What is Anti-Money Laundering?

What is anti-money laundering?

The set of UK regulations known as anti-money laundering (AML) are designed to prevent illegally acquired money, such as from crimes like tax evasion, drug trafficking, or human trafficking, that individuals have disguised as legitimate income. AML regulations apply to industries that regularly complete high-value transactions, and the risk of money laundering is greater.

For example, financial and credit businesses, estate agents, casinos, independent legal professionals, and more. Businesses in these sectors, particularly finance, use Know Your Customer (KYC) and Customer Due Diligence (CDD) measures to protect themselves from criminal activity. AML regulation compliance is a legal requirement for many businesses to highlight and report any suspicious financial activity.

Why is AML important?

AML regulations and processes are essential in protecting the financial system by stopping illegal funds from being laundered. This reduces the risk of businesses becoming inadvertently complicit in financial crime, which may result in not only substantial fines or criminal charges but also reputational damage to the business that could put its future in jeopardy.

AML requirements

Organisations that are required to follow AML must follow the steps below:

Carry out CDD and enhanced due diligence (EDD) when needed
Identify and verify customer identities (KYC)
Monitor transactions for unusual or suspicious activity
Keep thorough internal AML policies, staff training, and risk assessments

UK legislation for AML

The main laws that shape AML rules in the UK are:

Money Laundering Regulations 2017 – sets out what businesses must do to prevent money laundering
Proceeds of Crime Act 2002 – defines criminal property and related offences
Terrorism Act 2000 – covers offences related to funding terrorism

These laws are enforced by regulators, including the Financial Conduct Authority (FCA) and HMRC.