Money laundering and AML
Also known as: AML · Anti-money laundering · BSA/AML · Suspicious activity report · SAR
Concealing or disguising the nature, source, ownership or control of criminal proceeds so they appear lawful — and the Bank Secrecy Act regime built to detect it.
Legal basis
18 U.S.C. §1956 (laundering of monetary instruments)
Laundering is usually described in three stages: placement (illicit money enters the system), layering (a sequence of transactions erases the trail) and integration (funds come back looking legitimate, as assets, companies or investments). Federally, 18 U.S.C. §1956 makes it a crime to conduct a financial transaction with proceeds of specified unlawful activity to promote that activity or to conceal the proceeds, punishable by up to 20 years in prison.
Prevention runs through the Bank Secrecy Act, administered by FinCEN. Banks must maintain an AML program with internal controls, independent testing, a designated compliance officer, training and risk-based customer due diligence. They file a Currency Transaction Report for cash transactions over $10,000, and a Suspicious Activity Report for suspicious transactions of $5,000 or more, generally within 30 days of detection.
In operations, the weak point is the account holder. Straw buyers, money mules, shell LLCs and synthetic identities exist so the transaction clears onboarding. AML depends on knowing who the customer is and who stands behind them, and on seeing the connections between records that look independent.
Frequently asked questions
What is a SAR?
A Suspicious Activity Report is a confidential filing a financial institution makes to FinCEN when it detects a transaction it suspects involves crime or evasion of the Bank Secrecy Act. For banks the threshold is generally 5,000 dollars and the deadline 30 days after detection.
What is the penalty for money laundering?
Under 18 U.S.C. section 1956, up to 20 years in prison and a fine of up to 500,000 dollars or twice the value of the property involved, whichever is greater.