Evolution of AML
From its origins to today's business landscape
Anti-Money Laundering (AML) has come a long way since its inception in late 1970. With the rise of financial technology and new illicit practices, AML regulations have undergone significant revisions over time. This article explores the AML timeline and evolution and discusses its impact on today's business environment.
History of AML
The roots of AML can be traced back to 1970 when the Bank Secrecy Act was passed. It required financial institutions to keep records of specific financial transactions and to report any suspicious activity to the government.
In 1989 the G7 countries established the Financial Action Task Force on Money Laundering (FATF) to develop and promote anti-money laundering policies. This expansion led to a notable enhancement of existing regulations and increased responsibilities for institutions subject to these regulations.
Meanwhile, the European Union (EU) introduced its first Anti-Money Laundering Directive in 1990, aiming to prevent the misuse of the financial system for money laundering purposes.
In 2001 the USA PATRIOT Act went into effect, strengthening the government's power to combat money laundering and terrorist financing by expanding the Bank Secrecy Act.
In 2003 the FATF published its Forty Recommendations, which serve as a global standard for anti-money laundering and counter-terrorism financing initiatives.
The European Union passed the Third Money Laundering Directive in 2006 and Fourth Money Laundering Directive in 2016. This broadens AML laws to encompass virtual currency exchanges and wallet providers.
In 2018 the British government created arrangements for the discovery or investigation of money laundering and terrorist financing, as well as the prevention of both.
Combating money laundering with technology
In response to evolving AML regulations, financial institutions have embraced technology-driven solutions to ensure compliance and mitigate risks. Automated Know Your Customer (KYC) and Customer Due Diligence (CDD) tools have become essential for verifying customer identities, including high-risk individuals such as Politically Exposed Persons (PEPs). Additionally, artificial intelligence-powered AML scanning solutions enable institutions to screen thousands of sanctions and PEP lists in seconds.
Real-time transaction monitoring is another crucial aspect of AML compliance. Financial institutions monitor customer transactions to identify suspicious activities and minimise risks. Transaction Monitoring solutions enable the detection of suspicious transactions, which can then be flagged for review by the compliance team.
The rise of financial technology and innovative criminal practices has necessitated integrating technology-driven solutions within the AML landscape. Today, businesses face ever-increasing regulatory pressures and the need to comply with AML regulations to maintain the financial system's integrity.
