Money laundering is a serious crime involving the disguising of proceeds of illegal activity as legitimate funds. To prevent this criminal activity, many countries have implemented anti-money laundering (AML) regulations to detect and prevent money laundering by identifying and reporting suspicious financial activity.
With the regulatory landscape changing constantly, it is important to understand your anti-money laundering compliance requirements and responsibilities. No matter where you do business, AML compliance is crucial for the success and security of your company. These requirements can vary significantly by location, risk environment, and emerging fintech innovations.
The AML regulations around the world are constantly evolving, and each country has its own set of laws and regulations. In this blog, we explore some of the key AML regulations in different parts of the world.
The UK’s AML regulations are constantly evolving to keep pace with the changing nature of financial crime. In this blog, we will explore some of the key AML regulations in the UK.
The UK’s AML regulatory framework is primarily based on the EU’s Fourth and Fifth Anti-Money Laundering Directives. These directives require financial institutions to conduct customer due diligence (CDD) on their clients, report suspicious transactions to the authorities, and maintain records of transactions. These regulations are enforced by several government agencies, including the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and HM Revenue and Customs (HMRC). These institutions have the power to investigate and prosecute AML breaches, working closely with each other and with international partners to combat financial crime.
One of the key AML regulations in the UK is the Money Laundering Regulations 2017 (MLR 2017). These regulations impose a range of obligations on businesses that are at risk of being used for money laundering or terrorist financing. Businesses are required to:
- Conduct CDD on their clients before entering into a business relationship
- Keep records of transactions and client identification documents for at least five years
- Report suspicious activity to the National Crime Agency (NCA)
- Provide AML training to staff
The AML regulatory framework in Europe is primarily based on the European Union’s (EU) Fourth and Fifth Anti-Money Laundering Directives, which set out AML requirements for financial institutions operating in the EU.
The Fourth Anti-Money Laundering Directive (4AMLD) came into effect in 2017 and required EU member states to implement AML regulations in line with the directive. The 4AMLD requires financial institutions to establish AML programs, conduct customer due diligence (CDD), report suspicious transactions, and maintain records of transactions. The directive also introduced beneficial ownership requirements, which require companies to identify their ultimate beneficial owners (UBOs).
The Fifth Anti-Money Laundering Directive (5AMLD) came into effect in 2020 and further strengthened the EU’s AML regulatory framework. The 5AMLD introduced new requirements, including:
- Extending the scope of AML regulations to include virtual currency exchange platforms and custodian wallet providers.
- Introducing enhanced due diligence measures for high-risk third countries.
- Introducing the requirement for member states to establish centralised national registers of beneficial ownership information.
- In addition to the EU directives, individual EU member states have their own AML regulations. For example, the UK’s Money Laundering Regulations 2017 (MLR 2017) require businesses at risk of being used for money laundering or terrorist financing to establish AML programs, conduct CDD, report suspicious activity, and maintain records of transactions.
The AML regulations in Europe are enforced by national financial regulatory authorities, such as the Financial Conduct Authority (FCA) in the UK, and the European Banking Authority (EBA), which works to ensure consistent application of AML regulations across the EU.
The United States has a complex AML regulatory framework that includes multiple agencies and laws. The Bank Secrecy Act (BSA) is the primary federal law that requires financial institutions to report suspicious transactions and maintain records of certain transactions. The Financial Crimes Enforcement Network (FinCEN) is the agency responsible for enforcing the BSA and issuing guidance to financial institutions. Additionally, the USA Patriot Act of 2001 expanded the scope of AML regulations and included provisions related to terrorist financing.
The BSA requires financial institutions to comply with the following AML regulations:
- Customer Due Diligence (CDD): Financial institutions must perform CDD on their customers to identify and verify their identities. This includes collecting and verifying identifying information, such as name, address, and date of birth.
- Suspicious Activity Reporting (SAR): Financial institutions are required to file SARs with FinCEN when they suspect that a transaction may be related to money laundering or terrorist financing.
- Currency Transaction Reporting (CTR): Financial institutions are required to file CTRs with FinCEN for cash transactions exceeding $10,000.
Other AML regulations in the US include:
The USA Patriot Act: This law, passed in response to the 9/11 terrorist attacks, expanded the scope of AML regulations to include provisions related to terrorist financing. This act requires financial institutions to implement additional measures, such as enhanced due diligence for high-risk customers and correspondent banking relationships.
Foreign Account Tax Compliance Act (FATCA): This law requires foreign financial institutions to identify and report on US account holders to the Internal Revenue Service (IRS).
Anti-Money Laundering Examination Manual: The Federal Financial Institutions Examination Council (FFIEC) issues guidance to financial institutions on how to comply with AML regulations. The AML Examination Manual provides guidance on the risk-based approach to AML compliance, AML program requirements, and regulatory expectations for AML compliance.
Money laundering is a global problem that requires a coordinated response from governments and financial institutions. AML regulations play a critical role in preventing money laundering and terrorist financing by detecting and reporting suspicious financial activity before it’s too late. While the AML regulatory framework varies across different parts of the world, the ultimate goal remains the same: to protect the integrity of the financial system and prevent the misuse of funds for illegal purposes.