Money laundering is a complex criminal act that used to fly under the radar. Criminals could essentially disguise dirty money, making it untraceable and seemingly legitimate. According to United Nations estimates, upwards of $2 trillion goes through laundering schemes every year.

While there's still plenty of work to do in this area, banks and financial institutes are doing a lot to combat the problem.

The Basics of Money Laundering

When criminals collect money through ill-gotten means, it's considered "dirty" money. The process of laundering "cleans" it to appear legal. Money laundering shields the cash from scrutiny.

It's a multi-step process that involves placement into the financial system, hiding its source, and integrating it into legitimate investments.

The issue with this complex process is that it can involve businesses, financial institutions, and politics. You can't understate the importance of KYC in banks. The first step is to identify potential schemes before the money enters the financial system. That's where the banks come in. Visit this website to know more about the importance of KYC in banks.

Anti-Money Laundering Measures

A few decades ago, the Financial Action Task Force established anti-money laundering policies to help banks and other organizations spot schemes early. The goal is to reduce money-laundering efforts while also mitigating the risks put on banks.

AML compliance is paramount, and financial organizations employ several measures to avoid inadvertently supporting criminal activity.

Identity Verification

The importance of KYC in banks goes deeper than just customer service. KYC, or "Know Your Customer," programs work to gather necessary data for due diligence. The goal is to verify a client's identity. Banks are responsible for their customers.

As a result, they must do their part to flag potential high-risk transactions and individuals. Banks can mitigate risks and dedicate resources to monitor account activity by performing identity checks.

AML Screening

In addition to verifying identities, banks will employ AML screening providers. Screening services run identification data through AML watchlists.

This process can help banks spot criminal activity early and report it to the appropriate authorities.

AML Compliance

Money laundering is ever-evolving. As criminals get smarter, banks have to crack down on their AML measures. While it does take up resources, it prevents banks from contributing to the criminal underbelly of the financial world.

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