Anti-Money Laundering (AML) checks are a cornerstone of global efforts to prevent financial crime and ensure the integrity of the financial system. These checks serve as key customer due diligence measures designed to verify identities, monitor transactions, and assess risks, thereby protecting businesses from being exploited for money laundering, terrorist financing, or other illicit activities. Knowing when to conduct AML checks is as important as understanding how to perform them effectively.
What Are AML Checks?
AML checks encompass various procedures aimed at confirming the identity and legitimacy of customers and their transactions. They range from basic Know Your Customer (KYC) verification processes to real-time screening against sanctions lists, politically exposed persons (PEPs) databases, and adverse media sources. Regulated entities conduct these checks to understand whom they are doing business with and to flag any suspicious behaviors or mismatches in information that may indicate potential money laundering or terrorist financing.
An essential feature of AML compliance is the use of customer due diligence (CDD) measures at key stages of the client lifecycle—beginning with onboarding, extending through ongoing monitoring, and invoked during certain transactional events or changes in risk profiles.
When Must AML Checks Be Conducted?
Determining the appropriate timing for AML checks involves regulatory requirements, risk assessments, and industry best practices. The Financial Action Task Force (FATF) the leading international body setting global standards for combating money laundering and terrorist financing recommends AML checks in the following scenarios:
- Establishing a New Business Relationship: The first point of AML compliance is during the onboarding of a new customer. Organizations must verify the customer’s identity, collect relevant information such as name, date of birth, and proof of address, and understand the nature and purpose of the relationship. This initial check helps classify the customer’s risk profile.
- Suspicion of Money Laundering or Terrorist Financing: If any transaction or customer behavior raises suspicion, regardless of thresholds, additional AML checks should be performed. Suspicious activity reporting mechanisms exist in regulated institutions to escalate such concerns to compliance officers or regulators.
- Uncertainty About Previously Obtained Information: Over time, previously collected customer data may become outdated or inaccurate. If uncertainties arise concerning a customer’s identity or activities, a refreshed AML check is warranted. Regulatory guidance often requires periodic review and updating of client information.
- High-Value or Occasional Transactions Above Thresholds: Designated thresholds, such as USD/EUR 15,000 for certain transactions or wire transfers, typically trigger enhanced due diligence. Occasional transactions over these limits necessitate additional verification and monitoring to ensure legitimacy.
- Changes in Customer Circumstances: Any significant change to a customer’s financial status, business activities, ownership structure, or transaction patterns should prompt a review and possibly updated AML checks. This aligns with a proactive risk-based compliance approach.
How Risk-Based Approach Influences Timing of AML Checks
One of the most effective frameworks for conducting AML checks is the risk-based approach recommended by FATF. Organizations assess each customer’s risk level low, medium, or high based on factors such as geography, occupation, transaction volume, and political exposure. The frequency and intensity of AML checks are then tailored according to these risk evaluations.
For example, a low-risk retail client may undergo minimal ongoing monitoring and validation, while a high-risk politically exposed person (PEP) would be subject to enhanced due diligence, more frequent screening, and transaction analysis.
Systems Supporting AML Checks
Technology plays a pivotal role in determining when and how AML checks are conducted. Key systems include:
- Client Screening Systems: Compare customer data against sanctions lists, watchlists, and PEP registries to identify high-risk individuals or entities. These systems facilitate on-boarding and ongoing re-screening processes.
- Transaction Screening: Monitors payments and transfers in real-time, flagging transactions involving sanctioned parties or suspicious patterns, prompting further review.
- Transaction Monitoring: Tracks customer account activity and behavior to detect anomalies or unusual transactions indicative of money laundering. Modern systems incorporate machine learning to reduce false positives and enhance detection accuracy.
These systems enable organizations to automate compliance workflows, maintain records, and respond to regulatory requirements effectively.
Information Required for AML Checks
Typical customer information collected during AML checks includes:
- Full name and aliases
- Date of birth
- Official identity documents (e.g., passport, driver’s license)
- Proof of residential address
- Details of occupation or business
- Source of funds and wealth
- Expected transaction types and volumes
- Identification of beneficial owners, particularly where ownership exceeds 25%
Having complete, accurate data at onboarding and updating it regularly is crucial for effective risk assessment.
Regulatory Requirements and Documentation
Regulated entities must maintain detailed records of AML checks, including evidence of identity verification, risk assessments, ongoing monitoring, and any suspicious activity reports filed. Documentation typically must be retained for at least five years, ready to be audited by supervisory authorities.
Non-compliance with AML requirements can result in severe penalties, including financial fines, legal action, and reputational damage. Consequently, organizations place high importance on adherence and invest in robust AML frameworks.
Benefits of Effective AML Check Timing
Conducting AML checks at the right times:
- Protects businesses from unwitting involvement in money laundering and terrorism financing
- Ensures compliance with international and local regulations, reducing legal risk
- Enhances a company’s reputation for integrity and trustworthiness
- Enables early identification and mitigation of financial crime risks
- Supports broader security measures, preventing fraud and illicit activity
Advanced Approaches: Perpetual KYC
Leading firms are increasingly adopting perpetual KYC practices, integrating continuous customer monitoring using artificial intelligence and data analytics. This allows real-time detection of anomalous behavior and triggers AML checks dynamically rather than relying solely on static periodic reviews. This progressive approach improves efficiency and strengthens compliance effectiveness.
Anti-Money Laundering checks are essential components of comprehensive financial crime prevention strategies. Conducting AML checks when establishing new relationships, upon suspicion of illicit activity, before high-value transactions, and in response to changing customer profiles ensures regulatory compliance and protects businesses from criminal exploitation. Utilizing a risk-based approach supported by advanced client screening and transaction monitoring systems enhances decision-making on when and how to perform these checks. Organizations that embed timely and thorough AML checks into their compliance culture strengthen financial integrity and contribute to the global fight against money laundering and terrorism financing.