What is AML?
AML stands for Anti-Money Laundering and refers to a set of regulations regarding how a financial institution should monitor the use of funds by its clients. AML has been around since the 1930s, when the time began to curb its mafia-centric activities. These policies received a new update in 2001 thanks to the Patriot Act, making them stricter than ever. Just like KYC, AML is used to prevent and catch money laundering thieves, track funds, and report possibilities for financing terrorism.
Many people use the terms KYC and AML interchangeably, but although KYC is part of AML, it is not the same thing. KYC is a simple collection of documents, while AML is a continuous monitoring of transactions by a financial institution. AML is performed by tracking large transactions (i.e. transactions over US $ 10,000) and transactions taking place internationally (those made to overseas accounts, etc.). These suspicious or large transactions could possibly be denied, or the financial institution is suspicious enough, even to the Financial Action Task Force (FATF).
FATF monitors something known as EDD or Advanced Due Diligence, as well as monitoring to ensure that all financial institutions track AML and KYC. EDD is a calculated measure of risk for a financial institution that should take action on a prospect before allowing them to have an account with their institution.
This could mean asking the customer to answer a few extra questions, or even anything as invasive as a history check. The company implementing them decides on the chosen process. EDD rules and regulations are not well structured, such as AML and KYC, and therefore this area of compliance can often bother organizations. This is because it is very easy for FATF to claim that an institution is not doing EDD properly and then fines them if one of their customers is caught engaging in illegal activities.
