AML Screening: Checking Customer Names Against Criminal Lists

AML Screening: Checking Customer Names Against Criminal Lists

To control the rising money laundering activities, financial law enforcers have prepared different methods. One of them is the risk-based approach, which covers different tools and techniques. A risk-based approach is a part of the AML compliance program. Businesses are legally obliged to have a proper AML compliance program. AML compliance program consists of CDD and EDD.

Customer due diligence (CDD) is a process of confirming a customer’s identity through know your customer (KYC). It is a process of online identity verification through government-issued ID documents.

Enhanced due diligence (EDD) one step ahead of CDD where customers’ names are checked by a process called AML screening.

Here we discuss money laundering and the practices to stop this:

Money Laundering

About everyone in the financial or other businesses knows about money laundering. Money laundering is the hiding of black money and makes it appear a legal source. Money collected from illegal sources like corruption, weapons dealings, smuggling, and human trafficking is said to be black money. This money is very difficult to use in the financial system because the service provider will always demand the sources of money. Usually, the illegal funds are in the form of bulky cash. Money launderers have to carry cash and spread it in the system using smurfs.

How is it Done?

Smurfing is the method of money laundering that is used for placing illicit funds in the system. Smurfs can be employees of the bank or the people doing small business. They do not have any fixed share in the money but are paid accordingly. This is known as placement, the first stage of money laundering. In it, the money goes from the criminals and enters the financial system. At this point, money launderers have the highest risk of being caught. Cash is divided into smaller chunks and deposited in the bank accounts. Two techniques are used for this:

  1. Depositing funds in different timings but the same account
  2. Depositing funds at the same time but in different accounts
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The money does not remain in the same account, then it is revolved in different accounts to give more layers to the source. The funds are split and collected in this financial circulation cycle. The motive is to break the link between illegal sources and money. By giving numerous transactions, the motive is achieved.

In the final stage, the funds are extracted back from the system having a legal and authentic source. Now it can be used freely in the system because they have all the supporting documents. The ultimate beneficial owner gets hands on the money after this.

For businesses and policing authorities, it becomes essential to stop money laundering before it happens. Once it enters the system, it becomes very tough to spot it. As funds blending is also done by money launderers in which black and white money are mixed. To separate both of them is nearly impossible.

If money laundering is done in more than one state, all the concerned departments have to perform AML screening.

Anti Money Laundering AML Screening

It is the most effective way in the risk-based approach. Businesses have to perform anime screening on all new and existing customers. The names are screened against global and local watchlists, criminal lists, and sanction lists. AML watchlists include adverse media lists and PEP lists. Politically exposed persons are the high officials that are in the government or state civil servants. Adverse media lists contain the data of people that are taking heaving media attention in a short time.

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When it is Done?

  • Businesses have to conduct AML screening when a customer request for account opening
  • The risk level of persons changes over time. Consequently, AML screening should be done after regular intervals
  • Business employees also possess the risk of involvement in money laundering. Therefore, it should also be screened through AML watchlists at the time of hiring

Summing it Up

AML screening is a precautionary measure by businesses to stop money laundering. This keeps criminals miles away from the system. Also, the compliance with international AML laws will be more easy and convenient

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