AML checks – what do businesses need to know? (2024)

If your business deals with money or investment, you may need to complete anti-money laundering checks on your customers.

These checks help to reduce the risk for your business and prevent crime.

Read our guide for more information on how anti-money laundering checks work and what businesses need to do.

What is anti-money laundering?

Anti-money laundering is a set of processes designed to stop money earned through criminal activity being invested through a business to ‘clean’ it and make it appear legitimate.

Businesses that deal with client funds can be exploited by money launderers who use their services to move money that’s been gained through crime such as theft, selling drugs, or human trafficking.

Money is usually laundered in three stages:

1. Placement – criminally gained money is deposited into the mainstream financial system
2. Layering – the laundered money changes hands or countries to make it harder to trace
3. Integration – the launderer receives their money back in a clean, legitimate form

An example of a business being used to launder money is a criminal gang buying a property in cash through an estate agent to turn their money into a legitimate investment. That’s why it’s important for financial businesses to have an AML policy in place.

A business’s approach to anti-money laundering is likely to include the following processes:

• due diligence
• risk assessments
• monitoring transactions and suspicious activity
• training employees in anti-money laundering
• appointing employees to oversee anti-money laundering
• creating and following an AML policy

Anti-money laundering regulations can be complex and this article is intended as a guide only. Please get advice from a legal professional if you’re unsure of anything.

What are anti-money laundering checks?

An AML check is a due diligence measure that must be carried out by businesses that are regulated by the Money Laundering Regulations.

AML checks are designed to prevent financial crime and reduce the chances of businesses becoming directly or indirectly involved in money laundering.

As well as confirming the identity of customers, AML checks require businesses to screen people against global watchlists and sanctions lists, as well as databases of people who hold influential public positions (known as politically exposed persons).

What are KYC checks?

One of the most common AML checks is a know your customer (KYC) check. KYC is part of anti-money laundering regulations and requires businesses to verify the identity of their customers.

Before accepting large sums of money from clients, businesses that are required to do KYC checks will need to:

• confirm the client’s identity
• confirm that the money has been earned or gifted through legitimate means

What information do you need to complete an AML check?

For basic checks, businesses will need to record the following details:

• customer’s name
• date of birth
• photograph of an identity document such as a passport or driving licence
• proof of address such as a utility bill

In some cases, you may need to collect further information such as:

• the source of the customer’s funds
• the purpose of the relationship with the customer
• details of the customer’s employment
• the expected type and level of activity

Which businesses must register for AML checks?

It’s likely you’ll need to do AML checks if your business is covered by the Money Laundering Regulations. The types of businesses that are covered by these regulations usually deal with finance or investment such as:

• managing client money or assets
• buying or selling property
• creating or managing companies, trusts, or foundations
• opening or managing bank accounts

Some of the common business trades that are covered by the Money Laundering Regulations include:

• estate agents
• high value dealers (such as art dealers)
• money service businesses
• accountants
• trust or company service providers

If you’re not sure whether your business should register for AML checks, you could do a risk assessment to see if your business activities come under the above categories.

What are the penalties for failing to complete AML checks?

In the most serious cases, failure to comply with anti-money laundering rules could result in a criminal prosecution.

Businesses could also be fined and suffer reputational damage for failing to do AML checks properly.

HMRC has revealed that it handed out £3.2 million in fines to 240 businesses for breaching anti-money laundering rules between July and December 2022.

Businesses were fined for breaches such as failing to do risk assessments, not having appropriate anti-money laundering controls, and failing to do due diligence checks.

What is an anti-money laundering policy?

An anti-money laundering policy can help your business define how it completes AML checks to help prevent financial crime.

Your policy should include:

• details of who oversees AML activity at the business
• steps your business takes to prevent money laundering
• how you verify the identity of customers
• your due diligence processes
• how staff are educated about AML and reporting suspicious activity
• how you monitor transactions
• how you make sure the rules and procedures in the policy are being followed

AML checks – why is record keeping so important?

It’s important to keep records when completing AML checks. This is because it’s a legal obligation to keep records for five years to comply with the Money Laundering Regulations.

By keeping accurate and up to date records, you can make sure your business can provide all the right information if there’s a money laundering investigation.

You’ll need to keep a record of things like:

• customer’s identity documents
• policies and procedures
• training records
• risk assessments

Records can be kept as originals, photocopies, or scans, and must be stored for five years from the date a business relationship ends or the date a transaction is completed.

Can businesses use anti-money laundering software?

There’s a range of software solutions designed to help small businesses comply with AML regulations.

These platforms can automate parts of the AML process, including due diligence, KYC checks, and checking if people are sanctioned or hold an influential public position.

This kind of software can help small businesses to avoid fines and save time.

A quick Google search reveals a whole host of software providers, such as SmartSearch, QuickFile, and First AML. When choosing AML software, you’ll need to do your research and find a provider that fits the needs of your business.

Do you have any unanswered questions about anti-money laundering checks? Let us know in the comments below.

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