The global regulatory framework around anti-money laundering keeps evolving in order to tackle the ever-novel methods criminals design in order to hide the true origins of illicit money.
Across various global bodies such as the Financial Action Task Force (FATF) down to local regulators, there is a growing recognition that up-to-date and robust AML regulations are important for safeguarding consumers in the financial system.
In our guide, we will cover the most recent changes and additions to AML frameworks around the globe with a focus on the US, the European Union and Australia.
Why AML Regulations Matter
Well-designed AML regimes are invaluable for building integrity across financial systems and communities. Understanding the regulatory landscape is key for businesses aiming to contribute positively:
- They safeguard the global financial system from being undermined by “dirty” money flows. This promotes fair, ethical economic competition.
- They help sever links between money laundering and serious organised crime, corruption, and terrorism financing.
- They enable governments to receive owed tax revenues rather than losing billions from criminal tax evasion.
- They encourage good governance, transparency, and social responsibility among companies by requiring stringent checks.
- They protect everyday citizens from the negative socioeconomic impacts of unchecked criminal financial activity.
Key Components of AML Regulations
While specifics vary between jurisdictions, robust AML regulations generally incorporate common elements:
Legal Frameworks
Countries establish laws and directives to facilitate AML regime implementation and enforcement. These include:
- USA Patriot Act — Key U.S. AML legislation since 2001.
- Australia's Tranche 2 Reforms — New rules for businesses not previously covered by AML regulations.
- EU’s 6th Anti-Money Laundering Directive — Sets AML requirements for EU states.
- UK Money Laundering Regulations — UK’s rules derived from EU directives.
Customer Due Diligence
Banks and other regulated companies must verify customer identities and assess risks. Key aspects of customer due diligence include:
- Identifying and verifying the customer’s identity using reliable, independent sources.
- For corporate customers, identifying beneficial ownership by determining the natural persons who ultimately own or control the company.
- Understanding the purpose and nature of the business relationship or transactions.
- Ongoing monitoring of business relationships for unusual or suspicious transactions.
Transaction Monitoring and Reporting
Ongoing due diligence and probing anomalous transactions help uncover potential money laundering. This includes:
- Scrutinising transactions against expected behaviour and known customer profiles.
- Flagging and investigating unusual patterns like large, round-number or illogical transactions.
- Filing Suspicious Activity Reports (SARs) and other notifications with Financial Intelligence Units.
Record Keeping
Storing AML-related documents and data enables future reviews and investigations. Common requirements include retaining:
- Customer due diligence information like identity documents and background checks.
- Account files and business correspondence.
- Transaction records and investigation documents.
- Records must be readily accessible for mandated timeframes which typically cover multiple years in most jurisdictions.
Compliance Programs and Controls
Financial and non-financial firms subject to AML rules must implement tailored compliance programs including:
- Documented AML policies and procedures.
- Risk assessment processes consider factors like customers, geography and products.
- Assigning compliance staff like an AML Compliance Officer.
- Ongoing staff training programs.
- Independent compliance audits.
International Cooperation
Jurisdictions partner to share financial intelligence, jointly investigate money laundering networks, and develop global standards through organisations like the Financial Action Task Force (FATF).
This collective approach amplifies individual AML regimes. However, ongoing regulatory enhancements aim to close the remaining gaps exploited by sophisticated criminals.
The dynamic nature of money laundering means AML regimes must constantly evolve to detect and disrupt new typologies. Here are some of the most impactful recent and AML legislation changes globally:
- U.S. Corporate Transparency Act
- EU’s 6th Anti-Money Laundering Directive
- UK Post-Brexit AML Changes
- Canada’s Beneficial Ownership Registry
- Hong Kong’s Limited Partnership Fund Regulation
- Australia’s Second AML/CTF Phase
We’re going to focus on the three pieces of legislation in the biggest two global financial markets, the EU and the US and the updates in Australia.
AML Impact of the U.S. Corporate Transparency Act
The Corporate Transparency Act came into effect in January 2024 is significantly altering AML compliance demands on U.S. businesses by:
Beneficial Ownership Disclosure
The CTA mandates identifying and reporting beneficial ownership information of that most corporations and limited liability companies (LLCs) to FinCEN, including owners' full legal names, date of birth, addresses, and a unique identification number.
Financial Penalties
Not filing beneficial ownership information can warrant civil penalties of up to $500 per day or criminal charges carrying potential prison sentences.
- Non-Willful Violations: Civil penalties up to $500 per day, capped at $10,000.
- Willful Violations: Civil penalties of $50,000 per violation and potential imprisonment of up to two years.
Ongoing Due Diligence
The CTA necessitates ongoing monitoring to update beneficial ownership information promptly when changes occur.
Impact of Australia's Tranche 2 Reforms on Businesses
Australia's phased implementation of the second round of Anti-Money Laundering/Counter-Terrorism Financing (AML/CTF) reforms which started in 2023 and is still ongoing with the latest second round of consultation already has or will significantly impact many businesses when key components are going into effect.
Expanded AML Obligations for New Sectors
The Tranche 2 reforms dramatically widen the range of businesses subject to AML/CTF regulations. Sectors not previously covered will now fall under the expanded regulatory perimeter including:
Non-Financial Entities
- Lawyers: All practising lawyers need to comply with the new regulations when providing designated services like managing client funds or incorporating companies. This represents a major change as legal firms have not previously been obligated to implement AML/CTF controls.
- Accountants: Accounting practices are regulated when supplying services enabling financial transactions like auditing services or handling client monies.
- Real estate agents: Agencies and brokers have AML duties when facilitating real estate transactions above certain monetary thresholds. This aims to increase scrutiny of cash-heavy property deals that can enable money laundering.
- Other professions: Trust and company service providers are regulated to stop them from being abused to conceal ownership.
High-Value Goods Dealers
Precious gem/metal dealers and auction houses will be covered given the money laundering risks posed by trading luxury goods. Oversight aims to limit criminals' laundering funds through these channels.
New Compliance Requirements
These newly regulated sectors have to implement comprehensive AML/CTF controls modelled on financial institutions:
Customer Due Diligence (CDD)
Businesses need to verify client identities, perform background checks, and scrutinise transactions for suspicious patterns indicating potential money laundering activity.
AML/CTF Program Implementation
Firms must document their assessments of money laundering vulnerabilities, craft risk-based compliance policies and procedures, assign compliance staff, and deliver training.
Suspicious Matter Reporting
Companies are obligated to file Suspicious Matter Reports to AUSTRAC detailing concerns over shady client activities and transactions.
Record-keeping
Documentation of client identification, due diligence results, and completed transactions must be maintained for at least seven years under the reforms.
Increased Regulatory Oversight
The reforms establish direct supervision of these businesses by AUSTRAC, Australia's financial intelligence and AML/CTF regulator.
Potential Audits and Enforcement
AUSTRAC gains authority to ensure compliance through audits and enact civil penalties or criminal charges for violations. Fines can total millions for serious contraventions.
Key Impacts of the EU's New AML Directive
The EU’s 6th Anti-Money Laundering Directive (AMLD6) is significantly influencing businesses since it has been transposed into national laws in 2023. Key effects on the private sector include:
Expanded Scope
AMLD6 greatly increases regulatory oversight by bringing more sectors under AML rules:
New Sectors Regulated
- Previously unregulated sectors like crowdfunding platforms, crypto asset exchanges, and art dealers are now facing comprehensive AML requirements comparable to banks and financial services firms.
- Customer due diligence, transaction monitoring, reporting, record keeping, and auditable compliance programs are mandatory for these businesses.
Lower Thresholds
- The threshold for levying AML obligations on financial and non-financial firms is lower, capturing providers previously viewed as too small to regulate.
- More modest-scale money remitters, credit providers, accountants and other businesses are drawn into the enlarged regulatory perimeter.
Enhanced Due Diligence Requirements
The Directive requires strengthened due diligence including:
Verifying Additional Data
- Businesses must collect and verify more extensive customer identity data including addresses, dates of birth, and tax identification numbers.
- For entity customers, verifying the identities of additional representatives like trustees is now mandatory.
Monitoring Post-Onboarding
- Firms need to expand transaction monitoring and reviews of business relationships well beyond initial onboarding and background checks.
- This ongoing monitoring aims to identify suspicious transactions and activities after the client is approved.
Assessing Source of Wealth
- Banks must gather information on the origins of a customer's overall wealth to corroborate legitimacy.
Deploying Technology for More Effective AML
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