In 2017, the global money transfer service Western Union agreed to pay $586 million to settle charges of violating anti-money laundering (AML) laws and consumer fraud statutes. For nearly a decade, it had knowingly processed criminal transactions to move illicit funds, including proceeds from scams targeting vulnerable individuals.
Western Union is far from the only business to struggle with AML compliance, though, as money laundering remains a persistent, global issue. According to the United Nations Office on Drugs and Crime (UNODC), an estimated $800 billion to $2 trillion is laundered annually, representing 2-5% of global GDP. These staggering figures highlight why effective AML compliance programs are essential for businesses worldwide.
Below, we explain what AML compliance entails, why it matters, and the best practices for maintaining an effective program.
Anti-money laundering compliance refers to a set of rules and practices designed to detect and prevent the illegal movement of funds. In the U.S., AML compliance is primarily governed by the Bank Secrecy Act (BSA), also known as the Currency and Foreign Transactions Reporting Act. Overseen by the Financial Crimes Enforcement Network (FinCEN), the BSA establishes various requirements for financial institutions with the goal of stopping criminals from disguising illicit proceeds as legitimate funds.
One of the regulation’s main requirements is that financial institutions establish AML compliance programs. These programs generally focus on early detection through measures that include:
More recently, the Corporate Transparency Act (CTA) was enacted in 2021 as another step in strengthening AML efforts in the U.S. The law targets the misuse of shell companies to conceal illicit funds and mandates businesses to disclose information about their beneficial owners, individuals who ultimately own or control a company even if it is held in someone else’s name.
Without robust AML measures, businesses risk severe consequences, including exposure to fraud, regulatory penalties, and lasting reputational damage. Not to mention, it can also result in long-term, costly, and complex legal and financial repercussions—as evidenced by the Western Union case. Although Western Union reached its settlement with the Justice Department in 2017, legal action has taken place over more than six years because of the complexity of identifying victims, verifying claims, and distributing funds.
Establishing and maintaining AML compliance is no small feat for businesses. The four main challenges include:
Automated tools can support AML efforts, but businesses must ultimately balance technology with human oversight to ensure their compliance measures are up to date. Given these challenges, some find it more cost-effective and simpler to outsource AML compliance to reputable services like Business Screen.
AML compliance isn’t just a concern for banks—many non-banking businesses must also adhere to strict regulations. Financial institutions include a wide range of businesses such as trust companies, investment firms, securities brokers, insurance companies, travel agencies, pawnbrokers, precious metals dealers, check cashers, and casinos.
To effectively manage AML risks, businesses of this nature should implement the following best practices.
AML screenings, usually administered during the customer onboarding process, help businesses prevent bad actors from exploiting their services to launder money or finance illegal activities.
Key AML screenings include:
Failing to implement AML screenings not only increases the likelihood of an organization being exploited by money launderers but also exposes the company to regulatory fines, audits, and significant reputational damage.
AML screenings are a key part of customer due diligence (CDD). Although often associated with customer onboarding, CDD is an ongoing process that continues throughout the business relationship. For example, due diligence procedures should be revisited whenever there are indications that a customer may have provided incomplete, unreliable, or potentially false identification documentation.
Key CDD practices include:
By conducting consistent CDD procedures, businesses can mitigate the risk of illegal activities, maintain operational stability, and build more trustworthy partnerships.
To prevent money laundering and financial crimes, businesses should appoint a dedicated compliance officer to oversee business background checks. This individual is responsible for ensuring adherence to regulations, maintaining up-to-date policies, monitoring processes, and filing required reports.
Because the role requires promoting a strong culture of compliance through tasks like employee training and process updates, it’s best to choose a senior-level professional with the authority to influence company-wide compliance efforts.
For maximum impact, look for candidates who:
In addition to appointing a compliance officer, businesses should ensure employees understand AML regulations and know how to report potential violations. After all, depending on the nature of your business, detecting and reporting suspicious activity may fall into the hands of front-line employees. For example, casino employees must be attentive to unusual patron behavior, like sudden bet increases, that can suggest the risk of money laundering.
To promote and foster a culture of AML compliance, businesses must educate employees on AML regulations and how to recognize signs of money laundering. Training programs should emphasize recognizing suspicious transactions, understanding reporting procedures, and responding promptly to risks.
Without a careful AML program in place, unexpected violations can lead to big financial and reputational risks for your business. Simply put, compliance is a necessity, not an option.
With Business Screen, companies can access critical information about businesses, owners, and other stakeholders—helping them make informed decisions, mitigate risks, and ensure compliance with AML regulations. Contact Business Screen to learn how we can support your AML compliance program and protect your business from unexpected vulnerabilities.
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