What is ‘Anti Money Laundering – AML’
Anti money laundering (AML) refers to a set of procedures, laws, and regulations designed to stop the practice of generating income through illegal actions. Though anti money laundering laws cover a relatively limited number of transactions and criminal behaviors, their implications are far-reaching. For example, AML regulations require institutions issuing credit or allowing customers to open accounts to complete due-diligence procedures to ensure they are not aiding in money-laundering activities. The onus to perform these procedures is on the institutions, not on the criminals or the government.
Anti money laundering (AML) laws and regulations target activities that include market manipulation, trade of illegal goods, corruption of public funds and tax evasion, as well as the activities that aim to conceal these deeds.
Money that’s obtained illegally through actions such as drug trafficking needs to be cleaned. To do so, the money launder runs it through a series of steps to make it appear like it was earned legally. Once there’s a record to show how the money was earned, the criminals hope it will not arouse suspicion.
One of the most common ways to launder money is to run it through a legitimate cash-based business owned by the criminal organization. Money launderers may also sneak cash into foreign countries for deposit, deposit it in smaller increments or buy other cash instruments. Launderers often want to invest, and brokers will occasionally break rules to earn larger commissions.
It’s up to financial institutions that issue credit or allow customers to open accounts to investigate customers to ensure they are not taking part in a money-laundering scheme. They must verify where large sums of money originated, monitor suspicious activities and report cash transactions exceeding $10,000. In addition to complying with AML laws, financial institutions are expected to make sure clients are aware of these laws and guide people with them without prior active government orders.
AML rules and regulations rose to global recognition when the Financial Action Task Force (FATF) was formed in 1989, setting international standards for fighting money laundering. The aim of enforcement groups like the FATF is to maintain and promote the ethical and economic advantages of a legally credible and stable financial market.
Since money is a limited resource, money accumulated illegally and with no regulation prevents capital from flowing into socioeconomically productive industries. The imbalance in money flow also inevitably leads to further printing of money, harming the purchasing power of a country’s currency. If not controlled, this inflation can cripple and erode an economy.
How Anti-Money-Laundering Action Helps Reduce Overall Crime
Money-laundering investigations center on parsing financial records for inconsistencies or suspicious activity, and these financial records often tie perpetrators to criminal activity. In today’s regulatory environment, extensive records are kept on just about every significant financial transaction. Therefore, when trying to uncover the identity of a criminal, few methods are more effective than locating records of financial transactions in which he or she was involved.
Terrorists, organized criminals and drug smugglers rely extensively on money laundering to maintain cash flow for their illegal activities. Taking away a criminal’s ability to launder money hampers the criminal operation by shutting off cash flow. Therefore, fighting money laundering is a highly effective way to reduce overall crime.
In cases of robbery, embezzlement or larceny, the funds or property uncovered during money-laundering investigations frequently are able to be returned to the victims of the crime. For example, when money that was laundered to cover up embezzlement is discovered, it can usually be traced back to the source of the embezzlement. While this does not nullify the original crime, it can put the money in question back in the proper hands and part it from the perpetrator.
Anti-Money-Laundering Enforcement Groups
The Financial Action Task Force sets the international standard for combating money laundering. Formed in 1989 by leaders of countries and organizations around the world, the FATF is an international body of governments that sets standards for stopping money laundering and promotes the implementation of these standards. Because laundering money is one way in which terrorists finance their activities, money laundering and terrorism go hand in hand. The FATF is, therefore, also dedicated to the setting and implementation of standards for fighting terrorist financing and other threats to the international financial system.
The FATF developed a series of recommendations that were adopted in February 2012 to give its 35 member countries and two regional organizations a comprehensive set of measures to implement in the fight against money laundering, terrorist financing and financing of the proliferation of weapons of mass destruction. The FATF promotes the implementation of these measures, but the leaders of each member country carry out the measures on a national level. Each country must adapt the measures to make them appropriate for its own circumstances. To assist members in implementing the recommended anti-money-laundering measures, the FATF provides them with guidance and best practices.
In 2000, the FATF began using a name-and-shame system that publicly announced countries that failed to produce and enforce comprehensive AML laws and had minimal to zero participation in the international crusade against illegal moneymaking activities.
Another international group that participates in combating money laundering is the International Monetary Fund (IMF). With 189 member countries, the IMF has been expanding its anti-money-laundering efforts since 2000.
The events of September 11, 2001 led to an intensification of the IMF’s work in this area and spurred the broadening of its goals to include fighting the financing of terrorism. Shortly thereafter, the IMF began assessing the compliance of its member countries with the international standard for combating terrorist financing.
The IMF pays special attention to the effects of money laundering and terrorist financing on the economies of its member countries. The IMF points out that people who launder money and finance terrorism target countries with weak legal and institutional structures and use the weaknesses to their advantage in order to move funds. Ways in which the IMF helps its members stop money laundering and terrorist financing include serving as an international forum for the exchange of information and helping countries develop common solutions to these problems and effective policies to guard against them.
In addition, the IMF contributes to the evaluation of each country’s compliance with anti-money-laundering measures and to the identification of areas where improvements are needed. The IMF focuses its work on assessing the strengths and weaknesses of each member’s financial sector in complying with the FATF recommendations, providing members with the technical assistance needed to strengthen their legal and financial institutions, and offering advice to members in the process of developing policies directed toward compliance with FATF measures.
Combating the Financing of Terrorism (CFT)
DEFINITION of ‘Combating the Financing of Terrorism (CFT)’
Combating the Financing of Terrorism (CFT) involves investigating, analyzing, deterring and preventing sources of funding for activities intended to achieve political, religious or ideological goals through violence and the threat of violence against civilians. By tracking down the source of the funds that support terrorist activities, law enforcement may be able to prevent some of those activities from occurring. Instead of trying to catch a criminal plotting or committing an act of terrorism through other means such as surveillance, law enforcement addresses the problem from the money side by detecting suspicious financial transactions and tracking down all the individuals and organizations involved in those transactions.
CFT includes teaching financial investigative techniques to law enforcement, teaching prosecutors to win money laundering cases, and training financial supervisory and regulatory authorities to identify suspicious activity. CFT efforts may examine charities, underground banking entities, and registered money service businesses, among other entities.
Also known as Counterfinancing of Terrorism.
BREAKING DOWN ‘Combating the Financing of Terrorism (CFT)’
Individuals and organizations who finance terrorism need to conceal how the money will be used and where it originated. The funds may come from legal sources, such as legitimate religious or cultural organizations, or from illegal sources, such as drug trafficking and government corruption. The funds may also come from an illegal source but appear to come from a legal source through money laundering. Money laundering and terrorism financing are often linked. When law enforcement is able to detect and prevent money laundering activities, it is often simultaneously preventing those funds from being used to finance acts of terror. Combating money laundering is key to CFT. Little of the money used to finance terrorism comes from dual-purpose charities while most of it comes from underground banking entities called hawala as well as from trade-based money laundering and cash couriers.
Financial institutions play an important role in combating the financing of terrorism because terrorists often rely on the financial system, especially banks, to transfer money. Laws that require banks to perform due diligence on their customers, both new and existing, and to report suspicious transactions such as high-value cash transactions to the authorities can help to prevent terrorism.
An additional reason for CFT is that the use of the financial system by criminals engaged in money laundering and terrorist financing is considered a threat to the financial system’s stability. The public may not trust the integrity of the financial system if the system cannot detect illicit activities.
Financial Intelligence Units (FIU) and cross-border information sharing among nations contribute to CFT. FIUs are specialized government agencies that investigate reports of potentially suspicious financial transactions received from individuals and institutions. FIUs then give law enforcement information about transactions that warrant further investigation.
The Financial Action Task Force (FATF), which is comprised of 35 countries and 2 regional organizations (the European Commission and the Gulf Co-operation Council), works to combat money laundering and the financing of terrorism through creating standardized processes to stop threats to the international financial system. When there are differences in anti-money laundering and CFT laws among countries, especially when some countries have weaker controls than others, terrorists will abuse those countries’ financial systems to secretly move money. By creating standardized procedures for the financial sector, the criminal justice system, and certain businesses and professions, terrorism financing becomes harder to hide. The FATF also collects and shares information about trends in money laundering and terrorism financing and works closely with the IMF, the World Bank, and the United Nations.
Anyone who willfully provides money to carry out a terrorist act, whether directly or indirectly, is guilty of financing terrorism. Because terrorists use different methods, called typologies, to finance their activities and conceal the sources of their financing depending on their local economy, financial markets’ regulators and law enforcement must use a variety of techniques to catch these criminals.
What is a SAR? A SAR is a Suspicious Activity Report, a piece of information which alerts law enforcement that certain client/customer activity is in some way suspicious and might indicate money laundering or terrorist financing. Reason for suspicion Submitting a SAR provides law enforcement with valuable information on potential criminality. It also protects you, your organisation and UK financial institutions from the risk of laundering the proceeds of crime. By submitting a SAR to the NCA, you will be complying with any potential obligations you have under the Proceeds of Crime Act 2002 (POCA). When do I submit a SAR? As soon as you ‘know’ or ‘suspect’ that a person is engaged in money laundering or dealing in criminal property, you must submit a SAR. Do I have to submit a SAR if I am not in the regulated sector? Even if you are not in the regulated sector, you may have an obligation to submit a SAR. You may commit an offence if: • You have ‘knowledge’ or ‘suspicion’ of money laundering activity or criminal property • Do something to assist another in dealing with it • And fail to make a SAR. Submitting a SAR provides a defence against committing a money laundering offence.
a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR) is a report made by a financial institution about suspicious or potentially suspicious activity. The report is filed with that country’s financial crime enforcement unit, which is typically a specialist agency
designed to collect and analyse transactions and report these to relevant law enforcement units. Front line staff in the financial institution have the responsibility to identify transactions that may be suspicious and these are reported to a designated person that is responsible for the reporting the transaction. The financial institution is not allowed to inform the client or the parties to the transaction that a SAR has been lodged.
The cornerstone of a strong BSA/AML compliance program is the adoption and implementation of comprehensive CDD policies, procedures, and processes for all customers, particularly those that present a higher risk for money laundering and terrorist financing. The objective of CDD should be to enable the bank to predict with relative certainty the types of transactions in which a customer is likely to engage. These processes assist the bank in determining when transactions are potentially suspicious. The concept of CDD begins with verifying the customer’s identity and assessing the risks associated with that customer. Processes should also include enhanced CDD for higher-risk customers and ongoing due diligence of the customer base.
Effective CDD policies, procedures, and processes provide the critical framework that enables the bank to comply with regulatory requirements and to report suspicious activity. An illustration of this concept is provided in Appendix K (“Customer Risk Versus Due Diligence and Suspicious Activity Monitoring”). CDD policies, procedures, and processes are critical to the bank because they can aid in:
Detecting and reporting unusual or suspicious transactions that potentially expose the bank to financial loss, increased expenses, or reputational risk.
Avoiding criminal exposure from persons who use or attempt to use the bank’s products and services for illicit purposes.
Adhering to safe and sound banking practices.
Customer Due Diligence Guidance
BSA/AML policies, procedures, and processes should include CDD guidelines that:
Are commensurate with the bank’s BSA/AML risk profile, paying particular attention to higher-risk customers.
Contain a clear statement of management’s overall expectations and establish specific staff responsibilities, including who is responsible for reviewing or approving changes to a customer’s risk rating or profile, as applicable.
Ensure that the bank possesses sufficient customer information to implement an effective suspicious activity monitoring system.
Provide guidance for documenting analysis associated with the due diligence process, including guidance for resolving issues when insufficient or inaccurate information is obtained.
Ensure the bank maintains current customer information.
Management should have a thorough understanding of the money laundering or terrorist financing risks of the bank’s customer base. Under this approach, the bank should obtain information at account opening sufficient to develop an understanding of normal and expected activity for the customer’s occupation or business operations. This understanding may be based on account type or customer classification. For additional guidance, refer to Appendix K (“Customer Risk Versus Due Diligence and Suspicious Activity Monitoring”).
This information should allow the bank to determine the customer’s risk profile at account opening. Banks should monitor their lower-risk customers through regular suspicious activity monitoring and customer due diligence processes. If there is indication of a potential change in the customer’s risk profile (e.g., expected account activity, change in employment or business operations), management should reassess the customer risk rating and follow established bank policies and procedures for maintaining or changing customer risk ratings.
Much of the CDD information can be confirmed through an information-reporting agency, banking references (for larger accounts), correspondence and telephone conversations with the customer, and visits to the customer’s place of business. Additional steps may include obtaining third-party references or researching public information (e.g., on the Internet or commercial databases).
CDD processes should include periodic risk-based monitoring of the customer relationship to determine whether there are substantive changes to the original CDD information (e.g., change in employment or business operations).
Enhanced Due Diligence for Higher-Risk Customers
Customers that pose higher money laundering or terrorist financing risks present increased exposure to banks; due diligence policies, procedures, and processes should be enhanced as a result. Enhanced due diligence (EDD) for higher-risk customers is especially critical in understanding their anticipated transactions and implementing a suspicious activity monitoring system that reduces the bank’s reputation, compliance, and transaction risks. Higher-risk customers and their transactions should be reviewed more closely at account opening and more frequently throughout the term of their relationship with the bank.Identification of Specific Risk Categories
The first step of the risk assessment process is to identify the specific products, services, customers, entities, and geographic locations unique to the bank. Although attempts to launder money, finance terrorism, or conduct other illegal activities through a bank can emanate from many different sources, certain products, services, customers, entities, and geographic locations may be more vulnerable or have been historically abused by money launderers and criminals. Depending on the specific characteristics of the particular product, service, or customer, the risks are not always the same. Various factors, such as the number and volume of transactions, geographic locations, and nature of the customer relationships, should be considered when the bank prepares its risk assessment. The differences in the way a bank interacts with the customer (face-to-face contact versus electronic banking) also should be considered. Because of these factors, risks will vary from one bank to another. In reviewing the bank’s risk assessment, examiners should determine whether management has developed an accurate risk assessment that identifies the significant risks to the bank.
The expanded sections in this manual provide guidance and discussions on specific lines of business, products, and customers that may present unique challenges and exposures for which banks may need to institute appropriate policies, procedures, and processes. Absent appropriate controls, these lines of business, products, or customers could elevate aggregate BSA/AML risks. The examiner should expect the bank’s ongoing risk assessment process to address the varying degrees of risk associated with its products, services, customers, entities, and geographic locations, as applicable.
The bank may determine that a customer poses a higher risk because of the customer’s business activity, ownership structure, anticipated or actual volume and types of transactions, including those transactions involving higher-risk jurisdictions. If so, the bank should consider obtaining, both at account opening and throughout the relationship, the following information on the customer:
Purpose of the account.
Source of funds and wealth.
Individuals with ownership or control over the account, such as beneficial owners, signatories, or guarantors.52
Occupation or type of business (of customer or other individuals with ownership or control over the account).
Domicile (where the business is organized).
Proximity of the customer’s residence, place of employment, or place of business to the bank.
Description of the customer’s primary trade area and whether international transactions are expected to be routine.
Description of the business operations, the anticipated volume of currency and total sales, and a list of major customers and suppliers.
Explanations for changes in account activity.
KYC (Know Your Customer) Policy
As outlined in our Terms and Conditions, all clients are required to provide the following documents in order to verify their TradeToro Trader account:
- Proof of Identity:
Please provide the front and back of a valid photo ID (Passport, Driver’s Licenses, National Identification Card, etc.).
- Proof of Residence:
Please provide a utility bill or bank statement from the last 3 months that includes your full name and address.
If you’ve funded your account by credit or debit card, please also provide the following:
- Proof of Payment:
Please provide the front and back of the credit or debit card used for your deposit(s). For your security, please cover the first 12 digits of your card number on the front of the card and the CVV code on the back; only the last 4 digits of the card number, your name and expiration date should be visible. Please note that if you’ve made a deposit using a card belonging to someone else, we ask that you also provide Proof of ID and Proof of Residence of the card holder.
- Transaction Authorization Form:
We also need a Declaration of Deposit (DOD) Form. Please print the form, fill in the required information and sign it by hand. You may scan or take a photo of the form. Note, you must sign your name next to each recorded transaction as well as at the bottom of the page.
All documents must be clear, in color, and uncropped, or they will not be accepted. You may submit your documents via email or by uploading them to your account. Please note that if the required documents are not supplied within 14 business days, your account will be blocked from trading.
If you have any questions or need further assistance, please contact our Support Department via email at firstname.lastname@example.org.