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Anti-money laundering (AML) refers to a set of laws, regulations, and procedures that are aimed at preventing money laundering. Money laundering is the illegitimate process of concealing large amounts of money generated from illicit activities, like drug trafficking or terrorist funding and converting them into clean money. Individuals also adopt this practice for tax evasion purposes.
AML legislation was an outcome of the growth of the financial industry, the lifting of global capital controls, and the growing comfort of executing intricate chains of financial transactions.
As per this law, financial institutions are required to develop sophisticated customer due diligence plans to examine money laundering risks and identify suspicious transactions.
In the U.S., AML regulations have evolved from the 1970 Bank Secrecy Act’s requirement that banks report cash deposits exceeding $10,000 to a more complex regulatory framework mandating financial organizations to carry out due diligence on customers and to search for and report suspicious transactions.
For banks, compliance begins with the verification of the identity of new clients, a process that is sometimes known as Know Your Customer (KYC). Besides establishing the customer’s identity, it is required that banks understand the nature of a client’s activity and check that deposited funds have a legal or clean source.
The KYC process also necessitates banks and brokers to filter new customers against the list of crime suspects, individuals, companies that come under economic sanctions, & “politically exposed persons.”
Money laundering is usually divided into the below-listed steps:
A slew of legislations have been passed since 1970 to prevent money laundering activities; however, the most landmark law was “The Anti-Money Laundering Act of 2020”, passed in early 2021.
The 2021 legislation incorporated the Corporate Transparency Act, which made it challenging to use shell companies to escape anti-money laundering as well as economic sanctions measures.
Under the law, cryptocurrency exchanges and arts and antiquities dealers were also subjected to the same customer due diligence requirements as financial institutions.
Cryptocurrencies are far more vulnerable to illegal criminal activities and money laundering. Since the Anti-Money Laundering Act 2020 (AMLA) brought any providers dealing with virtual assets and digital assets under the ambit of the Bank Secrecy Act, crypto regulations in the US have moved quickly. In March 2022, President Biden approved an Executive Order on Ensuring Responsible Development of Digital Assets (EO).
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