Understanding anti-money laundering

To put it in plain language, anti-money laundering (or AML) refers to the laws, regulations and practices designed to prevent people from being able to benefit from the proceeds of criminal activity.

For professionals like you – and us – compliance with anti-money laundering (AML) regulations means following the steps laid out in legislation so that it’s less easy for money laundering activities to take place. Because, ultimately, they undermine the integrity and strength of our economy.

In this article, we explore the meaning of anti-money laundering, its processes and the essential compliance measures professionals must adopt to prevent it.

What is money laundering?

The term, ‘money laundering’ refers to when seemingly legitimate business people use regulated professionals to “clean” money gained through a whole range of activities. These stretch from something day-to-day like fraudulent tax relief claims made by a client, to headline-making drug and human trafficking, terrorist financing or proliferation financing.

There’s national and international legislation and guidance for AML, that are updated regularly, with organisations like FATF setting global standards and goals that filter down to regulations across the world.

The overwhelming guidance from all sides is that regulated businesses need to implement AML measures so they can identify and report suspicious activities, should it occur in their business.

AML meaning in practical terms

Anti-money laundering is more than just meeting your sector’s legal requirements, even though that’s the main reason most professionals do it.

AML is the systematic effort to protect businesses and financial systems from exploitation through money laundering. The agencies usually involve the financial intelligence unit and the tax authority.

Some professionals are nowhere near diligent enough. In April 2024, The Law Society of England and Wales revealed that a solicitor was struck off for failing to prevent fraudulent property transactions involving over £1.2 million.

The solicitor missed key money laundering red flags, including discrepancies in client identification and suspicious last-minute changes to payment details.

The Solicitors Disciplinary Tribunal (SDT) ruled that the solicitor’s serious misconduct caused significant harm, and the High Court upheld the decision, citing a lack of integrity.

You can read more about the case on The Law Society’s site.

The AML process: What do you need to do?

The AML process is a structured framework designed to prevent and detect money laundering at various stages. For professionals in regulated sectors, the process typically begins by assessing the business’ overall risk.

1. Your business’ AML risk assessments

A comprehensive business-wide risk assessment is a vital step for you to meet AML compliance requirements.

This involves evaluating the nature and scope of money laundering risks specific to your business. For instance, a property business handling high-value real estate transactions with many overseas clients may face greater exposure to financial crime compared to a small legal practice offering general advice.

You need to look for any risks linked to your clients’ geographic reach, products and services, transactions, and delivery channels. The potential vulnerabilities in your operations feedback into your AML policies, controls, and procedures (PCPs) to mitigate risks effectively and strengthen your compliance framework.

2. Your AML PCPs

To address AML compliance in your day-to-day work means translating the Regulations and the risks you’ve identified into practical policies that create a culture of ethical behaviour.

These PCPs should address your businesses specific risks (you can’t just download a generic template and hope for the best) and form the foundation of your organisation’s AML compliance strategy.

Senior management are the people to drive this, by acting as role models and go-to advisors for your tailored AML PCPs.

3. Employee training

For AML to be effective, employees need to be equipped to identify and address risks effectively. Your training programmes should cover the AML regulations, industry-specific guidance, and your business’ customised PCPs. This equips your team to confidently detect suspicious activities, align with regulatory requirements, and maintain high standards of AML compliance.

4. Client due diligence

You might know your clients well. But how well do you really know them? For every client and transaction that’s related to them, you need to know details like source of funds, the purpose of their business or transaction, and any potential areas of concern.

Tailored questioning, aligned with regulatory requirements, will build a clear picture of any risks that might be attached to your clients. You also need to verify the identities of your clients. For clients who’s risk assessments show they’re high risk, Enhanced Due Diligence (EDD) will be required. This involves additional checks into areas such as the legitimacy of the client’s funds and activities.

Any extra risks that are uncovered need to be accounted for in your business’ AML documents and featured in your latest AML training.

5. Monitoring

Once you’ve done all this once, maintaining and updating your AML is easier – and an essential part of demonstrating up-to-date compliance. For example, once a client relationship has been established, you must review their activities regularly to detect unusual patterns.

Suspicious transactions or activities must be promptly reported to authorities through a SAR, ensuring that potential threats are addressed in a timely manner. To support these efforts, you need to maintain accurate records and train staff regularly on emerging risks and regulatory changes.

Suspicious activity reporting

The ultimate goal of your AML compliance is to give you the information to accurately report suspicious activities if, or when, the time comes. Or, show law enforcement that you’re not complicit in an illegal activity.

When a suspicion arises, your employees need to know what to do – which is make an internal SAR to your MLRO. Your MLRO then needs to decide if there are reasonable grounds to suspect illegal activity has taken place.

If so, it’s the MLRO’s responsibility to submit a SAR to the relevant agency (the National Crime Agency, or NCA, in the UK). The SAR should detail the suspicious activity, provide supporting evidence, and explain the reasons for the suspicion, so that authorities can take appropriate action if necessary.

Challenges in AML compliance

Despite its importance, AML compliance is not without challenges. Balancing thorough compliance with operational efficiency can be difficult, particularly for smaller businesses with limited resources.

Managing high-risk clients is another area of concern — these cases require more time and effort to scrutinise. Staying updated on evolving regulations and threats also demands ongoing education and investment.

One solution to these challenges is the adoption of technology, like AMLCC. Automated compliance tools like ours can streamline processes, reducing the manual burden.

About AMLCC

For regulated professionals across legal, accountancy and property sectors, AML compliance can be complex and time-consuming. AMLCC simplifies the process by providing a comprehensive, user-friendly platform tailored to your needs. Here’s why AMLCC is the trusted choice for AML compliance:

1. All-in-one compliance solution: AMLCC combines everything you need to stay compliant in one place. From business-wide risk assessments to tailored policies, controls and procedures (PCPs), complete CDD, and employee training, the platform ensures you meet regulatory requirements efficiently and effectively.
2. Expert-backed guidance: AMLCC is developed and supported by leading AML experts, including founder Richard Simms, a regulated professional with extensive experience in AML compliance. This ensures the platform reflects the latest regulations and best practices.
3. Customised for your business: AMLCC understands that every organisation is unique. The platform offers tools that adapt to your firm’s size, structure and risk profile. This ensures your compliance efforts are both tailored and effective.
4. Employee training made simple: AMLCC offers a range of AML training materials, including e-learning modules and guidance documents. These resources ensure your team stays up to date with the latest regulations and knows how to apply them in practice.
5. Automated record-keeping: Keeping track of compliance activities is vital for demonstrating your commitment to AML regulations. AMLCC’s platform automatically logs your AML activities, creating a clear and comprehensive audit trail for supervisory visits.
6. Proven success: AMLCC is recommended by UK accountancy supervisors and has already helped thousands of professionals pass their supervisory visits. By using AMLCC, you can trust that your compliance framework meets industry standards and exceeds expectations.

To give you an example of how this looks in real life, we recently had an accountancy client call to thank us for AMLCC’s comprehensive AML tools. He’d had a visit from the NCA, asking about a client’s suspicious activities that they were investigating. Thankfully he was up to date with his AML, and was able to show a full client due diligence (CDD) audit trail to prove he’d completed his legal obligations and nothing untoward should have been identified.