Glossary

Anti-Money Laundering (AML): Understanding, Acting, Innovating

June 10, 2025

7 minutes

AML, LCB-FT, PBC… Behind these acronyms lies a major global challenge: preventing money from criminal activities from entering the legal economy. Today, the fight against money laundering involves a wide range of players — banks, fintechs, insurance companies, as well as regulated professions and digital platforms.

Companies today must find the right balance between regulatory compliance, operational efficiency, and customer experience. This article explores the key challenges, obligations, and solutions related to AML.

What is AML?

Anti-Money Laundering (AML) refers to the set of laws, procedures, and tools designed to stop illegal funds from being injected into the legal economy. In France, it is also known as LCB-FT (fight against money laundering and terrorist financing) or PBC (prevention of money laundering).

Companies are required to verify the origin of funds, monitor transactions, and report suspicious activities to the relevant authorities.

What is money laundering? Money laundering is the process of hiding the illegal origins of funds obtained through criminal activities and making them appear legitimate. Typically, it happens in 3 stages: first, the money is placed into the financial system, then it is moved through several operations to complicate its traceability, and finally it is reinvested in legitimate activities.

Why Is Anti-Money Laundering So Critical?

Money laundering isn’t limited to organized crime — it also fuels cybercrime, fraud, and the embezzlement of public funds.

Implementing AML systems helps to:

Protect the integrity of financial markets,
Prevent criminal activities,
Reduce financial and legal risks,
Safeguard corporate reputation.

According to the UNODC and the IMF, an estimated 2% to 5% of global GDP is laundered each year, amounting to between $800 billion and $2 trillion.

MINI-QUIZ

What is the primary goal of Anti-Money Laundering (AML) regulations?

Explication
AML regulations aim to stop money derived from criminal activities from being disguised as legitimate income.

AML and KYC: Two Inseparable Pillars

AML (Anti-Money Laundering) and KYC (Know Your Customer) form the backbone of modern financial compliance. These two systems are complementary and interdependent, and their effectiveness relies on strong coordination.

KYC takes place at the start of the customer relationship. It involves collecting information about the customer, verifying their identity (for example, using an identity document or proof of address), and understanding their activities to assess the associated risk. This step helps prevent doing business with individuals or entities linked to illegal activities such as drug trafficking, corruption, or terrorist financing.

To learn more about KYC and its key challenges, check out our dedicated article.

A Regulatory Landscape That Keeps Evolving

The European regulatory landscape has significantly expanded in recent years, covering an increasingly wide range of players: financial institutions, fintechs, crypto-asset platforms, as well as regulated professions, art dealers, real estate agents, casinos, and now the luxury sector (jewelry, precious metals, high-end cars, valuable goods).

AML5: Broader Scope and Greater Transparency

The 5th Anti-Money Laundering Directive (AML5), which took effect in 2020, introduced several key improvements:

Expanded AML obligations to cover crypto-assets, digital platforms, and luxury goods sectors
Increased transparency around corporate beneficial ownership
Tougher requirements for cross-border transactions and customer due diligence

AML6: Stronger Harmonization and Tougher Penalties

The 6th Directive (AML6) further strengthened the framework by:

Expanding the list of money laundering offenses (including cybercrime and environmental crime)
Imposing heavier penalties
Introducing corporate criminal liability, even for unintentional violations

AMLA and the 2024 AML Package: Toward Centralized EU Supervision

With the adoption of the AML package in 2024, Europe has taken a major step forward. A new authority, the AMLA, has been established to directly supervise the most high-risk entities and to harmonize anti-money laundering practices across all member states. This marks a turning point, making the fight against money laundering a shared European priority that now extends to all sectors where large sums of money circulate — including the luxury industry.

KYC, Due Diligence, EDD: Building a Layered Defense

Anti-money laundering is far from a simple paperwork exercise — it’s a dynamic process that begins as soon as a client relationship starts:

KYC (Know Your Customer): verifying a customer’s identity, understanding their business, and assessing their risk
CDD (Customer Due Diligence): ongoing monitoring of transactions and detecting inconsistencies
EDD (Enhanced Due Diligence): heightened scrutiny for high-risk profiles (such as PEPs — Politically Exposed Persons, sensitive jurisdictions, or unusually large transactions)

MINI-QUIZ

Which of the following is part of Enhanced Due Diligence (EDD)?

Explication
EDD involves extra vigilance for Politically Exposed Persons and other high-risk cases.

Challenges Around the Customer Experience

Do too many controls damage the customer experience? Regulatory requirements can quickly slow down customer acquisition and loyalty. An overly long or complex verification process creates frustration, abandonment, and loss of trust — all of which harm the company’s brand image.

The solution? Automation and advanced technologies like AI, biometrics, and eKYC. These speed up checks, reduce errors, and deliver a smooth, seamless experience — all while maintaining top-notch security and compliance. The goal: to combine regulatory efficiency with customer satisfaction.

Key Takeaways

AML is a vital pillar of compliance, helping reduce money laundering risks, protect financial markets, and safeguard corporate reputations.
KYC and AML are complementary: KYC identifies customers upfront, while AML ensures continuous monitoring throughout the relationship.
The European regulatory framework is constantly tightening (AML5, AML6, 2024 AML package), expanding to cover more sectors and imposing stricter rules.
Risk-based vigilance is key, with tailored approaches (KYC, CDD, EDD) depending on customer profiles.
New technologies are essential to combine compliance and a smooth customer experience, by automating controls and minimizing friction.

Frequently Asked Questions

Find your answer to common questions on this topic.

How do AML systems detect suspicious transactions?

They use a combination of scenario-based monitoring and risk scoring to flag unusual activity. For example, they analyze transactions that exceed certain thresholds, involve high-risk countries, or deviate from a customer’s normal behavior. Advanced systems can also identify patterns such as structuring (breaking up large transactions), use of shell companies, or rapid movement of funds between accounts. These alerts are then reviewed by compliance teams to determine if further investigation is needed.

What are some common money laundering schemes?

Common schemes include structuring (smurfing), where large sums are broken into smaller transactions to avoid detection; using shell companies to obscure ownership; laundering money through real estate or luxury goods; and exploiting casinos or online gambling platforms. Criminals may also use trade-based laundering, such as over- or under-invoicing goods, or misdescribing shipments to move value across borders without detection.

What is the difference between AML and KYC?

Anti-Money Laundering (AML) refers to the overall set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. Know Your Customer (KYC) is a critical component within AML, focusing specifically on verifying the identity of customers, understanding their financial activities, and assessing their risk level. KYC is typically the first step in the AML process, involving identity verification, background checks, and ongoing monitoring to ensure customers are not involved in money laundering or other financial crimes. While AML covers a broad range of measures-including transaction monitoring, reporting suspicious activities, and screening against sanctions lists-KYC is the foundation that enables institutions to know who their customers are and to detect unusual or suspicious behavior from the outset. By working together, AML and KYC procedures help financial institutions protect themselves and the financial system from abuse by criminals and terrorists.

Who is required to comply with AML regulations?

AML regulations apply to a wide range of sectors beyond traditional banks. Financial institutions, fintechs, insurance companies, real estate agents, lawyers, notaries, accountants, casinos, dealers in precious metals and luxury goods, and even some professionals in the art market are all subject to AML checks. Essentially, any business handling large sums of money or facilitating financial transactions must implement AML procedures to detect and report suspicious activities.

Why do AML systems sometimes generate false positives?

AML systems rely on predefined rules and scenarios to identify suspicious activity, which can sometimes flag legitimate transactions as suspicious. This is known as a false positive. For example, a customer making an unusually large purchase or sending money abroad for the first time might trigger an alert, even if the transaction is legitimate. Continuous scenario tuning and data quality improvements are necessary to reduce false positives and ensure resources are focused on genuine risks.

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