AML/CFT — What It Is and How Anti-Money Laundering Systems Work
This material is for educational purposes only and does not constitute legal advice. Specific AML/CFT requirements depend on jurisdiction, business type, and applicable law.
AML/CFT stands for Anti-Money Laundering and Combating the Financing of Terrorism. Despite different objectives, both areas use similar tools: customer identification, transaction monitoring, sanctions screening, and regulatory reporting.
What AML/CFT Means
AML covers measures to detect and prevent money laundering — making illegally obtained funds appear legitimate. CFT focuses on cutting off financial flows that could fund terrorist activities. Together they form a unified compliance framework implemented through KYC, KYT, sanctions screening, and reporting. Specific requirements depend on jurisdiction and business type.
FATF and International AML/CFT Standards
FATF (Financial Action Task Force) is an intergovernmental body that sets international AML/CFT standards. Its 40 Recommendations guide the legislation of most countries and cover customer identification, beneficial ownership transparency, reporting requirements, and international cooperation. FATF also publishes high-risk jurisdiction lists (grey and black lists) that affect banking relationships and payment system access.
How AML/CFT Works in Practice
Practical implementation includes: KYC (customer identification and risk profiling at onboarding), transaction monitoring (KYT) to detect unusual behavior, sanctions screening against OFAC SDN, EU, UN, OFSI and other lists, regulatory reporting (SAR/STR) as required by the jurisdiction, and documentation of decisions for audit purposes.
Who Must Comply with AML/CFT
The list of obligated entities is defined by national law but typically includes banks, payment services, crypto exchanges and custodial wallets (VASPs), brokers, asset managers, insurers, notaries, lawyers, accountants in certain transactions, and casinos. Specific thresholds, procedures, and data retention rules depend on the applicable jurisdiction and directives (such as AMLD in the EU).
Travel Rule
FATF Recommendation 16 (Travel Rule) requires VASPs to pass originator and beneficiary information to counterparties on transfers above a set threshold. The threshold and exact data requirements vary by jurisdiction. Non-compliance creates regulatory risk for businesses.
Consequences of Non-Compliance
Regulatory consequences may include fines from supervisory authorities, license suspension or revocation, correspondent banking restrictions (derisking), criminal liability for officers in certain jurisdictions, and reputational damage.
AML/CFT Compliance Tools
Tools include KYC platforms for identity verification, AML screening for address and transaction risk assessment, sanctions databases, transaction monitoring systems (TMS) for unusual activity detection, and documentation workflows for audit trails. AMLKYC.tech provides AML screening tools for crypto addresses and transactions — see Pricing for plan details.