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The Ultimate Guide to AML Checks

Mohammad HumaidPublished at: April 3, 2025 Updated at: April 4, 2025

Anti-Money Laundering (AML) checks are a critical component of the global financial system, designed to prevent and detect illegal activities such as money laundering, terrorist financing, and other financial crimes.

In this comprehensive guide, we will explore what AML checks are, why they are important, how they work, and the key components involved in the process. Whether you're a financial institution, a business owner, or simply someone interested in understanding the intricacies of AML, this guide will provide you with all the information you need.

What Are AML Checks?

AML checks are essential procedures that financial institutions and other regulated businesses use to detect and prevent money laundering. These checks ensure that illegally obtained funds, known as "dirty money," are not disguised as legitimate income, or "clean money," through complex financial transactions.

AML checks for banks, estate agents, and other regulated sectors help prevent financial crimes such as fraud, terrorism financing, and tax evasion. These checks are legally required in most jurisdictions and are enforced by regulatory bodies including the Financial Action Task Force (FATF), which sets international AML standards, the Financial Crimes Enforcement Network (FinCEN) in the U.S., and the European Banking Authority (EBA) in the EU. Failure to meet AML check requirements can result in severe penalties, including hefty fines and reputational damage.

AML checks involve several key components:

Identity verification ensures customers are who they claim to be through official documents such as passports, driving licences, biometric verification, and address confirmation.
Risk assessment determines the level of money laundering risk based on factors like business activities, geographic location, and transaction patterns.
Transaction monitoring detects suspicious financial activities such as large cash deposits, rapid successive transactions, and structuring, where large amounts are broken into smaller transactions to evade detection.
Sanctions and Politically Exposed Persons (PEP) screening ensures compliance by cross-referencing individuals against international watchlists.
Reporting: Filing reports with relevant authorities when suspicious activity is detected. In the U.S., this is done through Suspicious Activity Reports (SARs).

KYC AML checks are often conducted together but serve different purposes. KYC verification focuses on verifying a customer's identity before they open an account, while AML checks go further by monitoring and detecting suspicious financial activities. Together, they help financial institutions meet compliance obligations and prevent illicit activities within the global financial system.

Binderr AML Screening Solution

Binderr’s AML screening solution provides real-time AML checks with unmatched speed and accuracy, helping businesses stay compliant and prevent financial crime.

Key Features:

KYC Verification – Biometric face-matching technology ensures secure and accurate identity verification.
Document Verification – Instant validation of passports, driver’s licences, and other official documents.
PEP Screening – Identifies politically exposed persons (PEPs) to mitigate corruption risks.
Sanctions & Watchlist Screening – Cross-references customers against global sanctions lists and high-risk watchlists.
Adverse Media Checks – Scans global news sources to detect potential links to financial crime.

Binderr leverages 11,000+ trusted data sources, ensuring up-to-date compliance with evolving AML check requirements. By prioritising real-time screening, Binderr enhances risk assessment, making it a powerful tool for AML checks for banks, estate agents, and other regulated industries.

Key Components of AML Checks

To comply with regulatory requirements, financial institutions and regulated businesses must conduct thorough AML background checks to prevent money laundering and financial crime. These AML checks involve several key components, including KYC, CDD, EDD, and sanctions and PEP screening.

Know Your Customer (KYC)

Comprehensive KYC AML checks ensure businesses verify customer identities and understand the nature of their financial activities. This process typically includes:

Collecting official identification documents (passports, driver’s licences, articles of incorporation).
Verifying addresses through utility bills or bank statements.
Understanding the purpose and intended nature of the business relationship.
Identifying the source of funds and wealth for high-risk customers.

For example, a wealth management firm onboarding a new client would need to verify their identity, understand their investment objectives, and confirm that their wealth comes from legitimate sources like business income or investments—not illicit activities.

Customer Due Diligence (CDD)

CDD is the process of assessing the money laundering risk posed by customers and taking appropriate measures based on that risk. This includes:

Basic verification for standard-risk customers (individuals from low-risk countries making typical transactions)
Enhanced Due Diligence (EDD) procedures for high-risk customers (such as PEPs or clients from high-risk jurisdictions)
Ongoing monitoring throughout the business relationship to identify changes in risk profiles

For instance, a bank might apply standard CDD for a local retailer with predictable transaction patterns but implement EDD for a client involved in cross-border commodity trading with high-risk jurisdictions.

Enhanced Due Diligence (EDD) for High-Risk Clients

EDD goes beyond standard AML checks, requiring deeper scrutiny for clients with a higher risk of money laundering. EDD process involves:

Collecting additional documentation about the customer’s business activities.
Verifying the legitimacy of the source of funds.
Assessing potential links to criminal activities or sanctioned entities.

AML checks for banks conducting EDD may include reviewing detailed financial statements, shareholder structures, and cross-border transaction histories to ensure transparency. EDD is typically required for customers who pose a higher risk of money laundering, such as those from high-risk jurisdictions or those involved in high-risk industries.

Ongoing AML Monitoring

Ongoing monitoring involves continuously reviewing customer transactions and activities to detect any suspicious behavior. This includes monitoring for unusual transaction patterns, changes in customer behavior, and any red flags that may indicate potential money laundering.

Sanctions Screening

Sanctions screening involves checking customers against global sanctions lists to ensure that they are not involved in illegal activities or associated with sanctioned entities. This is a crucial step in preventing the flow of funds to terrorists, drug traffickers, and other criminals.

Politically Exposed Persons (PEP) Screening

Politically Exposed Persons (PEPs) are individuals who hold prominent public positions and are at a higher risk of being involved in corruption or money laundering. PEP screening involves identifying and conducting enhanced due diligence on these individuals to mitigate the associated risks.

Read More: What is PEP Screening?

Watchlist Screening

Watchlist screening is a broader process that includes checking against various lists beyond sanctions, such as PEP databases and adverse media reports. It helps identify potential financial crime risks by monitoring for individuals or entities linked to illicit activities.

Read More: What is watchlists screening?

Transaction Monitoring

This involves screening transactions to identify unusual patterns that may indicate money laundering, such as:

Unexplained large deposits or withdrawals (such as a series of cash deposits just under reporting thresholds)
Frequent transfers to high-risk jurisdictions known for banking secrecy
Transactions inconsistent with the customer's profile (like a small business suddenly processing millions in transactions)
Structured transactions designed to avoid reporting thresholds (a technique called "smurfing")

A real-world example would be a payment service provider detecting a pattern where a customer receives multiple small transfers that are immediately withdrawn in cash—potentially indicating layering activity in the money laundering process.

Why AML Checks Matters?

Implementing robust AML checks is not just a regulatory requirement—it's a critical business practice that offers several important benefits:

1. Legal Compliance

AML checks are mandated under various regulations, including the UK's Money Laundering Regulations 2017, the EU's 6th Anti-Money Laundering Directive, and the US Bank Secrecy Act. Non-compliance can result in:

Substantial financial penalties (such as the £37.8 million fine issued to Commerzbank AG in 2020 for AML failures)
Criminal prosecution of company officers
Reputational damage that can last years beyond the initial incident
Loss of business licenses and banking relationships

2. Financial Crime Prevention

Money laundering costs the UK economy an estimated , representing approximately 5% of the UK's GDP. Effective AML checks help disrupt the flow of illicit funds and prevent businesses from being used as vehicles for financial crime.

Consider this example: A real estate agency without proper AML checks might unwittingly facilitate the purchase of high-value properties with proceeds from drug trafficking—a common money laundering technique called "integration"—allowing criminals to legitimize their funds while the agency faces severe penalties.

3. Business Protection

By conducting thorough AML checks, businesses protect themselves from:

Involvement in criminal activities that could lead to asset seizures
Regulatory scrutiny and sanctions that can halt operations
Reputational damage that can drive away legitimate customers and partners
Financial losses through fraud or regulatory penalties

Adopting a Risk-Based Approach for AML Checks

Not all customers pose the same level of financial crime risk, which is why a risk-based approach is essential for effective AML checks. By assessing risk dynamically, businesses can ensure compliance while optimising resources.

Risk Profiling – Assess customers based on factors like geography, transaction patterns, business sector, and PEP status.
CDD for Low-Risk Customers – Basic identity verification and address confirmation for predictable, low-risk clients.
EDD for High-Risk Customers – Deeper AML background checks, enhanced source of funds verification, and stricter transaction monitoring.
Ongoing Monitoring – Continuous risk assessment to detect changes and prevent financial crime.
Efficient Resource Allocation – Prioritise high-risk customers, reducing unnecessary scrutiny on low-risk individuals.

By adopting a data-driven approach, businesses can enhance their AML check process, improving both compliance and operational efficiency.

AML Regulations and Compliance

Global AML Regulations

The Financial Action Task Force (FATF) is the global standard-setter for AML regulations. The FATF provides a set of recommendations that countries are encouraged to implement to combat money laundering and terrorist financing. These recommendations cover areas such as customer due diligence, reporting of suspicious transactions, and international cooperation.

Regional AML Regulations

In addition to global regulations, many countries have their own AML laws and regulatory bodies. For example:

United States: The Bank Secrecy Act (BSA) and the USA PATRIOT Act are key pieces of legislation governing AML compliance. The Financial Crimes Enforcement Network (FinCEN) is the primary regulatory body.
European Union: The EU has several AML directives, with the 6th Anti-Money Laundering Directive (6AMLD) being the latest. The European Banking Authority (EBA) oversees AML compliance in the EU.
United Kingdom: The UK has its own AML regulations, enforced by the Financial Conduct Authority (FCA) and the National Crime Agency (NCA).

Common AML Challenges and Solutions

False Positives

Problem: Overzealous screening systems flag legitimate transactions, creating alert fatigue and wasting valuable investigative resources.

Solution: Implement AI and machine learning technologies to improve accuracy and reduce false positives. uses advanced algorithms to minimize false positives while maintaining comprehensive coverage, allowing compliance teams to focus on genuine risks rather than chasing false leads.

Cross-Border Complexity

Problem: Global transactions and diverse regulatory requirements create a complex compliance landscape, with rules varying significantly across jurisdictions.

Solution: Adopt solutions with global coverage and regularly update your procedures to reflect changing international standards. Consider a global compliance framework with jurisdiction-specific adaptations to ensure comprehensive coverage.

Evolving Financial Crimes

Problem: Financial criminals continuously evolve their tactics to evade detection.

Solution: Stay ahead of these threats by continuously innovating and adapting AML strategies. Leverage advanced technologies like AI and machine learning to detect sophisticated money laundering schemes.

Regulatory Complexity

Problem: AML regulations are complex and vary by jurisdiction.

Solution: Implement a centralized compliance framework that integrates regulatory updates from multiple jurisdictions. Utilize global compliance software and databases to streamline processes.

Staying Ahead of Emerging Risks

Financial criminals constantly evolve their techniques. Stay ahead by:

Monitoring emerging threats: Keep informed about new money laundering methods, such as crypto-mixing services or synthetic identity fraud
Regularly updating your risk assessment: Review and revise your approach as risks change in your industry and client base
Participating in industry forums: Share information and best practices with peers through industry associations or financial intelligence sharing groups
Engaging with regulators: Seek guidance on compliance expectations and participate in consultations on new regulations

Consider the case of virtual assets: when cryptocurrency exchanges became popular, money launderers quickly exploited the anonymity they initially offered. Proactive compliance teams implemented blockchain analytics tools to identify suspicious transaction patterns before regulations mandated such controls.

Bottom Line

Effective AML checks are not merely regulatory obligations but essential safeguards against financial crime. By implementing robust verification processes, adopting a risk-based approach, and leveraging advanced technology, businesses can ensure compliance while protecting their reputation and financial integrity.

However, AML compliance is an ongoing journey. As financial crimes become more sophisticated and regulations evolve, organisations must continuously refine their AML check processes to stay ahead.

For businesses aiming to streamline compliance, adopting a comprehensive AML solution can be instrumental. Such solutions offer features like:

AML Screening for KYC and KYB: Facilitates thorough screening of individuals and businesses during onboarding.
Watchlist Screening: Checks against sanctions, Politically Exposed Persons (PEPs), and adverse media to identify potential risks.
AI-Powered Screening and Ongoing Monitoring: Utilises artificial intelligence for real-time monitoring, reducing false positives by up to 70%.

In an era where financial crime is increasingly complex, robust AML checks are essential—not just for compliance, but for preserving the integrity of the financial system and protecting society at large.

AML Checks FAQs

What is an AML check?

An AML check refers to a set of procedures designed to prevent, detect, and report money laundering activities and other financial crimes. These checks are part of a broader Anti-Money Laundering compliance framework that businesses in various sectors must implement to comply with regulatory requirements.

AML checks involve verifying customer identities, screening against sanctions and politically exposed persons (PEPs) lists, and monitoring transactions for suspicious activities. The primary purpose of these checks is to prevent criminals from disguising illegally obtained funds as legitimate income and to maintain the integrity of financial systems.

AML checks are crucial for businesses to avoid financial penalties, reputational damage, and in extreme cases, disqualification as a business or director.

What is the meaning of AML check?

AML check meaning encompasses the verification processes used to ensure that a business is not inadvertently facilitating money laundering or terrorist financing. These checks specifically refer to the screening and due diligence procedures that entities perform to comply with Anti-Money Laundering regulations.

The meaning of AML checks extends beyond simple identity verification to include comprehensive risk assessment, transaction monitoring, and reporting of suspicious activities to relevant authorities. These measures are designed to create a barrier against financial criminals who attempt to integrate illicit funds into the legitimate financial system through complex transaction patterns or business relationships.

What are the requirements for AML checks?

AML check requirements vary by jurisdiction and industry, but generally include several key components. Businesses subject to AML regulations must establish a comprehensive compliance program that includes mechanisms for screening transactions, implementing strong Know Your Customer (KYC) procedures, conducting appropriate due diligence, identifying ultimate beneficiaries for legal entities, and documenting all efforts to prevent money laundering.

Specific requirements include verifying customer identities using official documents, screening customers against sanctions and PEP lists, conducting risk assessments, implementing transaction monitoring systems, and maintaining detailed records of all verification processes.

Additionally, businesses must have procedures in place for reporting suspicious activities to relevant authorities and regularly updating their compliance programs to reflect changes in regulations.

What is the AML check process?

The AML check process involves several sequential steps that businesses must follow to ensure compliance with regulatory requirements. Initially, the process of AML checks begins with customer identification and verification, where businesses collect and verify personal information and identity documents. Following this, customers are screened against sanctions lists, PEP databases, and other watchlists to identify high-risk individuals.

The next step involves conducting risk assessments to determine the appropriate level of due diligence required, which may be standard or enhanced depending on the customer's risk profile. Once a customer relationship is established, ongoing monitoring takes place to detect unusual or suspicious transaction patterns. When suspicious activities are identified, businesses must file reports with relevant authorities and take appropriate action, which may include terminating the business relationship.

How do KYC and AML checks relate to each other?

KYC (Know Your Customer) and AML checks are closely interrelated components of financial crime prevention. KYC is actually a subset of the broader AML framework, focusing specifically on establishing and verifying customer identities. While KYC primarily aims to understand who the customer is, AML encompasses a wider range of activities including KYC, transaction monitoring, and suspicious activity reporting.

The relationship between KYC and AML is hierarchical - KYC procedures form the foundation of effective AML compliance by ensuring that businesses know who they're dealing with before entering into financial relationships. KYC is typically conducted at the beginning of a customer relationship and periodically throughout, whereas AML monitoring is a continuous process that involves screening transactions and updating risk profiles dynamically.

What are AML checks for banks?

AML checks for banks are particularly rigorous due to the high-risk nature of banking activities and the significant volumes of financial transactions they process. Banks must implement comprehensive AML programs that include customer identification procedures, transaction monitoring systems, risk assessment frameworks, and reporting mechanisms for suspicious activities.

AML checks for banks involve verifying customer identities using multiple data points, conducting enhanced due diligence for high-risk customers, screening against global sanctions and PEP lists, and implementing automated systems to monitor transactions for unusual patterns. Banks are required to file Suspicious Activity Reports (SARs) when they detect potentially illicit activities and maintain detailed records of all verification procedures.

The consequences of non-compliance can be severe, as demonstrated by the case of ABN AMRO, a Dutch investment bank that paid $574 million in fines in 2021 for AML compliance failures.

What are AML checks for estate agents?

AML checks for estate agents are specifically designed to prevent money laundering through property transactions, which are often high-value and attractive to criminals seeking to launder illicit funds. Estate agents are legally required to conduct thorough due diligence on clients, verify identities, understand the source of funds, and monitor transactions for suspicious activity.

The AML check process for estate agents includes verifying the identities of both buyers and sellers, conducting risk assessments to determine the appropriate level of due diligence, and maintaining comprehensive records of all verification procedures.

Estate agents must stay informed about the latest AML laws and best practices to ensure their procedures remain effective and can withstand scrutiny during regulatory audits by authorities such as HMRC in the UK.

Given the high value of property transactions, the real estate sector is considered particularly vulnerable to money laundering activities, making robust AML checks essential for estate agents.

Who needs to perform AML checks?

A wide range of entities are required to perform AML checks under various regulatory frameworks. According to the European Anti-Money Laundering Directive, AML checks must be performed by banks and the entire financial sector, as well as by lawyers, notaries, accountants, real estate agents, casinos, and company service providers.

Additionally, dealers in goods who accept cash payments exceeding €10,000 are also subject to AML requirements. The scope of organizations required to perform AML checks continues to expand as regulators seek to close loopholes in the financial system. Each of these entities must implement appropriate AML procedures based on their specific risk profiles and the nature of their business activities.

Failure to conduct proper AML checks can result in significant financial penalties, reputational damage, and legal consequences for both the business and individual directors.

What are KYC and AML checks?

KYC and AML checks are complementary processes that work together to prevent financial crimes. KYC (Know Your Customer) checks focus on establishing and verifying customer identities, while AML checks encompass a broader range of activities aimed at preventing money laundering and terrorist financing.

What are KYC and AML checks specifically designed to accomplish? KYC checks help businesses understand who their customers are by verifying identities, addresses, and the nature of their business activities. AML checks, which include KYC as a component, involve ongoing monitoring of customer transactions, risk assessments, and reporting of suspicious activities.

Together, these checks form a comprehensive framework for detecting and preventing financial crimes, with KYC serving as the foundation and AML providing the broader monitoring and reporting structure.

What is an AML background check?

An AML background check refers to the screening procedures that businesses perform to verify the backgrounds of potential employees, particularly those who will have access to financial systems or compliance functions. These checks are designed to ensure that businesses do not inadvertently hire individuals with criminal histories or connections to money laundering activities.

AML background checks for employees typically include criminal record searches, verification of employment history and educational qualifications, regulatory sanctions checks, and screening against global watchlists.

The importance of these checks was highlighted in a case where a BSA compliance officer named Gyanendra Kumar Asre was fined $100,000 by FinCEN for bypassing AML controls and facilitating the flow of illicit funds worth millions of dollars.

This case demonstrates the critical need for thorough background screening to ensure the integrity of internal AML controls and prevent potential insider threats.

Why are employee background checks important for AML compliance?

Employee background checks are essential for maintaining the integrity of AML compliance programs within organizations. Even the most robust AML systems can be compromised if individuals responsible for implementing and overseeing them have criminal intentions or histories.

AML Background checks help businesses identify potential red flags such as criminal records, financial irregularities, or connections to suspicious entities before hiring employees who will have access to sensitive financial systems or information. The case mentioned previously, where a compliance officer facilitated money laundering despite being in a position of trust, underscores the importance of thorough screening.

Employee background checks also help businesses demonstrate their commitment to regulatory compliance and due diligence, potentially mitigating penalties in the event of an AML breach. Additionally, these checks contribute to fostering an AML-compliant culture throughout the organization by ensuring that all employees, especially those in key positions, understand and respect the importance of financial crime prevention.

How Do AML Checks Work?

AML checks involve a series of steps and procedures designed to identify and mitigate the risk of money laundering. These steps typically include:

Customer Identification: Verifying the identity of customers through documents such as passports, driver's licenses, and utility bills.
Risk Assessment: Evaluating the risk level associated with a customer based on factors such as their geographic location, business activities, and transaction patterns.
Transaction Monitoring: Continuously monitoring customer transactions for suspicious activity, such as unusually large transactions or frequent transfers to high-risk jurisdictions.
Reporting: Filing reports with relevant authorities when suspicious activity is detected. In the U.S., this is done through Suspicious Activity Reports (SARs).

Why Are AML Checks Important?

AML checks are crucial for several reasons:

Preventing Financial Crime: AML checks help identify and prevent illegal activities such as money laundering, terrorist financing, fraud, and corruption.
Protecting the Financial System: By ensuring that financial institutions are not used for illicit purposes, AML checks help maintain the integrity and stability of the global financial system.
Compliance with Regulations: Financial institutions are required by law to implement AML checks. Failure to comply can result in hefty fines, legal penalties, and reputational damage.
Safeguarding Reputation: Institutions that fail to prevent money laundering can suffer significant reputational harm, leading to loss of customer trust and business.