Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti-money laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA Patriot Act. That Act builds upon and extends the Bank Secrecy Act (BSA) of 1970.
Subsequently, recent Federal anti-money laundering legislation has caused NxSystems™, Inc. to review and revise our policy for handling funds. The changes are necessary to ensure we comply with money laundering regulations.
Money laundering is the act of converting money or other monetary instruments gained from illegal activity into money or investments that appear to be legitimate so that its illegal source cannot be traced. It is also illegal to transport, transmit or transfer, or attempt to transport, transmit or transfer a monetary instrument or funds in excess of $10,000 either into or out of the United States, if the purpose is to carry out an illegal activity, or to avoid reporting requirements. Penalties for violations are up to 20 years in prison and up to $500,000 in fines. Customs Service Regulations(CSR) require a person to file a Currency and Monetary Instrument Report (CMIR) upon physically transporting, mailing or shipping funds or monetary instruments in an aggregate amount of $10,000 or more, either into or out of the United States.
In addition, Federal Law also requires businesses to file an 8300 Form (Report of Cash Payments Over $10,000 Received in a Trade or Business) with the Internal Revenue Service whenever they engage in a transaction or series of related transactions involving cash in excess of $10,000.
There are three basic types of requirements:
- KYC (Know your customer) – A financial institution bank must perform due diligence in ascertaining a new customer’s identity. Lists, such as the OFAC (Office of Foreign Assets Control) list must be checked for hits and a potentially politically exposed person must be investigated. An FTC document referred to as “26 Red Flags” provides 26 guidelines useful to assure compliance and protect from identity falsification. The financial institution will need to know the nature of the customer’s business in order to determine if abnormal activity begins to take place which is reportable as a Suspicious Activity Report (SAR).
- CTR (Currency Transaction Reports) – Transactions involving over $10,000 in cash require filing of a report with FinCEN (Financial Crimes Enforcement Network) in the US and equivalent governmental financial intelligence units in most nations.
- SAR (Suspicious Activity Report) – Most financial institutions globally, and many non-financial institutions, are required to identify and report transactions of a suspicious nature to their government’s financial intelligence unit. They must monitor transactions for suspicious activity. To do this, many financial institutions utilize the services of special software, and use the services of companies such as world compliance to gather information about high risk individuals and organizations.