Policy Issues • Terrorism and Illicit Finance
Money Laundering
Money laundering is the process of making illicit proceeds appear legitimate. Anti-money laundering (AML) frameworks focus on preventing, detecting, and reporting suspicious activity and on reducing the use of the financial system for crime.
The Classic Three Stages
- Placement: introducing proceeds into the financial system.
- Layering: moving funds through transactions to obscure origin and ownership.
- Integration: reintroducing funds as apparently legitimate resources.
Risk-Based Controls
Core Program Building Blocks
- Customer due diligence: understanding customers and beneficial owners.
- Monitoring: detecting unusual patterns and inconsistent activity.
- Escalation: investigating alerts and documenting outcomes.
- Reporting: filing reports and maintaining required records.
- Independent testing: validating that controls work as designed.
Why Definitions Matter
AML concepts often depend on the specific definitions used in policies and regulations. Programs usually emphasize consistent terminology so teams can apply controls reliably.
- Beneficial ownership: who ultimately owns or controls an entity.
- Suspicious activity: behavior that warrants investigation and possible reporting.
- Typologies: recurring methods criminals use to move or conceal funds.