As discussed in our recent guides to anti-money laundering laws in the EU, US, and UK, regulators are making strict demands of financial operators and imposing hefty fines on those who fail to meet their standards. But that hasn’t always been the case and AML and KYC laws have changed significantly over the last few years.
Early AML Regulation
One of the earliest major pieces of AML legislation was the 1970 US Bank Secrecy Act (BSA), alternatively known as the Currency and Foreign Transactions Reporting Act of 1970 or the anti-money laundering law.
The act called on US financial institutions like banks and credit unions to assist the government in detecting and preventing money laundering. The US government had its sights set on organised crime and the BSA was its first significant move in a high-stakes chess game that is still ongoing to this day.
One of the most notable introductions was the requirement for all financial institutions to report daily transfers of more than $10,000, a rule that still applies today. It also demanded a higher standard of due diligence on behalf of financial institutions, requiring them to report activity indicative of tax evasion, fraud, and money laundering.
In 1986, the Money Laundering Control Act was created. It clarified some of the penalties associated with money laundering and also made it a federal crime. A couple of years later, the Anti-Drug Abuse Act of 1988 included some provisions relating to money laundering, including an expansion of what defined a “financial institution”.
Businesses that bought and sold large assets were required to keep similar records and file similar reports as banks and credit unions, thus making it harder for criminals to launder money through car dealerships, real estate companies, and retailers of luxury goods.
AML in the 1990s
By the end of the 1990s, the United States had adopted a number of AML regulations. The Money Laundering Suppression Act (1994), for instance, required banks to adopt new review methods and improve their examination procedures, ensuring that fewer suspicious transfers slipped through the net.
It stated that every Money Services Business (a business that transfers or converts money) must be registered by a controlling person while making unregistered operations illegal.
The Money Laundering and Financial Crimes Strategy Act (1998) took things a step further by creating task forces for the sole purpose of tackling money laundering at a local and federal level.
Across the Atlantic, the European Union (EU) was also stepping up its game with regard to AML regulations.
The EU adopted its first anti-money laundering directive in 1990. It required financial entities to perform due diligence when dealing with new clients and large sums of money, and it primarily focused on the banking industry.
The UK launched its own directives in 1993. Known as the Money Laundering Regulations 1993, this directive came into effect a year later.
AML In the Modern Age
The internet brought new challenges for regulators. As a result, AML laws have been updated with a greater frequency and have incorporated a wider range of directives.
One of the first biggest challenges came in the form of online gambling and online payment methods. In the late ‘90s and early 2000s, services like PayPal and Western Union weren’t as heavily regulated as they are today, and offshore gambling sites were enjoying somewhat of a “wild west” period.
Money launderers and other criminals took advantage of this and used these services to process their ill-gotten gains, giving some services a reputation that they still haven’t been able to shake.
KYC laws were instrumental in keeping everything in check. They required all major financial services, gaming sites, banks, and even solicitors to know who their customers are. Debit cards, ID checks, and even soft credit checks were introduced as a way to confirm someone’s identity and legitimacy.
In 2020/2021, the EU introduced the 6th AML directive (literally the sixth iteration of the 1990 directive), the UK introduced the Money Laundering and Terrorist Financing (Amendment) Regulations, and the US followed suit with the Anti-Money Laundering Act (AMLA).
All of these AML regulations expand on laws that have existed for 30+ years. The difference is that they focus more on the digital age and the risks that it brings, including international transfers, shell companies, and the threats posed by technologies like cryptocurrency.
AML Laws in the Future
Despite the best efforts of lawmakers around the world, money laundering is on the rise. Regulators are playing a cat-and-mouse game with the criminals and while it doesn’t look like they’re winning, it’s fair to assume that the issue would be much worse if not for their efforts thus far.
The biggest challenge that regulators face right now concerns the relative anonymity and prevalence of cryptocurrencies. These digital currencies can be used to send large sums of money without requiring any personal information from the sender or recipient. They are also global and don’t leave the sort of paper trail seen with wire transfers and credit cards.
They are a regulator’s worst nightmare.
How they meet that challenge remains to be seen, but whatever happens, it’s likely that there will be another threat further down the line.
Staying Compliant Today and Tomorrow
Money laundering is more common than ever and the need for effective AML and KYC regulations is becoming more prevalent with each passing year. As a business dealing with the storage/transfer of money, assets, or data, you’re under an increasing amount of scrutiny and must do everything you can to stay compliant and legal.
There are a lot of things to consider, but at A Data Pro, we can simplify the process for you and help you to stay KYC and AML compliant.
Our risk intelligence services will ensure you quickly and effortlessly meet regulatory demands regardless of how strict those demands are. With our sanctions lists, due diligence reports, and wealth of industry experience, we’re perfectly placed to help your business stay on the right course.