What are AML/CFT checks?

It is vital now, more than ever, to ensure that AML and CFT checks are completed because the flow of money is constant and easily accessible. Due to the easy access to money, the opportunity for illicit activities, such as money laundering or financing terrorism, is ever-present. 

Introducing anti-money laundering (AML) and countering the financing of terrorism (CFT) checks has made it possible to safeguard organisations from these financial crimes. Here, we’ll discuss AML and CFT checks in detail. 

Explaining AML/CFT checks

AML/CFT checks are a set of laws and regulations that are implemented to prevent criminals from disguising illegally obtained funds as income or from being able to support terrorist activities. 

These checks are crucial in being able to maintain financial stability within economies and protect the reputation of financial institutions, ultimately protecting society by combating crime. 

AML checks

An AML check is the overarching financial regulation that aims to prevent all types of financial crime. AML checks are used to verify the identity of the customers of businesses and to monitor their financial transactions. 

This way, financial crimes like money laundering and financing terrorism can be prevented or identified as soon as possible. AML checks are like background checks for money. 

What do AML checks include? 

When undergoing an AML check, organisations look into processes like: 

Know Your Customer (KYC) 

This includes verifying the identity of the customer, which includes things like: 

  • Collecting identification documents (passport, driver's license, national ID card).  
  • Verifying the authenticity of these documents.
  • Obtaining proof of address (utility bill, bank statement).  
  • Understanding the nature and purpose of the business relationship.  
  • Identifying the beneficial owner of an account or business.

Risk assessment

Next, the risk customers pose will be evaluated by looking at various factors like their geographic location,  the nature of their business and the types of transactions they’re likely to undertake. 

Sanctions and PEP screening

Organisations will also need to understand if a customer has ever been sanctioned or is known as a PEP - a politically exposed person - as they will present a higher risk of corruption. 

Transaction monitoring

Organisations will also continuously monitor customer transactions to look out for any unusual patterns that may indicate money laundering. 

Adverse media checks

Organisations will also look at any news relating to the person or entity that may indicate a higher risk. 

So, we can now see that the process of AML checks is an umbrella regulation that enables organisations to prevent any type of financial crime, including money laundering or tax evasion.  

CFT checks

CFT checks, more specifically, enable those conducting them to cut off the financial lifeline that terrorist groups rely on to plan attacks and are a crucial part of the AML check process. Let’s take a look at CFT checks in more detail. The key components of CFT checks include: 

  • Preventive measures: Procedures are being implemented and carried out to reduce the risk of financing terrorist groups. 
  • Financial intelligence: Being able to gather and analyse data so that any suspicious transactions and activities can be identified as soon as possible. 
  • Investigation: Suspicious transactions and activities are then investigated to determine if they are, in fact, financing terrorism.
  • Sanctions: If any suspicious activity is identified, penalties will be imposed on individuals or entities that are involved in financing terrorism.
  • International cooperation: Information is shared internationally to encourage international cooperation, and so that awareness is spread about potential threats.

How do CFT checks work? 

CFT checks are conducted by implementing various checks, such as a Know Your Customer (KYC) check, where the identity of customers is verified and their business is understood in detail. With KYC checks, transactions are also carefully monitored. 

With the continuous monitoring of customer activities, suspicious activity is identified, which will then result in Suspicious Activity Reports (SARs) being filed. These SARs will then be given to the relevant authorities, who can take the matter further if needed. 

It is important that there is a continuous risk assessment being implemented so that potential threats and risks are evaluated with different customers and transactions. 

Who is subject to AML/CFT checks?

AML and CFT regulations are relevant to businesses and financial institutions that handle money. For example: 

  • Banks and credit unions: These are often the first types of financial institutions that are able to detect suspicious financial transactions.
  • Investment firms: These can be potential targets for illicit funds as they tend to handle large sums of money.
  • Estate agents: Any significant property transactions will require a risk assessment
  • Gambling services: Casinos and online betting platforms are easily susceptible to money laundering.
  • Accountants and lawyers: There is always a responsibility to conduct due diligence when involved in financial transactions on behalf of clients.
  • Individuals who need to open bank accounts to make large financial transactions may also be subject to AML/CFT checks. 

It is clear that without both AML and CFT checks, there wouldn’t be sufficient protection against financial crimes. It is vital that organisations ensure they’re playing their part in preventing illicit financial activities from taking place so that global economies as a whole are protected. 

Not only do AML and CFT checks prevent financial crimes from taking place, but they also ensure that financial stability is maintained, that there is legal and regulatory compliance and that the reputations of businesses are protected. 

So, be sure to conduct your due diligence by implementing your AML and CFT checks. This way, you're doing your part in preventing financial crimes from taking place, and you can then feel confident that you’re conducting sound business with reputable companies that care about upholding the law. 

Creditserve’s credit check packages will help you run credit checks on any company you may be looking to work with. With our services, you’ll be able to assess the risk efficiently, making informed decisions that allow you to mitigate financial risks. 

Contact us at 01992 414222 for more information!