What is AML (anti-money laundering)?

Anti-money laundering (AML) is why your bank or payment platform sometimes asks who paid you, for what, and with which documents. For an Indian designer, developer, consultant or agency, these checks are the most common cause of a delayed international payment.

What does AML mean in simple words?

AML means the rules and checks that make sure a bank or platform is not used to move the proceeds of crime. RBI's KYC Directions for commercial banks say their purpose is to prevent banks and other financial institutions from being used as a channel for money laundering.² The legal framework behind it is the Prevention of Money-Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.²

• Who runs the checks: your bank and any platform that holds or moves your money.
• What they check: who you are, who your client is, and whether the money matches a real service.
• International standard: the Financial Action Task Force (FATF), an inter-governmental body established in 1989.²

Why does AML matter for Indian exporters and freelancers?

AML matters for Indian exporters and freelancers because the bank receiving a foreign payment must be able to show who you are, who your client is, and that the money matches a real service.²

• Bank compliance: the KYC Directions define customer due diligence as identifying and verifying the customer and the beneficial owner using reliable and independent sources.² For a business, that includes its owners.
• Payment information: paragraph 74(1) says all cross-border wire transfers must be accompanied by accurate, complete and meaningful originator and beneficiary information.² A wire with a missing client name or address can be held until it is completed.
• Unusual payments: a bank may ask for an invoice, contract or explanation when a payment looks unusual for your profile, for example a large receipt from a new country.

How does AML work?

AML works by defining money laundering in law and requiring banks to check and report transactions. Money laundering, under section 3 of the PMLA, is directly or indirectly attempting to indulge in, knowingly assisting, being a party to, or being actually involved in any process or activity connected with the proceeds of crime, including concealing, possessing, acquiring or using them and projecting or claiming them as untainted property.¹

• Purpose of the Act: the PMLA is described as an Act to prevent money laundering and to provide for confiscation of property derived from or involved in it.¹
• Reports: banks report information to the Director, Financial Intelligence Unit-India (FIU-IND) under the PMLA rules, including cash transaction reports and suspicious transaction reports (STRs).²

The step-by-step view of these checks is in AML checks on international payments.

How do you handle AML checks as an exporter?

You handle AML checks by making each payment easy to match to a real service.

1. Keep KYC current: update the bank and platform on any change of address or business structure.
2. Invoice in your own name: ask the client to pay from its own account.
3. Complete wire details: make sure the client's bank includes its full name and address on the wire.
4. Reply quickly: send the invoice, contract or statement of work when asked.
5. Receive only your own money: do not accept money on behalf of others.

For example, a consultant who receives a first payment from a new client in a new country can send the signed contract to the bank as soon as the payment is flagged. If a bank has frozen or returned a payment and you do not know why, ask it in writing which document it needs, and take advice from a chartered accountant if the amounts are large.

What is the difference between AML and KYC?

AML is the overall goal of stopping money laundering, while KYC is the identity checking that banks do to meet it.²

See KYC for the documents banks and platforms ask for.

What do people get wrong about AML?

People most often assume AML checks only target criminals, when an honest exporter's account can also be misused.

• Misuse: warning signs include a "client" who overpays and asks for a refund to a third party, or a request to receive money for someone else's work.
• Legal exposure: accepting such payments can expose you to questions under both AML law and FEMA.
• Platforms: platforms run their own checks, so moving to a platform does not remove AML questions.
• Reports and freezes: a suspicious transaction report alone is not a ground for restricting an account.²

Which terms are related to AML?

These terms come up alongside AML when a foreign payment is checked.

• KYC: the identity checks banks carry out on customers.
• Correspondent bank: an overseas bank in the payment chain that runs its own checks.
• Inward remittance: the foreign payment that AML checks apply to.
• SWIFT MT103: the payment message that carries payer and payee details.
• Payment aggregator (PA-CB): a regulated platform that runs its own KYC and AML checks.