What is anti-money laundering (AML) and why is it necessary?
Over the past several decades, money laundering has become an increasingly prevalent issue. Both financial institutions and governments are constantly looking for new ways to fight money launderers, and several anti-money laundering policies have been put in place to help this effort.
The term “anti-money laundering” specifically refers to all policies and pieces of legislation that force financial institutions to proactively monitor their clients in order to prevent money laundering and corruption. These laws also require both that financial institutions report any financial crimes they find and that they do everything possible to stop them.
Anti-money laundering laws entered the global arena soon after the Financial Action Task Force was created. The FATF was responsible for the creation of most anti-money laundering standards, and it made a framework for countries to follow. After putting this framework into effect, the FATF then began to systematically identify countries that did not have proper legislation regarding money laundering. This “name and shame” tactic helped motivate countries to alter their legislation and start properly enforcing the policies that were in already place. Currently, the FATF counts 37 member countries.
Given that financial institutions play such a pivotal role in the world of financial crime, it is important that they are properly trained on how to identify and handle money laundering. Almost every bank employee receives training in anti-money laundering, and all of them are legally required to report any suspicious activity. Additionally, new anti-money laundering software increasingly used to help detect potential criminal activity that bank employees may not notice.
Although financial institutions are obliged to follow anti-money laundering regulations, this does not necessarily mean that they agree with them. Recently, many banks have become vocal about their dislike of anti-money laundering policies and their belief that these policies are both costly and ineffective. Every year in Europe and America alone, millions of dollars are used in an attempt to regulate and stop money laundering. But many are starting to believe that the anti-money laundering systems currently in place are largely ineffective and that the amount of money we spend on them is not worth their questionable accomplishments.
In addition to the FATF, the United Nations Office on Drugs and Crime also proactively tries to identify and stop money laundering. This office has an informative website that provides facts and details about money laundering, as well as how it can be spotted and prevented. The UN Office on Drugs and Crime also provides software that can be used to help prevent financial crime, collect data, and perform analysis.
Lastly, the World Bank also provides information on its website about money laundering, as well as offering a plethora of advice to help both governments and private enterprises end the money laundering epidemic.