Frequently Asked Questions

• Why is AML important for banks?

  Banks and other firms in the financial sector are extremely vulnerable to money laundering, so AML for banks is vitally important, as it protects institutions from unconscious involvement with financial crime. Banks are also required to meet the AML regulations implemented by the FATF, and the guidance from the FCA – if they fail to be compliant, those involved can face steep penalties like fines or even a prison sentence.

• How do financial institutions detect money laundering?

  There are three stages in the money laundering process, but it is most easy for banks to detect during the first stage, which is placement. During the placement stage, cash is broken up into smaller amounts, and moved around in an attempt to put distance between the money and its illegal origins. Some launderers may make deposits in shell bank accounts at this point – and these can be easy for financial institutions to spot, if they appear in a large lump sum or a suspicious number of smaller deposits. Shell bank accounts are also used in the second stage of money laundering – layering – where the money is passed through multiple transactions and movements to “wash” it, but this is often harder to detect.

• What is a shell bank account?

  A shell bank account is an account with a bank which has no physical presence in the country where it’s licensed – that means no branches, no offices and no staff. Shell banks are not affiliated with a regulated financial organisation, and as a result of this, they’re also not monitored by a supervisory body, like the FCA. This makes shell banks an easy solution for money launderers looking for somewhere to place and wash dirty money.

• How can banks prevent money laundering?

  Banks in the UK can prevent money laundering by following the AML regulations from the FATF, and meeting the guidelines from the FCA. That means implementing a risk-based approach, with an extensive screening process including KYC, PEP and sanctions checks, as well as ongoing monitoring and Enhanced Due Diligence on any matches. KYC checks specifically can be used to prevent the creation of shell accounts by those who have a history of financial crime, as they enable you to verify the identity and reputation of your clients and customers, before you enter into business with them.