1. What is Anti-Money Laundering (AML)?

AML refers to the laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income. AML focuses on identifying and preventing the use of the financial system for money laundering, terrorism financing, and other illegal activities.

2. What is money laundering?

Money laundering is the process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source. The money generated is "laundered" to make it appear clean.

3. What are the three stages of money laundering?

The three stages are:

Placement: Introducing the illicit funds into the financial system.

Layering: Concealing the source of the funds through complex transactions.

Integration: The money is returned to the economy as "clean" money.

4. What is Know Your Customer (KYC)?

KYC is a process in which a business verifies the identity of its clients and assesses potential risks of illegal intentions for the business relationship. It is a critical part of AML compliance, requiring institutions to perform due diligence on customers before doing business with them.

5. What is Customer Due Diligence (CDD)?

CDD is the process of verifying the identity of customers, understanding the nature of their activities, and assessing the risk they pose. It includes collecting information about a customer's identity, financial background, and the purpose of the relationship.

6. What is Suspicious Activity Reporting (SAR)?

A SAR is a report made by a financial institution to the authorities regarding suspicious transactions that may involve money laundering, terrorist financing, or other criminal activity. These reports are a key tool in detecting and preventing financial crimes.

7. What are Politically Exposed Persons (PEPs)?

PEPs are individuals who hold or have held a prominent public position, such as heads of state, senior politicians, military officials, or judiciary members. Because of their position, they may be more susceptible to bribery and corruption, and thus require enhanced due diligence (EDD).

8. What is Enhanced Due Diligence (EDD)?

EDD is a more detailed examination required for customers who pose a higher risk of money laundering or terrorist financing, such as PEPs or those involved in high-risk industries. EDD involves additional verification steps and closer scrutiny of transactions.

9. What is the Financial Action Task Force (FATF)?

The FATF is an intergovernmental organization that sets international standards to combat money laundering and terrorist financing. It issues recommendations that countries are expected to implement to protect the global financial system.

10. Why is AML compliance important?

AML compliance is important because it helps prevent the misuse of the financial system by criminals and terrorists, protects the integrity of the financial system, and ensures that businesses adhere to legal and regulatory requirements, thus avoiding penalties and reputational damage.