Anti-Money Laundering Fundamentals
Foundations of AML
Anti-money laundering work rests on three stages: placement (introducing illicit cash into the financial system), layering (obscuring its origin through transfers, entities, or trades), and integration (returning funds as apparently legitimate wealth). Candidates must know the risk-based approach: controls should be proportionate to customer, product, channel, geography, and delivery risk. Core obligations include customer due diligence (CDD), enhanced due diligence (EDD) for higher-risk relationships such as PEPs or complex ownership structures, identification of beneficial owners, ongoing monitoring, recordkeeping, and reporting suspicious activity to the financial intelligence unit.
Traps
Suspicion is not proof. A suspicious activity report is filed on reasonable grounds to suspect, not on confirmed criminality; requiring proof is a classic wrong answer. Tipping off, meaning alerting the customer that a report was made, is prohibited. Domestic PEPs are still PEPs, and a former PEP usually remains higher risk for a period based on risk rather than an automatic lifetime label. Source of funds (money for this transaction) differs from source of wealth (how the person's overall wealth was built). Beneficial ownership thresholds vary by jurisdiction, often 25%, but control can trigger identification even below the threshold.
Worked example
A customer makes six cash deposits of 9,000 in one week, each just under a 10,000 reporting threshold. Structuring is the red flag. Do not simply file a currency report and close the alert; escalate, document, and file a suspicious activity report where suspicion is reasonable, without telling the customer.