AML: What Is It and How Does It Work?

What Is AML?

AML (Anti-Money Laundering) refers to the laws, procedures, and controls used to prevent money laundering. Its purpose is to reduce the risk of companies and institutions being used to conceal, transfer, or legitimize proceeds from criminal activity. In practice, AML is often discussed together with CFT (Countering the Financing of Terrorism). Polish law regulates both areas within the same framework and imposes specific obligations on entities classified as obligated institutions.

Money laundering is not limited to depositing criminal proceeds in cash into a bank account. It can involve a wide range of activities intended to conceal the origin of assets, the way they move, or the individuals who ultimately control them. In this respect, the Polish AML Act refers to Article 299 of the Polish Criminal Code.

AML is intended to help an organization identify this type of risk early enough to respond appropriately. It therefore involves not only analyzing transactions, but also understanding the customer, their business activity, beneficial owners, sources of risk, and how they use the products or services offered by the organization.

Example:

A company serves a customer whose business has historically been relatively simple and local. Over time, the way the customer uses the company’s services changes significantly: transaction volumes increase, new counterparties appear, and funds begin flowing to or from jurisdictions that were not previously associated with the customer’s business. The change itself does not mean that money laundering is taking place. However, it should be assessed in the context of what the organization knows about the customer and their risk profile. If the activity cannot be reasonably explained, a more detailed review and further action under the organization’s AML procedures may be required.

Why Does Anti-Money Laundering Matter in Financial Services?

The financial system makes it possible to store, transfer, invest, and exchange funds quickly. The same mechanisms that enable legitimate businesses to operate efficiently can also be used to conceal or move assets derived from criminal activity. This is why banks, payment institutions, investment firms, and other financial market participants play an important role in identifying financial flows that may indicate money laundering or terrorist financing.

However, AML is not limited to the financial sector. The Polish AML framework also covers certain non-financial businesses where the nature of their products or services creates a risk that they could be used for money laundering or terrorist financing. The primary purpose of an effective AML framework is to make it more difficult to use legitimate economic activity to conceal the proceeds of crime.

From an institution’s perspective, AML also helps reduce regulatory, financial, and reputational risk. This does not mean that every unusual transaction should automatically be treated as suspicious. The purpose of the system is to identify risk, properly assess the circumstances, and respond in proportion to what has actually been established.

How Does AML Work in Practice?

AML is not a single check performed when a customer relationship begins. It is an ongoing process that includes both preparing an organization to manage risk and taking appropriate action throughout individual business relationships.

The Polish AML framework follows a risk-based approach. An obligated institution should identify risks associated with factors such as customers, countries and geographic areas, products, services, transactions, and distribution channels, and then adjust its controls to the actual level of risk.

In practice, the AML process includes several interconnected areas:

1. Customer Identification and Verification

An organization needs to know who it is entering into a business relationship with. This includes identifying and verifying the customer and, where appropriate, identifying the beneficial owner and understanding the ownership and control structure. KYC is therefore part of AML, but it does not cover the entire AML process.

2. Risk Assessment

The information collected is used to determine the level of risk associated with a particular customer or business relationship. Relevant factors may include the nature of the customer’s business, ownership structure, geographic exposure, expected transaction activity, and PEP status. The risk assessment then determines the scope of the customer due diligence measures that should be applied.

3. Ongoing Relationship and Transaction Monitoring

Once the business relationship has been established, the customer’s activity is assessed against the information the organization holds about them. If the customer’s behavior deviates from their established profile, an unusual transaction occurs, or circumstances affecting the customer’s risk level change, additional analysis may be required. Article 34 of the Polish AML Act expressly identifies ongoing monitoring of business relationships and analysis of transactions conducted within those relationships as customer due diligence measures.

4. Reviewing and Responding to Suspicious Activity

Not every alert or deviation from typical behavior means that a crime has occurred. The purpose of the AML process is to determine whether the activity has a reasonable explanation and whether it is consistent with what the organization knows about the customer. If circumstances arise that may indicate money laundering or terrorist financing, the Polish AML Act imposes specific reporting obligations toward the General Inspector of Financial Information (GIIF).

5. Procedures, Documentation, and Staff Training

An AML framework also needs to function at the organizational level. This includes an internal AML procedure, a clear allocation of responsibilities, proper documentation of actions taken, and training for employees responsible for AML-related duties. Supervisory authorities emphasize that AML training should be an ongoing process tailored to the nature and scale of the organization’s activities rather than a one-time compliance exercise.

How Does Money Laundering Work?

Money laundering can take many different forms. However, AML materials traditionally describe three basic stages: placement, layering, and integration.

1. Placement

The first stage involves introducing funds derived from criminal activity into the legitimate economy or financial system. This may involve converting cash into other assets, using a business to move the funds, or conducting transactions that create distance between the money and its original source.

2. Layering

At this stage, transactions are carried out to make it more difficult to determine where the money came from and trace how it moved. Funds may pass through multiple transactions, entities, accounts, or jurisdictions. The more complex the flow becomes, the more difficult it may be to reconstruct the connection between the assets and the criminal activity from which they originated.

3. Integration

The final stage involves reintroducing the funds into the legitimate economy in a way that makes them appear to come from a lawful source. The assets may, for example, be used to operate a business, make investments, or acquire other assets. This three-stage model is useful for understanding the general mechanics of money laundering, but real-world cases do not always follow the same pattern. The stages may overlap, repeat, or occur in a different order.

Who Is Subject to AML Requirements in Poland?

The obligations under the Polish AML Act apply to obligated institutions, meaning the categories of entities listed in Article 2(1) of the Act.

These are not limited to banks. They include certain financial market participants, payment institutions, investment firms, entities in the insurance sector, as well as selected businesses and professions outside the financial sector, including those providing certain accounting, tax, legal, and real estate services.

The full list is considerably broader and is set out directly in the Act.

Being classified as an obligated institution means that an organization must establish an appropriate AML framework.

Depending on the type of entity, its obligations may include:

• identifying and assessing money laundering and terrorist financing risk;
• applying customer due diligence measures;
• identifying beneficial owners;
• applying appropriate measures to higher-risk customers;
• preparing and updating an internal AML procedure;
• appointing individuals responsible for specific AML obligations;
• providing appropriate training;
• monitoring business relationships and analyzing transactions;
• documenting actions taken;
• submitting required information and notifications to GIIF.

Current GIIF communications also emphasize that a risk assessment should not simply reproduce a generic template. It must reflect the actual nature and scope of the particular institution’s business.

Similarly, when identifying a beneficial owner, simply checking the information contained in Poland’s Central Register of Beneficial Owners (CRBR) may not always be sufficient. The available information and surrounding circumstances must also be assessed.

An AML framework should therefore reflect how the organization actually operates.

A small company serving local customers will face different risks from a business offering complex financial products and maintaining relationships with customers across multiple jurisdictions.

What Are the Consequences of AML Non-Compliance?

Failure to properly meet AML obligations may result in administrative and financial consequences and, in certain cases, criminal liability.

The Polish AML Act provides for penalties for violations including failure to carry out an appropriate risk assessment, failure to apply customer due diligence measures, and failure to comply with other obligations set out in the Act.

Possible administrative penalties include:

• publication of information about the institution and the identified violation;
• an order to cease certain activities;
• revocation of a license or authorization, or removal from the relevant register;
• a temporary ban on holding a managerial position for the person responsible for the violation;
• a financial penalty.

The severity of a penalty depends on factors such as the nature and duration of the violation, the institution’s level of responsibility, its financial capacity, any financial benefit obtained, previous violations, and the degree of cooperation with the relevant authorities.

The Act also provides specific rules for determining maximum penalties for certain categories of financial institutions.

This does not mean, however, that effective AML is primarily about avoiding penalties. A well-designed AML framework should enable an organization to understand its own risk, properly assess its customers, and respond appropriately when activity deviates from the expected profile. An AML procedure is only one part of that framework. What ultimately matters is whether the controls and processes established by the organization actually work in day-to-day operations.

Explore more AML articles

• KYC – what is it and what role does it play in AML?
• KYC and AML – What Are They and How Do They Differ?
• What Is an AML Officer and What Do They Do?

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