The number of enforcement actions and fines for non-compliance with anti-money laundering (AML) regulations continues to climb year after year. The year 2021 has shown no exception to this trend, with authorities globally remaining stringent and increasing AML fines in Europe, the United States, and the United Kingdom.
Anti-Money Laundering Regulations in the EU
The European Union is known for its stringent AML and CTF rules and regulations. In the EU, identity checks are particularly crucial for banks and financial organizations screening for money laundering, fraud, and previous illegal financial activity. KYC, or Know Your Customer, is the process of validating a customer's identification to guarantee that they are supplying correct personally identifiable information and to understand their previous financial conduct with previous institutions or money service providers.
The KYC procedure helps to verify that a financial institution's services are not being used for identity theft, money laundering, or sponsoring criminal groups. KYC guarantees that firms are compliant and that consumers with a questionable financial history are not authorized for a bank or financial institution account.
Obligations in the European Union Regarding Know Your Customer (KYC)
Because most EU member states have their own unique legislation or procedures about KYC and identity verification, notably relating to video and remote identification, there is a huge effort to establish interoperable identity papers across the EU.
Due Diligence for Customers in Banks and Financial Institutions
KYC verification and document validation are intertwined and required by banks and financial institutions. DIRECTIVE (EU), also referred to as the "6th AML Directive," established and clarified important aspects of the EU's stance on money laundering and counter-terrorist financing efforts, such as the obligations imposed on banks to make reasonable efforts to collect identity documents from new clients who meet certain criteria.
The following documents are necessary for a successful Know Your Customer process:
Proof of Identity (POI):
- A UID/passport, driver's license, or voter identification card
- A PAN (Permanent Account Number) card with the customer's image on it
- A valid state-issued identification card
- Any valid bank-issued debit or credit card
- A copy of utility bills with a verifiable address, such as electric bills
- A valid Visa/License Driver with a digital photograph
- A copy of a registered selling agreement or lease for a residential property
- Any identifying paper in one's spouse's name
AML Regulations in the UK
The United Kingdom's commitment to combatting money laundering and terrorist financing remains steadfast, even after its departure from the European Union. While the UK is no longer bound by the EU Anti-Money Laundering Directives (AMLDs), its AML legislation continues to align with, and in some cases surpass, the standards set by the European Union.
The foundation of AML law in the UK consists of several key components that work in harmony to tackle financial crimes. The Proceeds of Crime Act 2002 provides the legal framework for the recovery and confiscation of proceeds generated from criminal activities. It empowers law enforcement agencies to seize illicit assets and disrupt the financial infrastructure that supports criminal enterprises.
The Terrorism Act 2000 focuses on preventing and detecting terrorist financing. It equips authorities with the necessary tools to investigate and prosecute individuals or organizations involved in funding acts of terrorism.
The Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) play a crucial role in enforcing AML obligations in the UK. These regulations establish the requirements for customer due diligence, record-keeping, risk assessments, and reporting suspicious activities. They ensure that businesses across various sectors, such as financial institutions, accountants, lawyers, and estate agents, adopt robust AML measures to identify and prevent money laundering and terrorist financing.
AML Regulations in the US
The primary law in the United States managing AML has changed over time, from the Bank Secrecy Act of 1970 (BSA) through the Money Laundering Control Act of 1986 and components of the US PATRIOT Act of 2001. Smaller adjustments, such as the addition of virtual currency providers in 2013 and the Client Due Diligence Rule, which mandates client identification in 2016, have also been made.
At the end of 2020, the United States approved a series of laws that made significant adjustments and enhancements to the AML standards. Some of the additional criteria, such as a national beneficial owner register and whistleblower protections, bring the United States into line with existing EU legislation.
On the other hand, some new legislation goes beyond the European Union and may affect EU enterprises. One example is increased fines under the Anti-Money Laundering Act (AMLA). They make it illegal to knowingly conceal or misrepresent a material fact about the right or control of assets for PEPs from or to a financial organization and counterfeit an earthly truth about the source of funds in a transaction involving an entity that is a primary money laundering concern.
What Has Changed in 2021?
- FinCEN - On January 1, 2021, the Anti-Money Laundering Act 2020 became US law.
- UAE – In accordance with FATF standards, the Central Bank published many regulatory guidelines to improve the efficiency and resilience of its banking and financial system. A new Fundraising Regulatory Law is also prepared to combat money laundering through non-profits.
- EU - Following the implementation of 6AMLD at the end of 2020, regulated businesses were required to show conformity by 3 June 2021. In addition, a new supervisory authority and new AML/CFT regulations were announced for 2024.
- MAS – Monetary Authority of Singapore announced the launch of a digital platform and enabled a regulatory framework for financial institutions to share important information on clients and transactions to combat money laundering, terrorist funding, and proliferation financing.
- UK – As a result of a modification to the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017, Ghana is no longer classified as a high-risk nation for enhanced customer due diligence. It also added Haiti, Malta, the Philippines, and South Sudan to high-risk countries.
What Will Happen in 2022?
Undoubtedly, there will be much more digital change, particularly among financial organizations that rely on antiquated systems. Integrating new technology into existing systems is conceivable and rather simple, thanks to application programming interfaces (APIs) capabilities. As more businesses recognize this, we will see even more digitalization. This implies increased use of AI, more automation, more integrated AML procedures, and greater market confidence in adopting new technologies to combat financial crime.
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