Introduction: Trade Strategy in Context
The global fight against the money laundering (AML) and terrorist financing has reached to an essential moment. In the current era, regulators, lawmakers, and international regulatory bodies have worked strongly to fight against illegal financial activities that challenge the integrity of financial systems, fuel organized crime, and endanger national security. Further, to answer the growing concerns over the consumption of global financial networks to launder money and finance terrorism, countries are renewing and shaping their AML laws to keep the pace with increasing threats.
A Global Approach: Strengthening International AML Frameworks
Money laundering and the financing of terrorism have been addressed internationally via collaboration between numerous partners. The Financial Action Task Force has served an important role as an intergovernmental organization in establishing the standards for money laundering, as well as promoting operational tools to combat it. The FATF issued substantial revisions to their reference materials in 2021; they also issued new guidance to address new risks, including the increased use of virtual assets and the complexity of new strategies for doing money laundering.
Although FATF’s historically has focused on banks and financial institutions, they are placing increasing emphasis on non-financial businesses such as estate agents, precious metal dealers, and lawyers. While non-financial businesses typically have not been required to have the same level of anti-money laundering controls in place as banks and other financial institutions, these types of businesses are now becoming more and more prevalent as alternative routes for money laundering and financing of terrorism due to the growing complexity and decentralization of money laundering and terrorist financing activities.
There is now an evolving trend in Anti-Money Laundering (AML) compliance obligations being directed toward a wider variety of Industries worldwide. Along with this, global focus is also transitioning from domestic to international cooperation to combat money laundering; the growing cross border flow of capital combined with the emergence of virtual/digital currencies are making such joint efforts, a high priority in many nations. For example, the EU’s 6th Anti-Money Laundering Directive (6AMLD) enhances the EU’s legal framework for combating money laundering by increasing penalties associated with this crime and improving the alignment of AML laws between its member nations. In addition, the USA has increased its AML enforcement activity following new legislation called the Anti Money Laundering Act of 2020 (AMLA). AMLA requires a greater level of reporting & transparency from financial service providers than existed previously.
Emerging Threats: Virtual Assets and Cryptocurrency
The emergence of virtual assets and cryptocurrency has significantly changed the focus of recent AML regulations. Many illicit actors are using cryptocurrencies such as Bitcoin, Ethereum, and other forms of digital currency to anonymously launder money. Tracking and tracing these illicit transactions have proven to be a challenge for regulatory authorities due to the decentralized nature of blockchain technology.
In an effort to mitigate the issue of money laundering with virtual assets, the FATF issued a new Travel Rule to apply to virtual assets. Effective as of 2020, the new rule requires all virtual asset service providers (e.g., cryptocurrency exchanges and digital wallet providers) to collect and share certain customer information while transferring digital assets over the border. This helps ensure that AML compliance is consistent among the various virtual asset providers as it is among traditional financial institutions, thus providing regulators with the ability to trace transactions, identify potentially suspicious behavior, and hold individuals responsible for their actions.
There are more stringent laws on cryptocurrency exchanges, including USA, UK, and Japan requiring strong Know Your Customer (KYC) processes and report all suspicious transactions for law enforcement. The MiCA was introduced in 2023 by the EU to provide a comprehensive regulatory framework for the entire crypto industry, including an AML requirement.
Increased Scrutiny of Beneficial Ownership
As another critical component of global AML initiatives, more governments are implementing mechanisms that provide insight into who the beneficial owner of a company is. Money laundering can be achieved through complex corporate structures or shell companies, which makes it impossible to identify who owns or controls assets. Many governments are working together in this effort to disclose beneficial ownership in order to lower the cost and duration of both identifying who the legitimate true owners of companies are. One of the first countries to implement this type of legislation was the USA with the Corporate Transparency Act (part of AMLA), which requires ALL companies and limited liability partnerships (LLPs) to disclose the names and addresses of their ultimate beneficial owners to FinCEN in the U.S., through a secure/confidential database. This makes it easier for law enforcement agencies to locate people/entities who are associated with a specific company or limited liability partnership, and ultimately their illicit financial activities as they can backtrack to the people/entities associated with that specific company or LLC. Additionally, the European Union has also developed central registries in all member countries involving the identity of beneficial owners, making those records available to both regulators and the public.
Implications for Businesses and Financial Institutions
For businesses and financial institutions, these evolving AML laws represent both challenges and opportunities. The increased regulatory burden means that organizations must take additional steps to ensure compliance, including enhancing their internal AML frameworks, conducting more frequent audits, and improving reporting mechanisms.
Here are some critical steps businesses and financial institutions must take to comply with the latest AML regulations:
- Many governmental agencies are now pushing for enhanced KYC (Know Your Customer) compliance from organizations. To comply with these new KYC regulations, companies will have to update and improve their overall business practices. Companies can enhance their KYC compliance through implementing the following examples: Verifying the identity of customers, knowing what types of activity customers participate in, and assessing the level of risk for each of their customers before establishing a business relationship. Financial institutions will also need to provide regular reviews and or create more sophisticated due diligence processes/systems to identify the potential risk factors associated with high risk businesses or transactions that will need to be assessed.
- With the increase in the availability and use of new technologies like AI and ML, the financial services industry will increasingly adopt more sophisticated in-house transaction monitoring automation tools. These types of tools will allow institutions to detect atypical transaction patterns that may indicate potentially fraudulent behavior like money laundering by way of executing a significant volume of transactions too quickly or making substantial transactions with individuals located in jurisdictions that pose a high risk of money laundering.
- AML rules are changing quickly, and staff will need training to remain compliant with their job’s latest criteria. Institutions also need to invest in regular training for staff to ensure they can report and recognize suspect behavior above all else, regardless of their level.
- Regulators expect companies to have friendly communication and to report any suspect behaviors as quickly as possible. Companies that do not comply risk being penalized. Therefore, it is essential that institutions and regulators work together to navigate through the complex regulations surrounding AML.
- As cryptocurrencies and digital assets become more pervasive, businesses involved in the exchange or storage of digital currencies must ensure they have the appropriate infrastructure in place to comply with AML regulations. This includes implementing robust KYC practices, monitoring transactions for suspicious activity, and maintaining records of digital transactions as required by law.
There is a rapidly changing global environment regarding anti-money laundering (AML) and counter-terrorism financing (CTF). The introduction of virtual currencies, an evolving global financial system, and increasingly complex financial crime will also continue to impact anti-money laundering and counter-terrorism financing (CTF) laws on a global scale. Financial institutions and companies will need to understand how the regulatory environment around AML and CTF will affect them and to take part in their respect for compliance.
Financial institutions and companies that invest in technology, create a compliance culture, and manage their risk will put themselves in the best position to manage any potential legal exposure as the global AML laws are continually improved and enforced by regulators. Keeping your business informed of what is happening in the international community; working with one another; and routinely adjusting to any new patterns of risk are still the best and most successful ways for your business to fulfill its mandate to comply with AML regulations.
Assistant Director, Legallands
Global Trade & Investment Expert
Nicke Tuli is an Assistant Director at Legallands, specializing in international business setup, global trade laws, and cross-border investments. With extensive expertise in Comprehensive Economic Partnership Agreements (CEPA) and foreign dispute resolution, she provides strategic guidance to Indian investors expanding into international markets, particularly in the UAE and GCC region.
Her recent works include analytical pieces on:
Dispute Resolution and Recovery Mechanisms for Indian Investors in the UAE
Economic Impact of Relaxed Export Rules on Indian E-Commerce and MSMEs
Nicke is passionate about simplifying global business frameworks and helping Indian entrepreneurs navigate international legal ecosystems with confidence.
