Money laundering is a type of financial fraud, and it affects the global economy in a huge way. Criminals try to hide their illegal money from regulatory bodies, disguising its origin and converting the money into legal funds. Every year, losses due to money laundering equal 2-5% of the global economy ($800 million – $3 trillion). Anti-Money laundering refers to the activities financial institutions perform to achieve compliance with legal regulations to actively monitor for reporting suspicious activities.
History of Anti-Money Laundering Regulations
The United States was one of the first countries to enact anti-money laundering legislation. The regulation came into existence with the Bank Secrecy Act (BSA) in 1970. BSA was an early effort to detect and prevent money laundering, since then BSA has been amended and made stronger by additional anti-money laundering regulations. The Financial Crimes Enforcement Network is the regulatory body that ensures that AML regulations are followed by financial institutions.
In 1989, companies and organizations formed the global Financial Action Task Force (FATF). FATF’s goal is to devise and promote international standards to prevent the growing threat of money laundering. After the unfortunate attack of 9/11, the FATF expanded its regulation to include AML in its workflows. With 189 member countries, their main purpose is to ensure the stability of the global economy.
Why is Anti-Money Laundering Important?
Money laundering often accompanies activities like smuggling, illegal arms sales, embezzlement, trading, bribery, and other schemes. Money laundering is a common part of organized crime including human trafficking, arms and drug trafficking, and prostitution rings.
Anti-money laundering is also related to counter-financing (CFT), which financial institutions use to tackle terrorism financing. AML regulations combine money laundering, with terrorism financing.
Anti-Money Laundering & Counter-Terrorist Financing Laws and Regulations in the EU
The European Union has forced a number of regulations and laws in the past two years including:
- Sixth Anti-Money Laundering Directive (AMLD6)
- Markets in Crypto Assets Regulation (MICA)
- Second Payment Services Directives (PSD2)
- General Data Protection Regulations (GDPR)
According to industry experts, financial institutions and authorities do even more in their fight against money laundering and terrorist financing. The aim should be to close gaps and loopholes in the current legislation, clarify regulatory details, and toughen criminal penalties across the EU.
The new directive brought better insights and clarification and transparency in regard to some areas:
- List of offense
- Money laundering
- Scope expanded
- Stricter persecution and punishment (4-year sentences instead of 1 year)
According to some experts, the EU Second Payment Services Directive is bringing change and innovation to the online payment industry. The directive consists of two main elements of popular importance for e-commerce merchants: strong customer authentication and the emergence of two types of new regulated payment providers. Privacy and customer experience are among the most critical aspects that push new bank customers to complete the onboarding process.
General Data Protection Regulation (GDPR)
General Data Protection Regulation (GDPR) is a number of directives for the European Union (EU) that enhance the protection of the personal data of EU citizens. It also requires companies to comply with the latest rules and regulations that enhance the data privacy and security of every individual within the EU. These rules are strict and include many rules that increase the rights of data subjects.
Three concepts are important under the GDPR:
- Legitimate interest