AML Registration

How does money laundering work?

Money laundering is a complex transaction that occurs in several phases:

1. Placement:

   This initial phase involves introducing illegally obtained funds into the financial cycle, often by depositing them into a bank account. However, payments to cash-based businesses or transfers to anonymous offshore and trust companies are also possible.

2. Layering:

   In this phase, illegal funds are detached from their source. This is done by converting them into other forms of payment and subsequently conducting complex financial transactions, making the transactions’ traceability significantly more difficult.

3. Integration:

   In this phase, efforts are made to reintroduce the “laundered” funds back into the economic cycle. Assets like real estate or luxury goods are purchased (wholly or partially in cash), held for a while, and then resold.

Examples of money laundering

To better illustrate the complex mechanisms and concepts of money laundering and provide a clearer understanding, some common practices include:

• Using a restaurant or another business with numerous cash transactions to blend illegal money with legitimate income.
• Purchasing a new car or other goods with illegal money and then selling it to a third party to receive the money as sales proceeds.
• Transferring illegal money to a service company that mixes it with legitimate revenues and then integrates it into the cash flow.

Importance of AML for businesses

AML is essential for maintaining the integrity of the financial system and combating criminal activities. Companies must conduct AML controls to prevent, detect, and report money laundering, thereby fulfilling their legal duty to protect the financial system from abuse. The country’s financial supervisory authority oversees compliance with AML regulations. 

Besides safeguarding the financial system and adhering to legal requirements, AML is also crucial for a company’s reputation. Through consistent Anti Money Laundering, businesses position themselves as trustworthy and responsible partners.

The AML Process

The Anti-Money-Laundering process in companies consists of several steps aimed at minimizing the risk of money laundering and terrorist financing. These include:

• Due-Diligence, where the identity, business activity, and purpose of customers are checked before entering into a business relationship or conducting a transaction.
• Transaction Monitoring, where customers’ financial activities are analyzed for anomalies or suspicious patterns.
• Sanctions and Watchlist Screening, where customers and their transactions are compared against national and international lists of individuals or organizations associated with money laundering or terrorism.
• Regulatory Reporting, where companies are obligated to report suspicious activities or incidents to the relevant authorities.

These steps require effective collaboration between different departments and functions of the company, such as the money laundering officer, the compliance team, risk management, and IT. Moreover, companies need to regularly review and update their AML processes to identify and adjust to emerging risks.

Automation and Technology

The emphasis in the AML process is on monitoring and analyzing transactions and cash flow. This sub-process can be comfortably automated using software solutions, significantly simplifying the process. 

Pythagoras Solutions offers an advanced AML software called “Transaction Screening” that continuously learns by comparing payment data with reference data, thereby recognizing recurring partners and characteristic transaction patterns.