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Anti-money laundering (AML)

Anti-Money Laundering (AML) refers to a set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. AML frameworks help governments, financial institutions, and regulatory bodies detect and report suspicious activities that may indicate money laundering, terrorism financing, corruption, or other financial crimes.

In essence, AML protects the integrity of the financial system by stopping "dirty money" from entering circulation under a lawful appearance.

About Anti-money laundering (AML)

What Is the AML Process?

The AML process is a structured approach implemented by financial institutions and businesses to detect, prevent, and report suspicious activities. The core steps typically include:

  1. Customer Due Diligence (CDD): Verifying the identity of customers during onboarding (also called KYC – Know Your Customer).
  2. Transaction Monitoring: Ongoing observation of customer behavior to flag unusual or high-risk activity.
  3. Suspicious Activity Reporting (SAR): Filing reports with national authorities when suspicious behavior is detected.
  4. Risk Assessment: Regular evaluation of customer and transaction risk levels.
  5. Record Keeping: Maintaining transaction and identification records for several years for audit or investigation.

Technology like AI-driven analytics, behavior monitoring, and blockchain tracing tools is increasingly used to automate and enhance these steps.

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Why Is Anti-Money Laundering Important?

AML is essential because money laundering enables some of the most dangerous criminal enterprises to function, including:

  • Drug trafficking and organized crime
  • Terrorism financing
  • Human trafficking
  • Political corruption

Without AML safeguards, illicit actors could manipulate the financial system, distort markets, and undermine governance and economic stability.

On a global scale, money laundering is estimated to move $800 billion to $2 trillion annually—roughly 2–5% of global GDP. Effective AML policies reduce financial crime, support legal economies, and enhance investor and public confidence.

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What Are the 5 Stages of Money Laundering?

While some frameworks simplify it to 3 stages, here's a detailed 5-stage breakdown of how money laundering often unfolds:

  1. Placement – Illegally obtained funds are introduced into the financial system (e.g., depositing cash in a bank).
  2. Layering – Complex layers of transactions are created to obscure the source (e.g., transferring funds between shell companies or jurisdictions).
  3. Integration – The laundered money re-enters the economy appearing legitimate (e.g., buying property or luxury goods).
  4. Extraction – The criminal accesses the funds for use in regular financial operations.
  5. Enjoyment – The illicit gains are used freely, often indistinguishable from clean money.

Each stage becomes harder to trace if proper AML controls aren't in place.

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