Financial institutions, governments, and other regulatory authorities implement anti-money laundering policies and practices to prevent money laundering and the injection of illicit funds into the financial marketplace.
Money laundering conceals funds used to support criminal activities, such as drug trafficking, terrorism financing, arms dealing, and other illegal activities.
A bank must have Anti-Money Laundering (AML) and Know-Your-Client (KYC) procedures in place when it accepts a new banking client. The bank must continue to follow these policies and practices, which monitor the customers’ ongoing activity.
For example, John is a U.S. citizen who lives and works in Florida. John visits the local branch of a nationwide bank to open a checking account. The bank must follow its AML/KYC procedures to open John’s account. The bank would generally collect, at a minimum, the following information:
- Full legal name & any prior names
- Date of Birth (DOB)
- Taxpayer Identification Number (TIN)
- Physical Address & Mailing Address (if different)
- Country of Citizenship
- Copy of Government-issued Identification (Passport, Drivers License, etc.)
- Employment information
- History of other Banking Relationships
The financial institution must also understand the source of funds used to open the account and have a general idea of the source of future deposits and where funds will be spent.
In other words, the bank does not want an account holder depositing funds earned from engaging in criminal enterprises, and it does not want its customers to spend funds on illegal activities, such as transferring to terrorist organizations.