Glossary
AML (Anti-Money Laundering)
Anti-Money Laundering refers to the laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. For financial platforms, AML compliance is a legal obligation; every transaction must be monitored for signs of financial crime, and suspicious activity must be reported to the relevant authorities.
What It Is
Money laundering is the process of making illegally obtained money appear legitimate. It typically occurs in three stages:
Placement: introducing dirty money into the financial system
Layering: moving it through complex transactions to obscure its origin
Integration: withdrawing it as apparently legitimate funds
AML frameworks require financial institutions and regulated platforms to implement controls that detect and prevent each of these stages. These controls include customer verification (KYC), transaction monitoring, suspicious activity reporting, and staff training.
The global AML framework is set by the Financial Action Task Force (FATF), an intergovernmental body that issues recommendations adopted into law by its 37 member jurisdictions. In the EU, AML is governed by successive Anti-Money Laundering Directives (currently the 6th AMLD), which are transposed into national law across member states.
The Three Stages of Money Laundering
Placement: illegal funds enter the financial system; controls are KYC, source of funds checks, cash transaction limits.
Layering: funds moved through complex transactions to obscure origin; controls are transaction monitoring, pattern detection, UBO verification.
Integration: clean-appearing funds are withdrawn and used; controls are ongoing monitoring, sanctions screening, suspicious activity reporting.
AML Obligations for Financial Platforms
Regulated financial services platforms are subject to AML obligations that include:
Customer Due Diligence (CDD): Verifying customer identity and understanding the nature and purpose of the business relationship. This is the foundation of AML compliance and is delivered through the KYC process.
Enhanced Due Diligence (EDD): For high-risk customers, Politically Exposed Persons, clients in high-risk jurisdictions, or those with complex ownership structures, enhanced checks are required, including source of wealth verification and senior management approval.