Understanding Anti-Money Laundering (AML): Key Takeaways from Our AML Orientation

What role does Anti-Money Laundering or AML play in the world of online payments and fintech? Our Head of Compliance Leah Aba simplified the terms for us, so we can all effectively work towards combatting these illegal transactions for AltPayNet white-label payment products and merchant services.

By: Kristel Serran

Cybersecurity Compliance

Security

Online Payments

Smoke and mirrors. There are a lot of dubious deals going on in the online payments space that can negatively affect not just our economy, but the very foundations of our society. They might look like your normal transactions at first, but if you take a closer look, you’ll go down the rabbit hole of lies, deception, and corruption of the worst kind.

But with the advent of artificial intelligence (AI) and tighter regulations, it’s getting a lot easier to track down and stop these illegal transactions.

So it was just about time that this February, our Head of Compliance, Lea Aba, conducted an Anti-Money Laundering (AML) orientation for everyone in the AltPayNet team.

The session shed light on the critical role AML plays in financial security and compliance. The difficult terms were made easier to understand, and I will now be sharing it the same way with you.

Whether or not you’re in the fintech industry, understanding AML is crucial, as it protects economies from illicit activities such as fraud, corruption, and terrorism.

What is Money Laundering?

Think about this: there are so many illicit transactions going on everyday. Be it for drugs, corruption, arms dealing, and other stuff that are too horrible to mention.

And of course, we can’t blame our banks and financial institutions for not wanting to deal with them. But the question lies in which methods are best to track and stop them, before it's too late.

To get around the system, criminals go through the process of Money Laundering so they can openly use the funds in the ‘legal market’ trade, without it being traced to their illegal, or underground transactions.

Money Laundering then, refers to any act or attempt to conceal the identity of illegally obtained funds, making them appear as though they originate from legitimate sources.

In legal terms, this is a crime where proceeds from unlawful activities are transacted or disguised to appear legitimate, as defined in the Anti-Money Laundering Act (AMLA).

How Much Money is Laundered Globally?

Money laundering is a major global issue. The estimated amount laundered each year is between 2-5% of the global GDP.

For 2024, this translates to approximately $2.2 trillion to $5.54 trillion USD.

Why is it important to identify and stop Money Laundering? 

Governments and financial institutions work against money laundering (ML) to protect economic stability, national security, and public trust.

There are so many things that ML destroys, but the biggest economic impacts are that it distorts financial markets, enables tax evasion, and discourages legitimate investments, ultimately harming economic growth.

Needless to say, allowing money launderers to continue doing this process will just encourage organized crime, drug trafficking, corruption, and terrorism by providing illicit funds to criminal networks.

Weak AML controls in banks and financial institutions can lead to international blacklisting, economic sanctions, and reduced foreign investments, making compliance essential for maintaining strong international relations. 

Financial institutions must uphold quality and trust to avoid hefty fines, legal action, and reputational damage.

Additionally, enforcing AML measures strengthens national security by tracking and blocking funds intended for terrorist activities and proliferation financing.

The Three Stages of Money Laundering (ML)

Before criminals can even use their money out in the open, their illegally-obtained funds will need to go through these stages:

1. Placement – Introducing illicit funds into the financial system (e.g., depositing large sums into bank accounts).

Common placement tactics include:

Invoice fraud: This is commonly used by organised crime to ‘clean’ their dirty money. They will either over-invoice or under-invoice an entity, or falsely describe the goods or services covered in the invoice. There may also be instances of phantom shipping, whereby nothing is actually shipped to the receiver and the false documentation is created simply to act as a legitimate reason for transferring money between bank accounts.

Smurfing: This involves criminals breaking up a big sum of dirty money and dispersing it to one or multiple bank accounts via smaller, less-suspicious financial transactions. These financial transactions are under the reporting threshold so as to reduce the risk of detection.

2. Layering – Concealing the source of funds through multiple channels (e.g., wire transfers between accounts, offshore accounts, or shell companies).

Funds are usually 'layered' or channeled through the following:

• Purchase and investing laundered money into real estate or what’s known as ‘shell companies’, a holding company, or simply moved through a series of accounts at banks around the globe. 
• Widely scattered accounts are most likely to be found in jurisdictions that do not cooperate with AML investigations. 
• In some instances, the launderer could disguise the transfers as payments for goods or services or as a private loan to another company, giving them a legitimate appearance.

3. Integration – Using the laundered money for legitimate purchases (e.g., real estate, luxury goods, or business investments). (FATF Report)

Common integration methods include:

Investments: Dirty money is ‘cleaned’ through investments into high-priced assets like artwork, jewelry, cars and real estate.

Fake employees: A way of getting the money back out. Usually paid in cash and collected.

Loans:  Loans to directors or shareholders, which will never be repaid or a company loan to another company owned and controlled by criminals.

Dividends: Paid to shareholders of companies controlled by criminals.

 

What is Terrorist Financing (TF)?

Terrorist financing refers to the process of collecting, transferring, and using funds to support terrorist activities. Unlike money laundering, which disguises illegal profits, terrorist financing may involve legitimate sources such as donations or business revenue.

How Do Terrorists Raise Funds?

• Donations from sympathizers
• Abuse of charitable organizations
• Smuggling, fraud, and drug trafficking
• Ransom payments from kidnappings (IMF Insights)

What is Proliferation Financing (PF)?

Proliferation financing refers to the provision of financial support for the development or transfer of weapons of mass destruction (WMDs).

What is Targeted Financial Sanctions (TFS)?

Targeted Financial Sanctions involve freezing assets, blocking transactions, and restricting financial services for individuals, groups, or entities linked to terrorism, money laundering, or proliferation financing.

 

Differences and Similarities Between ML, TF, and PF

Aspect	Money Laundering (ML)	Terrorist Financing (TF)	Proliferation Financing (PF)
Source of Funds	Illegal activities (e.g., drug trafficking, corruption)	Legal and illegal sources	Legal and illegal sources
Purpose	Concealing illicit money	Supporting terrorist activities	Facilitating WMD proliferation
Transaction Patterns	Complex transactions to hide origin	Small or large transactions	Similar to ML but linked to weapons-related activities

 

Philippine Laws on Money Laundering

The Anti-Money Laundering Act of 2001 (Republic Act No. 9160) governs AML regulations in the Philippines. It has been amended multiple times to strengthen compliance measures and combat financial crimes.

Functions of the Anti-Money Laundering Council (AMLC)

The AMLC is the primary government agency responsible for enforcing AML laws. Its key functions include:

• Investigating and prosecuting ML cases
• Issuing freeze orders on suspicious accounts
• Requiring financial institutions to report suspicious transactions
• Coordinating with international organizations to combat ML/TF

What Do Banks and Local Government Institutions Do to Avoid Being Used for ML?

Building a solid compliance team or outsourcing this to an experienced Payment Gateway + Managed Services Provider like AltPayNet is needed for banks and financial institutions to avoid being used for ML, and ultimately, lose their credibility or license.

They can also employ the use of Hawk for their Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) AI technology.

On top of that, these are the best practices to avoid and detect money laundering activities.

• Know Your Customer (KYC) Policies: Verifying customer identities and monitoring transactions.
• Transaction Monitoring: Detecting unusual or suspicious patterns.
• Reporting Suspicious Activity: Submitting reports to AMLC.
• Compliance Training: Regular training sessions for employees to stay updated on AML regulations.

 

AML is not just a compliance requirement; it is a crucial safeguard against financial crime. This recent AML office orientation effectively reinforced our responsibility in preventing ML, TF, and PF within our organization.

Understanding these concepts helps us maintain a secure, ethical, and legally compliant financial environment.

 

For any inquiries about AML or specific online payments technology needs, please send us an email at info@altpaynet.com.