Introduction to Anti-Money Laundering (AML)
You must be familiar with the term money laundering as we often hear it on the television, and in the news. But what exactly is money laundering? To understand anti-money laundering, it is first important to have a brief knowledge about money laundering.
Money laundering is a serious financial crime which involves legalising the money that was gained illegally. In simple terms it means taking one’s money which is obtained by some illegal means or criminal activities and disguising it in such a way that it appears to be gained by legal means. This also involves hiding the source of this illegal money and the said criminal activity that has landed the person with this money. Fraudsters use various methods for money laundering which have been increasing with the development in technology.
So, to prevent such illegal activities and to avoid the negative effects of money laundering as much as possible, anti-money laundering or AML regulations were introduced. Through this article we will try to understand these Anti-Money Laundering or AML regulations in detail.
What is Anti-Money Laundering (AML)?
Anti-money laundering regulations were first introduced when various countries and organisations got together to form the Financial Action Task Force (FATF) in the year 1989. This task force was the one that developed the anti-money laundering or AML initiatives and also promoted their implementation to prevent money laundering and its negative effects.
After the 9/11 terrorist attacks the Financial Action Task Force (FATF) expanded its mission to include combating terrorist financing. Another institution that is important in this fight against money laundering is the International Monetary Fund or IMF.
Both these institutions are concerned about the effects of money laundering and the associated criminal activities on the world’s economy and financial sector. Therefore, the initiation of the Anti-Money Laundering or AML regulations is important to prevent money laundering and its possible negative effects.
Why are Anti-Money Laundering (AML) regulations important?
It has been revealed that the total amount of money laundering in one financial year forms approximately 2% to 5% of the GDP. There are various ways of money laundering and it often involves serious crimes like illegal trading, smuggling, illegal supply of armed goods, technology frauds and bribery. It is important for the financial institutions to comply with the Anti-money laundering or AML regulations to decrease such financial crimes.
If the AML regulations are not complied by the financial institutions, such crimes will continue to rise and put the financial sector at a great risk.