Criminals who make money from drugs, fraud, or corruption need to hide where it came from. Anti-money laundering, or AML, is the set of laws and procedures designed to stop them. Banks are on the front line. They must verify customer identities, monitor transactions for suspicious patterns, and report anything that looks like laundering to the government.

The process has three stages. Placement puts illegal cash into the financial system, often through small deposits or cash-intensive businesses. Layering moves the money through complex transactions to obscure its origin. Integration brings it back into the economy as apparently legitimate funds, often through real estate, luxury goods, or shell companies.

Banks use several tools to fight this. Know Your Customer rules require identity verification and ongoing monitoring. Suspicious activity reports go to the Financial Crimes Enforcement Network, or FinCEN, in the United States. Transaction monitoring software flags unusual patterns, such as large cash deposits or rapid transfers between accounts. High-risk customers face enhanced due diligence.

AML compliance is expensive. Banks spend billions on systems, staff, and fines. Penalties for failures can be severe. HSBC paid $1.9 billion in 2012. Danske Bank paid over $2 billion in 2022. The cost of getting it wrong is far higher than the cost of compliance.