Anti-money laundering (AML) compliance is a crucial responsibility for accountants. Effective AML processes ensure you meet legal obligations while safeguarding your business from potential risks. Understanding the different types of AML checks – and when to use them – is key to staying compliant without unnecessary delays or costs.
What are the 3 main levels of AML checks?
AML checks are not a one-size-fits-all solution. The level of verification required depends on the client’s risk profile and the transaction’s nature. By matching the right type of check to the appropriate level of risk, you can:
- Protect your firm from exposure to financial crime.
- Avoid overloading low-risk clients with excessive requirements.
- Ensure high-risk clients are properly scrutinised.
Let’s look at the three main types of checks – basic, document, and electronic ID – and how to use them effectively.
Basic check
A basic check is a preliminary step in verifying a client’s identity.
What it involves: This check typically includes confirmation of a client’s name, address, and basic identification details.
When to use it: It’s suitable for low-risk clients or small transactions with minimal financial crime risk.
Why it’s important: This quick and straightforward process ensures you establish a baseline level of due diligence without using unnecessary resources.
Example scenario: A long-standing client with a clean track record and low transaction volume may only require a basic check.
Document check
A document check involves collecting and verifying official identification documents, providing more assurance than a basic check.
What it involves: Typical documents include passports, driver’s licences, and utility bills. This step confirms both identity and address.
When to use it: It’s ideal for medium-risk clients or transactions that raise moderate AML concerns.
Why it’s important: Verifying official documents can address potential concerns about fraudulent activity or client misrepresentation.
Example scenario: A new client with higher-than-average transaction volumes or unusual activity may require a document check to verify their background.
Electronic ID Verification (E-ID Checks)
Using digital tools and databases, an electronic ID check takes AML verification to the next level.
What it involves: This method employs software or third-party services to cross-check client information against global databases, watchlists, and biometric technologies.
When to use it: It’s essential for high-risk clients, large or complex transactions, or clients from industries or regions prone to financial crime.
Why it’s important: An electronic ID check offers robust verification, especially where physical documents may be insufficient or challenging to authenticate.
Example scenario: A client operating in a high-risk industry, such as real estate or international trade, would warrant an electronic ID check.
Practical scenarios for using AML checks
To ensure your AML process is effective, it’s important to align the type of check with the client’s risk level:
- Low-risk scenario: A basic check is sufficient for a small client with minimal transaction risk.
- Moderate-risk scenario: A document check works well for a new client with higher transaction volumes.
- High-risk scenario: An electronic ID check is necessary for clients involved in high-value or international transactions.
How to implement checks in your AML process
When to escalate checks: Start with a basic check for all clients, but be prepared to escalate to a document or electronic ID check as risk factors increase.
Client onboarding: Develop a clear AML process that begins with a thorough risk assessment. Decide on the appropriate level of verification for each client upfront.
Ongoing monitoring: AML compliance doesn’t stop at onboarding. Review client profiles regularly and update checks as necessary to ensure they remain accurate over time.
Tools for AML compliance
Efficient tools can help streamline the AML process. Solutions like GoProposal and our partnership with providers such as Thirdfort make implementing document and electronic ID checks easier while maintaining an audit trail for compliance. Integrating these tools into your AML workflow saves time, reduces errors, and stays ahead of your obligations.