An Introduction to AML and CTF
As you may have learnt from our post on AML CTF Acronyms, money laundering (or “ML”) is a severe financial crime that governments globally attempt to eradicate. To recap and put it simply, money laundering is the process of taking money that was made illegally and making it appear legal.
Money laundering has adverse consequences on society as it often facilitates corruption, crime and other illegal activities at the expense of a country’s development. These effects might subsequently disrupt the stability of national and regional economies.
There are a few tools and steps that can be utilised to prevent ML; These tools come in the form of anti-money laundering (or “AML”) policies. AML policies and tools work to strategically counter money laundering by preventing criminals from disguising these illegally obtained funds as legitimate ones.
In a similar vein, ‘financing of terrorism’ (or “TF”) is another financial crime that involves the collection or provision of funds for terrorist purposes. To combat it, countering terrorism financing (or “CTF”) methods work to prevent terrorist organisations from acquiring financing to carry out their aims. It is important to note here that while financing for these aims could come from legitimate sources, they may also be acquired through illegal activities such as trafficking in weapons.
The Link Between Efforts to Combat ML and CTF
ML and TF often find themselves mentioned alongside one another in conversations about financial crimes and are now imperative to learn about because of the numerous disruptive consequences that each has on national and regional economies. Besides both acts being rampant and severe crimes, ML and TF also use similar methodologies and techniques to meet their goals.
This is why the strategies to combat these crimes also converge in some ways; AML and CTF both aim at attacking criminal or terrorist organisations through their financial activities. In general, all the means to preventing ML and TF are tools that promote values of transparency, integrity and accountability within organisations. Effective use of AML and CTF on the financial trails left behind helps identify and prevent terrorist networks from expanding and carrying out their goals. This implies putting in place mechanisms to scan all financial transactions and detect suspicious financial transfers.
When law enforcement is able to detect and prevent ML activities, it may indirectly also help prevent those funds from being used to finance acts of terror. This means that combating money laundering is key to CTF too and thus, an effective AML and CTF framework must therefore address both risk issues. The framework must strive to prevent, detect and punish illegal funds entering the financial system and the funding of terrorist individuals, organisations and/or activities.
What does AML/CTF Compliance Entail?
When implemented properly, AML and CTF tools can support broad and effective deterrence efforts against a wide range of criminal activities, including the financing of terrorism.
To this end, AML and CTF set out certain rules and regulations that if complied with, increase vigilance within organisations and allow organisations to detect, uncover and report suspicious activity, including the underlying offences of money laundering and terrorist financing, such as securities fraud and market manipulation. If you’re interested in reading more about AML/CTF Compliance Programs, do stop by our other blog pages.
Laws Governing AML/CTF Compliance
Anti-Money Laundering and Counter-Terrorism Financing Act 2006 or the AML/CTF Act 2006, is the legislation that governs and places obligations on Australia’s financial institutions, casinos, virtual assets service providers, accountants, lawyers, conveyancers, real estate companies and high-value dealers to detect and deter money laundering and terrorism financing.
It is in adherence to the AML/CTF Act that the compliance programmes help detect, uncover and report suspicious activity, including the underlying offences of money laundering and terrorist financing.
The Effects of Money Laundering and Terrorism Financing on Companies
Australia has a reputation as a high-integrity and low-corruption jurisdiction, which makes the country vulnerable to abuse. In practice, laundered money is often used to fund criminal and terrorist activities and this not only fuels corruption but has the potential to undermine national economies overall.
The financial consequences thus have direct and adverse impacts on a country. If these funnelled finances find their way to terrorist organisations, this poses a significant security risk for the country.
This is why it becomes all the more important for businesses to put in place effective Anti-Money Laundering and Counter Financing of Terrorism compliance program.
Evaluating Risk for AML/CTF Purposes
Risk refers to the vulnerability or inherent threats that a business could reasonably expect to face from money laundering and/or terrorism financing. Assessing the risk to ML and FT is an imperative step in an AML/CTF Compliance Programme, and its ML/TF risk is assessed based on questions such as
- the nature, size and complexity of your business,
- the products and services you offer,
- the way you deliver your products and services,
- the countries you deal with, and
- the types of customers you deal with
The above factors all influence how your business on-boards customers and delivers your products. In sum, it would help determine your level of vulnerability to money laundering.
We understand that AML/CTF is a complex topic with jargon and many parts. If you’re having trouble applying a feasible compliance programme to your organisation, feel free to reach out to us – we’d be happy to help! One AML is a team of specialised analysts here to guide you through the provisions. Book a free 15-minute audit today!
Disclaimer: This information is only to serve as a reference and guide for those living and doing business in Australia. It is not a substitute for the provisions or information in the “Anti-Money Laundering and Counter-Terrorism Financing Act 2006.” (AML CTF Act) or any of its allied statutes and provisions. The above information is not a substitute for independent, professional legal advice and is meant for general information only. The examples in the guidelines are merely suggestions, are not exhaustive, and are illustrative.