The Anti-Money Laundering Act explained

Even though most people are familiar with the general concept of money laundering, it can be hard to recognize the signs and stop it before it wreaks havoc on a financial institution. It’s difficult to overstate the importance of anti money laundering policies and procedures, as well as complying with federal anti-money laundering (AML) requirements. 

In this article, we’re going to answer a few pressing questions about the Anti-Money Laundering Act of 2020. It’s important to note that this particular legislation is designed to protect financial systems in the United States. You can find a more global perspective in our in-depth guide to anti-money laundering regulations and requirements.

Why is AML important to the banking industry?

Anti-money laundering compliance helps ensure that financial institutions are not being used by criminals to further their illicit activities by concealing their profits. This, in turn, protects these institutions’ assets, customers, and ability to continue doing business without incurring regulatory fines or other penalties.

What are anti-money laundering rules?

According to the Financial Industry Regulatory Authority (FINRA), “the purpose of the AML rules is to help detect and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.” 

In other words, the regulations set forth by the Anti-Money Laundering Act are designed to interrupt, intercept, or otherwise deter the money laundering process at several different stages. This prevents criminals from being able to easily conceal the proceeds from their illegal activities.

In response to the ever-evolving strategies of money launderers and their operations, anti-money laundering rules are also updated and amended as new threats emerge. Next, we’ll explore where AML legislation began, how it has evolved, and where we’re at today.

What is the Anti-Money Laundering Act of 2020?

The Anti-Money Laundering Act, passed in 2020, outlines specific requirements for financial organizations that operate in the United States. Anti-money laundering regulations focus on detecting suspicious activity and deterring would-be money launderers. 

While the most up-to-date version of anti-money laundering regulations was passed in 2020, it actually originated over 50 years ago. Here’s a brief history:

• 1970: Congress passed the Bank Secrecy Act (BSA), establishing “requirements for recordkeeping and reporting by private individuals, banks and other financial institutions.” It required, among other things, for banks to report cash transactions that exceeded $10,000, identify the person or persons involved in such transactions, and keep detailed records. 
• 1986: The Money Laundering Control Act officially classified money laundering as a federal crime, introduced stiff penalties for BSA violations, and further refined banks’ recordkeeping responsibilities.
• 1992: The Annunzio-Wylie Anti-Money Laundering Act enhanced the sanctions associated with BSA violations and notably introduced the requirement to file Suspicious Activity Reports when applicable.
• 1994: The Money Laundering Suppression Act required even stricter guidelines for financial institutions to, among other initiatives, “review and enhance training” related to money laundering, “develop anti-money laundering examination procedures,” and properly report suspected cases to law enforcement. It also required Money Service Businesses (MSBs) like currency dealers to be properly registered, making it a federal crime to operate an unregistered MSB.
• 1998: The Money Laundering and Financial Crimes Strategy Act was introduced, requiring “the development and implementation by the Secretary of the Treasury of a national money laundering and related financial crimes strategy to combat money laundering and related financial crimes,” helping to coordinate and standardize anti-money laundering policies and procedures.
• 2004: The BSA was amended to include the Intelligence Reform & Terrorism Prevention Act, which requires cross-border electronic funds transfers to be reported in cases where such disclosure is deemed “reasonably necessary” by the Secretary of the Treasury.

How does Onfido help financial institutions prevent money laundering?

Onfido offers a unique, end-to-end solution for meeting AML compliance requirements and protecting against money laundering and other forms of fraud. Key features of the platform include:

• Document Verification: Starting with a photo ID or similar document, count on Onfido’s proprietary Atlas™ AI for fast and accurate document verification. The platform supports verification for over 2,500 document types worldwide.
• Biometric Verification: Take document-based identity verification to the next level with biometric verification. Customers can simply snap a selfie, and Onfido’s technology will match photo IDs with advanced facial biometrics.
• ID Record Verification: When verifying user or customer identities, results can be validated against trusted sources. This provides impressive verification capabilities while satisfying regulatory compliance requirements. 
• Watchlist and Ongoing Monitoring: Avoid noncompliance fines and related damages over time by searching for any “red flag” identities within official sanctions lists, adverse media categories, and politically exposed persons (PEP) lists. Onfido employs a dynamic model that keeps our risk database fully up to date, simplifying ongoing compliance efforts.