Anti-money laundering software

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Anti-money laundering software is a term mainly used in the finance and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities. Anti money-laundering guidelines came into prominence globally after the September 11, 2001 attacks and the subsequent enactment of the USA PATRIOT Act. Today, all financial institutions globally are required to monitor, investigate and report transactions of a suspicious nature to the financial intelligence unit of the central bank in the respective country.

There are three basic types of software addressing AML business requirements:

  1. Currency Transaction Reporting (CTR) systems, which deal with large cash transaction reporting requirements ($10,000 and over in the U.S.)
  2. Customer identity management systems which check various negative lists (such as OFAC) and represent an initial and ongoing part of Know your customer (KYC) requirements
  3. Transaction monitoring systems, which focus on identification of suspicious patterns of transactions which may result in the filing of Suspicious Activity Reports (SARs). Identification of suspicious (as opposed to normal) transactions is part of the KYC requirements.

An entire industry has developed around providing software to analyze transactions in an attempt to identify transactions or patterns of transactions, called structuring, which requires a SAR filing, or other suspicious patterns that qualify for SAR reporting. Financial institutions face penalties for failing to properly file CTR and SAR reports, including heavy fines and regulatory restrictions, even to the point of charter revocation.

These software applications effectively monitor bank customer transactions on a daily basis and, using customer historical information and account profile, provide a "whole picture" to the bank management. Transaction monitoring can include cash deposits and withdrawals, wire transfers and ACH activity. In the bank circles, these applications are known as "AML software".

Each vendor's software works somewhat differently. Some of the modules which could be present in an AML software are:

  1. Know Your Customer
  2. Entity Resolution
  3. Transaction Monitoring
  4. Compliance Reporting
  5. Investigation Tools

[edit] See also