AML Checks: The Ultimate Identity Verification Tool

What are AML checks, and what are the processes involved? Moreover, how long do AML checks take?

AML checks (Anti-Money Laundering checks) are procedures that financial institutions and other regulated entities use to prevent, detect, and report money laundering activities.

The time it takes to complete AML (Anti-Money Laundering) checks can vary depending on several factors, but we have broken down in the article as you read further.

As financial crimes increase today, from money laundering to fraud and terrorism financing, businesses find themselves under severe pressure to secure their operations and comply with the stringent regulations. 

One of the ways to protect against these crimes is through Anti-Money Laundering (AML) checks. As financial crimes rapidly increase, the demand for identity verification devices also increases more than ever before. 

AML checks are significant in ensuring compliance with national and international anti-money laundering laws. Hence, they're the building block of regulatory compliance for industries such as banking, fintech, and insurance. 

This article covers essential aspects of AML identity verification, why it is important, and how it ensures both legal and operational safety. It also discusses how long do AML checks take.

Recommended Top 10 Identity Verification Tools

What is an AML Check

An Anti Money Laundering (AML) check forms a comprehensive procedure whereby a person or entity is put through in-depth background, behavioural and connection checks to confirm the possibility of being involved in or in danger of being involved in money laundering and/or other financial crimes. 

Unlike a standard know-your-customer (KYC) which merely establishes the identity of a customer, an AML check goes further by screening against global sanctions lists, politically exposed persons (PEPs) databases as well as adverse media to identify any links to criminal activities. 

AML checks are mandatory in all sectors which include banking, cryptocurrencies, real estates, and insurances. For example, in accordance with the Financial Action Task Force (FATF), financial institutions must conduct customer anti money laundering checks to assess the customer risk before making any engagement with such customers. This check helps in reducing exposure to financial crime and compliance violations.

AML Check Process: What are the Processes Involved in AML Checks?

The anti-money laundering checks process involves a number of steps to assess and verify the customer's risk profile.
 

The following is a breakdown of the steps:

1. Collecting Customer Data:

It requires Customers basic data, such as the customer name, ID number, address, and date of birth.
 

2. Document Verification:

This requires the use of government-issued identifications (passports and driver's licenses). The IDs are referenced against both global and government databases to confirm their authentication.

3. Screening:

Checking against the global watchlist, PEP databases with adverse media tests to catch potential red flags.

4. Risk score allocation: Assign risk scores based on the background and financial activity of the customer. High-risk individuals or entities may require  in-depth screening.

5. Continuous monitoring: The process of AML checks does not end after clients are on board. The monitoring needs to be continuous to track any suspicious acts and adapt to changes in customers behavior or the regulatory environment.

AML Check Requirements

During the AML verification, businesses are to collect and verify a number of documents and other information for verification purposes. 

For Individual: Valid identification issued by the government, such as passport or driver's license or national ID; Proof of address, such as utility bills or bank statements. And any other documents as required by the local laws.

For Businesses: Incorporation documents (Certificate of Incorporation), Taxpayer Identification Number (TIN), and documents showing who owns and controls the company.

In addition, documents for AML checks must satisfy local laws and international regulations. Businesses should keep an audited trail and ensure that all records relating to AML checks and whatever action was taken are available for regulators' scrutiny.

What Do AML Checks Look For

The AML checks are designed to uncover various potential risks, which may include the following:

1. Watchlist match:

Matches any name with global sanctions lists, PEPs, or known criminals.
 

2. Connection to Higher-Risk Regions:

Identification of customers that belong to the high-risk countries or high-risk industries that are often connected to money laundering or terrorism financing.

3. Unusual Transaction Patterns:

These refer to monitoring suspicious transactions, such as large sums or very fast movements of funds or transactions that are not according to the customer profile.

4. Incomplete or Inconsistent Information:

Inconsistent information or mistakes in documentation can indicate fraudulent intent or attempt to hide illicit activities.

5. Fraudulent Entities:

Shell companies, fake identifications, or proxy ownership schemes are usually used to conceal illicit financial activities.

How long Do AML Checks Take?

To answer the question of how long aml checks take depends on a number of factors listed in the table below:

What Are the Tools Used in AML Checks

The most recent AML checks tools, up until the last couple of years, have added artificial intelligence and machine learning to increase the speed of risk assessment methods. The following are some of the commonly used tools:

1. AML Software: 

Advanced AML software platforms like Youverify KYT, Actimize, ACI, and SAS with real-time risk analysis and screening against global watchlists can enable businesses to detect suspicious activities efficiently.
 

2. Screening Tools: 

Screening tools such as Youverify, Refinitiv, LexisNexis and ComplyAdvantage help to identify other possible matches with PEPs or sanctioned individuals.

3. Adverse Media Monitoring:

Platforms such as Dow Jones and Thomson Reuters monitor news sources and databases for negative media coverage that might indicate involvement in financial crime.

4. KYC/AML Integration:

Application Programming Interfaces (APIs), and automated systems are integrated into KYC and AML compliance in business workflows for uninterrupted and continuous monitoring.

Why Are AML Checks Necessary

The main reasons for the need for AML checks are as follows:

1. Prevent Exposure to Fraud and Financial Crimes:

By screening clients prior to onboarding, businesses can identify clients or entities engaged in illicit activities, thus minimizing their exposure to financial losses and reputational damages.

2. Regulatory Compliance: 

AML checks help businesses comply with all local and international regulations, thus relieving the business from potential fines and penalties.

3. Protecting Reputation and Customer Trust: 

AML checks protect the reputation of the business by ensuring that it is dedicated to stopping financial crime and thus protecting its customers.

4. Transparency and Due Diligence: 

Transparency and Due Diligence: It provides the necessary level of transparency to proceed with due diligence on the financial transactions involved, the source of funds, and any risks associated with international money laundering.
 

Recommended Reading:  Best Practices for Implementing Identity Verification Solutions 

When Do You Need to Conduct AML Checks

The initiation of an AML check occurs at various points:

1. During Customer Onboarding:

The first check when a customer opens an account or establishes a business relationship is crucial.

2. Periodic KYC Reviews:

AML checks should be reinforced periodically to ensure changes in a customer's risk profile are flagged.

3. High-Value Transactions:

Prior to processing high-value transactions, specially in cross-border payments, companies must execute AML checks to offset any risk of money laundering.

4. Suspicious Activity:

If at any point suspicious activity or red flag arises, AML checks should be triggered instantly, (for instance, if the data obtained during KYC is inconsistent, or if transaction behavior is unexpected).

5. Business Ownership Changes:

During mergers or acquisitions, full AML checks must be conducted on newly appointed owners in order to prevent potential risk from hidden illicit activity.

Recommended: Ultimate Guide to KYC and AML Compliance 

What is AML Identity Verification

AML identity verification is the process employed by financial institutions, fintech organizations, and other regulated entities to validate legitimacy of a client’s identity. AML identity verification significantly helps in avoiding money laundering, frauds, and terrorism finance by making sure only credible clients can engage in financial transactions.

In general, the AML identity verification includes Know Your Customer (KYC) practices; however, it goes further by adding in-depth risk screening mechanisms that analyze customer’s past and behavior.

AML identity verification enables businesses to comply with international regulations. For instance, the EU Anti-Money Laundering Directive and the USA Bank Secrecy Act, which require institutions to determine the risk introduced by onboarding a new client. These AML identity verification form the basis of secure financial onboarding when businesses are under strict scrutiny from regulators worldwide.

Conclusion
 

AML checks are critical weapons in the fight against financial crime. They allow businesses to maintain trust, comply with requirements, and operate under security. The adoption of more sophisticated tools and automation within the AML process allows businesses to render identity verification more efficiently, reduce operational burdens, and protect their reputations. 

 AML checks reduce risk exposure and guarantee business continuity in a very high-regulated environment. The full-fledged AI-powered identity verification solutions offered by Youverify assist businesses willing to advance their AML processes in optimizing compliance and security in transactions and customer onboarding. Book a demo with Youverify today.