Anti-Money Laundering (AML)
Definition
Anti-Money Laundering (AML) refers to a set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.
Explanation
AML regulations require financial institutions to monitor customer transactions, report suspicious activity, and maintain compliance programs. Key components include customer due diligence (KYC), transaction monitoring, and filing Suspicious Activity Reports (SARs).
Non-compliance with AML regulations can result in severe penalties, including fines of millions of dollars and criminal charges. Financial institutions spend billions annually on AML compliance programs.
Example
A bank's AML system flags a series of rapid, large cash deposits just under the $10,000 reporting threshold, prompting a review and potential SAR filing.