What is an anti-money laundering (AML) check?

Financial crimes like money laundering and terrorist financing continually evolve, making it essential for businesses to implement robust anti-money laundering (AML) checks to identify and prevent these activities.

In this article, we'll discuss the purpose and methodology of AML checks, offering insights into the necessary steps, best practices, and the role of technology in enhancing your AML compliance efforts. 

What is an AML check?

An anti-money laundering (AML) check is a comprehensive process that companies regulated by money laundering laws use to prevent and detect financial crimes, such as money laundering and financing of terrorism. 

The purpose of conducting an AML check is to verify the identities of your company's customers, assess the associated risk levels with the customers and their transactions, and monitor their financial activities for any suspicious behaviour. 

These procedures also ensure that an organisation complies with legal and regulatory requirements, thus safeguarding the financial system's integrity. 

How to conduct an AML check 

The first step is to gather information about your customer. Some key information needed to conduct an efficient AML check includes: 

• basic details such as name, date of birth, and address for private customers; 
• company name, registration details, and address for businesses; 
• official identification photo, such as a national ID, passport, or driver's licence; 
• in countries like Sweden, electronic identification such as BankID may be needed instead of an identification photograph; 
• details of the customer's source of funds. 

Once you've collected the customer information, you need to verify it by: 

• validating the authenticity of the provided documents for private customers; 
• verifying the company registration and the ownership structure for businesses;  
• checking the information against several databases, such as national databases or screening lists. 

The next step is to conduct due diligence by assessing the purpose and nature of the business relationship and determining whether the provided information regarding the source of funds is accurate. 

This helps you assign a risk score for the customer and determine whether you need to conduct standard or enhanced due diligence. If enhanced due diligence is necessary, you must perform more detailed examinations for the customer and require further information about their background, transactions, and fund sources. 

The next step is to monitor the customer's transactions and behaviour, and flag and investigate any suspicious activities. Don't forget to regularly update the customer information and risk profiles, as the circumstances can always change. 

If you identify suspicious activity, you need to report it by filing a Suspicious Activity Report (SAR) to the respective authority in your country, such as the Financial Intelligence Unit (Finansinspektionen) in Sweden or the UK Financial Intelligence Unit (UKFIU) in the UK. 

Finally, it's important to maintain accurate record-keeping of the AML checks and findings to provide information to authorities and audits if needed. 

When to conduct an AML check 

Generally, there isn't a framework that fits all organisations. There are many factors to consider when conducting AML checks, such as your company's geolocation(s), the number of customers, whether your company has customers from high-risk countries and so on. 

However, the Financial Action Task Force (FATF) provides recommendations for minimum regulatory requirements. To summarise, you need to conduct an AML check when: 

• establishing new business relationships;  
• transactions are exceeding certain thresholds, generally over 15.000 euros; 
• there's a suspicion of a customer being involved in money laundering or terrorist financing; 
• there are changes in circumstances with an existing customer or business, such as major modifications in the transactions or behaviour or alterations in ownership or company structure. 

Some other best practices regarding when to perform AML checks include:  

• when a customer has a high-risk profile; 
• annual checks for ongoing business relationships; 
• when there are updates regarding the regulatory requirements for your industry. 

In some cases, thanks to technology, companies are shifting towards a continuous or real-time monitoring approach to transactions and customer profiles, meaning that they adopt ongoing AML checks throughout the year. 

How technology helps you conduct AML checks

AML systems are essential in performing effective AML checks, as they allow quicker processes and reduce the chances of human error in gathering and verifying customer information. 

Transaction monitoring is crucial in the fight against financial crime. It allows you to monitor transactions to identify and investigate suspicious behaviour. Trapets Transaction Monitoring helps you detect suspicious activities through daily monitoring and get accurate evaluations of customer profiles and transactions. You can also easily integrate KYC and CDD systems and screening into one solution. 

Customer due diligence and know-your-customer systems help you easily collect, identify and verify your customers' information. You can use Trapets Customer Due Diligence to get immediate access to insights, alerts, red flags, and risk indicators for in-depth customer investigation. 

Screening is necessary to understand the business relationship and your customers’ profiles. You can secure your company using Trapets Screening to check customers against sanctions, PEP/RCA lists, UBO information, and adverse media.