Anti-Money Laundering (AML)

Definition

Anti-Money Laundering (AML) refers to the laws, regulations, and procedures aimed at preventing and detecting the process of making illicitly gained funds appear legitimate. AML frameworks require regulated entities to perform due diligence, monitor transactions, and report suspicious activity.

Why it matters

Money laundering enables organised crime, terrorism, corruption, and tax evasion by integrating illicit funds into the legitimate economy. Robust AML controls protect the integrity of the financial system and help prevent businesses from becoming unwitting participants in illegal activity.

In the UK, AML obligations are set out in the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, as amended, and enforced by bodies such as the Financial Conduct Authority (FCA) and HM Revenue & Customs (HMRC).

How AML compliance works

1. Risk assessment – Identify and assess money laundering risks relevant to your business.
2. Customer due diligence (CDD) – Verify client identity and, where applicable, beneficial owners.
3. Enhanced due diligence (EDD) – Apply additional checks for higher-risk clients, such as politically exposed persons (PEPs).
4. Ongoing monitoring – Track transactions to detect unusual or suspicious activity.
5. Reporting – Submit suspicious activity reports (SARs) to the UK’s National Crime Agency (NCA).
6. Record keeping – Retain relevant documents for the required statutory period.

Examples and use cases

• Banks – Monitoring large or unusual transfers for signs of laundering.
• Law firms – Checking source of funds before property transactions.
• Estate agents – Verifying buyers in high-value property sales.
• High-value dealers – Reporting cash payments over a certain threshold.

Mini-FAQ

Q: Is AML the same as CDD?
A: No. CDD is one component of AML compliance, focusing on verifying customer identity and risk. AML covers the entire framework of prevention, detection, and reporting.

Q: Who must comply with AML regulations in the UK?
A: All businesses in regulated sectors, including financial services, legal, accountancy, property, and high-value goods dealing.