Anti-money laundering software
Encyclopedia
Anti-money laundering software is a term mainly used in the finance
and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering
activities. Anti money-laundering guidelines came into prominence globally after the September 11, 2001 attacks
and the subsequent enactment of the USA PATRIOT Act
. Today, all financial institutions globally are required to monitor, investigate and report transactions of a suspicious nature to the financial intelligence unit of the central bank
in the respective country.
There are four basic types of software addressing AML business requirements:
An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions, called structuring, which requires a SAR filing, or other suspicious patterns that qualify for SAR reporting. Financial institutions face penalties for failing to properly file CTR and SAR reports, including heavy fines and regulatory restrictions, even to the point of charter revocation.
These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a "whole picture" to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the bank circles, these applications are known as "AML software".
Each vendor's software works somewhat differently. Some of the modules which could be present in an AML software are:
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
activities. Anti money-laundering guidelines came into prominence globally after the September 11, 2001 attacks
September 11, 2001 attacks
The September 11 attacks The September 11 attacks The September 11 attacks (also referred to as September 11, September 11th or 9/119/11 is pronounced "nine eleven". The slash is not part of the pronunciation...
and the subsequent enactment of the USA PATRIOT Act
USA PATRIOT Act
The USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
. Today, all financial institutions globally are required to monitor, investigate and report transactions of a suspicious nature to the financial intelligence unit of the central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
in the respective country.
There are four basic types of software addressing AML business requirements:
- Currency Transaction ReportCurrency transaction reportA currency transaction report is a report that U.S. financial institutions are required to file for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000...
ing (CTR) systems, which deal with large cash transaction reporting requirements ($10,000 and over in the U.S.) - Customer identity management systems which check various negative lists (such as OFAC) and represent an initial and ongoing part of Know your customerKnow your customerKnow Your Customer refers to both:* The activities of customer due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them* And the bank regulation which governs...
(KYC) requirements. Electronic verification can also check against other databases to provide positive confirmation of ID such as (in the UK: electoral roll; the "share" database used by banks and credit agencies; telephone lists; electricity supplier lists; post office delivery database - Transaction monitoring systems, which focus on identification of suspicious patterns of transactions which may result in the filing of Suspicious Activity ReportSuspicious activity reportIn United States financial regulation, a suspicious activity report is a report made by a financial institution to the Financial Crimes Enforcement Network , an agency of the United States Department of the Treasury, regarding suspicious or potentially suspicious activity.The purpose of a...
s (SARs). Identification of suspicious (as opposed to normal) transactions is part of the KYC requirements. - Compliance software to help firms comply with AML regulatory requirements; retain the necessary evidence of compliance; and deliver and record appropriate training of relevant staff.
An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions, called structuring, which requires a SAR filing, or other suspicious patterns that qualify for SAR reporting. Financial institutions face penalties for failing to properly file CTR and SAR reports, including heavy fines and regulatory restrictions, even to the point of charter revocation.
These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a "whole picture" to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the bank circles, these applications are known as "AML software".
Each vendor's software works somewhat differently. Some of the modules which could be present in an AML software are:
- Know Your Customer
- Entity Resolution
- Transaction Monitoring
- Compliance Reporting
- Investigation Tools
- Delivery of AML Training
- Customer due diligence checks, including electronic verification
- Dissemination of AML policies and procedures
See also
- Anti-money laundering
- Money LaunderingMoney launderingMoney laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
- USA PATRIOT ActUSA PATRIOT ActThe USA PATRIOT Act is an Act of the U.S. Congress that was signed into law by President George W. Bush on October 26, 2001...
- Bank regulationBank regulationBank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things...
- Bank Secrecy ActBank Secrecy ActThe Bank Secrecy Act of 1970 requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering...
- Central bankCentral bankA central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
- Customer Identification ProgramCustomer Identification ProgramAccording to provisions of the USA Patriot Act, all financial institutions must verify the identity of individuals wishing to conduct financial transactions. The law was implemented by regulations in 2003 which require financial institutions to develop a Customer Identification Program ...
- FATF BlacklistFATF BlacklistThe FATF blacklist was the common shorthand description for the Financial Action Task Force list of "Non-Cooperative Countries or Territories" ; that is, countries which it perceived to be non-cooperative in the global fight against money laundering and terrorist financing...
- Financial Action Task Force on Money LaunderingFinancial Action Task Force on Money LaunderingThe Financial Action Task Force , also known by its French name, Groupe d'action financière , is an intergovernmental organization founded in 1989 on the initiative of the G7. The purpose of the FATF is to develop policies to combat money laundering and terrorist financing...
- Financial Crimes Enforcement NetworkFinancial Crimes Enforcement NetworkThe Financial Crimes Enforcement Network is a bureau of the United States Department of the Treasury that collects and analyzes information about financial transactions in order to combat money laundering, terrorist financiers, and other financial crimes.As reflected in its name, the Financial...
- Financial Services AuthorityFinancial Services AuthorityThe Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
- Know your customerKnow your customerKnow Your Customer refers to both:* The activities of customer due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them* And the bank regulation which governs...