laundering and financial crimes. While the KYC is a type of identity verification, it is part of the processes that build the AML. In other words, the KYC is part of the AML.


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