What is an enhanced AML check?

If you’ve been in and around the financial world, you’ve most likely heard of AML checks. They are a fundamental pillar of all financial operations and are designed to prevent illicit funds from being used within the economy. However, there may be times when you’ll need to use an enhanced AML check.

Here, we’ll discuss the ins and outs of an enhanced AML check, detailing how it differs from a standard AML check and why it is a necessary step for certain businesses. You’ll find out why implementing enhanced due diligence is a necessary step to take concerning financial compliance, and also, what to do if your business has failed an enhanced AML check.

An enhanced AML check can also be referred to as enhanced due diligence. It is a more rigorous and in-depth process of being able to verify a customer’s identity, assessing the true source of a business’s funds. As with standard AML checks, an enhanced AML check will help mitigate higher risks that are associated with money laundering, terrorist financing and any other financial crimes.

It gives you an opportunity to be able to look much deeper into a business’s inner financial workings, ultimately confirming where you came from financially and the reasons behind conducting a particular business transaction.

Here’s what an enhanced AML check will include:

PEP checks: these include verifying against global databases to be able to identify individuals who hold prominent public positions because of an associated higher risk of bribery or corruption.
Sanctions screening: these include intense checks against international sanctions lists to make sure that no deals have been made with any sanctioned individuals, entities or countries. Examples of this include sanctions screening from the UN, OFAC, and HM Treasury.
Adverse media screening: Financial entities will conduct these searches by looking into news archives and public records for any negative or suspicious information related to businesses and individuals. They will keep a special lookout for fraud, crimes or any other suspicious activities.
Source of wealth/funds verification: Here, there will be a detailed investigation into the origin of any significant assets or funds involved in a transaction. Documents like tax returns, inheritance papers or business sales agreements will be scrutinised.
Complex ownership structures: Financial entities will look into intricate corporate structures, trusts or partnerships in order to identify those who own or control the entity (Ultimate Beneficial Owners).
Enhanced ongoing monitoring: There will be ongoing monitoring for all high-risk relationships, and it will involve more frequent and intensive reviews of transaction patterns and activities in order to identify any anomalies.

Standard vs. enhanced AML checks

We briefly touched on this before, but we’ll now take a look at the difference between standard and enhanced AML checks.

The main difference between the levels of AML checks boils down to the risk-based approach that financial entities and regulated businesses are required to follow and implement.

So, the level of risk linked to any business deals will determine the level of scrutiny that needs to be implemented. The key here will be to differentiate between the types of AML checks depending on the situation.

Standard AML

For customers with low-to-medium risk, standard AML checks will be applied. This will include basic identity verification (passports or driver's licences) and proof of address (utility bill). Simple company registration checks may also be implemented here, as part of the standard AML check process.

The crux of these checks is to confirm who you are and to ensure that you aren’t on any basic watchlists.

Enhanced AML check (EDD)

Enhanced AML checks will come into play when the assessed risk is significantly higher compared to other financial risks. This will mean that the previously mentioned checks will all be implemented to mitigate high-risk situations.

When is an enhanced AML check necessary?

We’ve mentioned a few times that there are certain high-risk factors that would require an enhanced AML check to be implemented, but what exactly are they? Let’s take a look at some of these common triggers.

High-risk customers

PEPs and their close associates: Due to their high status, PEPs are considered higher risk for bribery and corruption.
Customers from high-risk geographic areas: this would include any countries that have been identified as having weaker risk mitigation processes in place, high levels of corruption, or that have been subject to international sanctions.
Customers in high-risk business sectors: This would include industries that are inherently prone to money laundering, for example, gambling, arms dealing, luxury goods or cash-intensive businesses.

High-risk transactions

Any high-risk transactions will trigger an enhanced AML check, for example:

Large, complex, or unusual one-off transactions: this includes those exceeding certain monetary thresholds that have been set by regulators or those that have no clear economic or lawful purposes.
Transactions with no obvious link to stated business activity: this is especially true if a business starts making large payments to an unrelated sector.
Transactions involving new or untested technologies: if there are any new payment methods being used, for example, cryptocurrencies, this may trigger an enhanced AML check. The reason for this is due to the fact that there may be a lack of established regulatory oversight.

Suspicious activity

Any suspicious activity will also trigger an enhanced AML check. This could take place with seemingly low-risk clients, too, when red flags are raised or any unusual behaviour is displayed.

Specific industries/sectors

Any businesses that operate in regulated sectors, including real estate agencies, legal firms, or financial services, will have a legal obligation to conduct an enhanced AML check, especially when any high-risk scenarios present themselves.

The importance of enhanced AML checks for businesses

Implementing enhanced AML checks is a responsible business practice that is a part of your legal and regulatory compliance. Failing to implement these checks will result in massive fines, operational restrictions, reputational damage and can even result in criminal prosecution for individuals or the business. Consequently, when enhanced AML checks are being implemented, you’ll be able to foster trusting relationships with clients, partners and the public.

Besides risk mitigation, implementing enhanced AML checks means that your business is a part of a larger financial system that works together to prevent financial crime from taking place. As such, criminals are then unable to exploit services for illicit purposes.

Also, by implementing these checks earlier on, your business will be safeguarded from more costly issues down the line, for example, investigations, asset freezes or prolonged legal battles.

What happens when a business fails an AML check?

So, what exactly happens when your business fails an AML check? Well, this is considered a serious issue with immediate and potentially long-term consequences. Let's take a look at these consequences in more detail.

Immediate consequences

Transaction halted/refused: Any financial transactions will automatically be stopped.
Account frozen/closed: Any existing accounts related to the failed AML check will be frozen and terminated.

Relationship terminated:

Suspicious activity report (SAR): If the reasoning for the failed AML check is due to suspicious activity, the financial institution is obligated to file an SAR with the relevant authorities, such as the National Crime Agency in the UK.

Potential long-term repercussions

Reputational damage: Naturally, having a history of failed AML checks will make it more difficult to acquire financial services from other financial institutions in the future.
Difficulty obtaining services elsewhere: It is without doubt that other institutions will be wary of onboarding businesses with a history of failed AML checks.
Regulatory investigation/enforcement: The severity of the failed AML check may also result in regulatory bodies launching investigations into the business, which could result in fines or other enforcement actions.

Key advice if you fail an AML check

Failing an AML check can be daunting, and you’re likely unsure of what to do next. Here are some of our top tips for what you can do next.

The first thing you should do is understand the exact reason for the failure of the enhanced AML check. If you’re unsure, ask for clarity from the financial institution.
Next, make sure that you engage openly with the financial institution and provide any additional information as quickly as possible.
If you’re still unsure of the reasoning for the failure, be sure to consult with a legal professional who specialises in financial crime. Equally, you could consult with a compliance consultant.
Lastly, make sure that you review all of your AML compliance procedures to ensure there aren’t any gaps and whether or not your internal checks align with regulatory expectations.

Enhanced AML checks are there as a vital line of defence against money laundering, terrorist financing and any other illicit activities. These checks are processes that need to be implemented, especially due to the increasing sophistication of financial crime.

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What is an enhanced AML check?