Key Components of AML Screening:

Customer Due Diligence (CDD):

This is a key part of onboarding new customers. It involves verifying the customer's identity, understanding their financial activities, and assessing the risk they pose to the institution. CDD may include Know Your Customer (KYC) checks, which ensure that the customer is who they claim to be.

Transaction Monitoring:

Financial institutions monitor transactions to detect suspicious patterns or red flags, such as unusually large transfers, high-risk jurisdictions, or patterns inconsistent with a customer’s profile. Automated systems are often used to flag such transactions for further investigation.

Sanctions Screening:

Sanctions screening involves checking customer data against lists provided by governments and international bodies (like the UN, EU, or OFAC) to ensure they are not doing business with sanctioned individuals or entities. This also includes screening for politically exposed persons (PEPs), who may be more vulnerable to corruption and money laundering.

Adverse Media Screening:This involves scanning news sources and media reports to identify any negative information about potential or existing customers that could suggest a higher AML risk.

Risk-Based Approach:

Financial institutions adopt a risk-based approach to AML screening, meaning they allocate resources based on the level of risk a customer or transaction poses. High-risk customers receive enhanced scrutiny compared to lower-risk customers. Reporting Suspicious Activity:

If a transaction or account is flagged as suspicious, financial institutions are required to file a Suspicious Activity Report (SAR) with relevant authorities, like the Financial Crimes Enforcement Network (FinCEN) in the U.S. or similar regulatory bodies globally.

Ongoing Monitoring:

AML screening is not a one-time process; it requires continuous monitoring of transactions and accounts to ensure no suspicious behavior arises after the initial checks. Compliance and Regulations:

Some of the major regulations governing AML screening include:

Bank Secrecy Act (BSA)
USA PATRIOT Act
EU Anti-Money Laundering Directives (AMLD)
FATF (Financial Action Task Force) Guidelines

AML screening is essential for reducing financial crime and ensuring institutions comply with global standards to prevent the illicit use of funds in the financial system.