What are AML/KYC procedures?

What are AML/KYC procedures?
Jakub Chajdas

Jakub Chajdas

Partner / Attorney-at-law

Have you ever wondered what AML/KYC procedures involve? In this article, we explain what they are and why they are so important for businesses. We will also present how they affect our daily lives. Find everything you need to know about AML and KYC procedures in this article.

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What is the AML procedure?

The AML procedure stands for Anti Money Laundering. It is a set of regulations aimed at fighting money laundering and other illegal activities.

The AML procedure applies to all actions taken by institutions providing financial services.

Its goal is to hinder tax evasion and smuggling on an international scale.

The AML procedure varies in criteria depending on the jurisdiction. Documentation within the AML procedure and its stages depend on the type of business and its characteristics.

You can read more about AML procedure here: https://www.gov.pl/web/finanse/przeciwdzialanie-praniu-pieniedzy-i-finansowaniu-terroryzmu.

Who must implement the AML procedure?

The obligation to implement the AML procedure applies to entrepreneurs from many industries. The catalogue of entities obliged to apply the AML procedure is provided in Art. 2 Section 1 of the Act of 1 March 2018, on Counteracting Money Laundering and Terrorism Financing.

Examples of industries where the obligation to apply the AML procedure appliesfinancial institutions
exchanges including cryptocurrency exchanges
investment companies and foreign branches of investment companies
real estate agents
accounting offices
entities providing corporate/offshore services
virtual offices
Examples of industries where the AML procedure applies

Read more about the AML Act and its regulations here.

What is the KYC procedure?

The KYC (Know Your Customer) procedure is conducted by financial institutions and legal entities. It concerns due diligence.

The KYC procedure allows for the effective verification of the identity of:

  • the client,
  • cryptocurrency market participant,
  • beneficial owner.

It also enables obtaining the necessary data to conduct business with a given person.

In practice, the KYC procedure is based on confirming the identity of the client. It verifies the activities carried out by him and evaluates his credibility.

How does the KYC procedure work?

Stages of the KYC procedure
Initial Customer Identification (Customer Identification Program)Customer Data VerificationObtaining necessary documents to assess the risk profile of a given client(Client Due Diligence)KYC Procedure Process
Gathering client data such as: first name, last name, date of birth, PESEL/ID number (for individuals), address. If the entity is a company: company address, registered office address, list of ultimate beneficial owners, tax identification numberVerification can be automated or manualDetermination of implementing an appropriate procedure adapted to the risk: simplified, standard, enhancedMonitoring and documenting changes in client data
Stages of the KYC procedure

The stages of KYC procedure may vary depending on the specific financial institution.

Why is it worth implementing the KYC procedure?

Implementing the KYC procedure enables knowing your customer and checking:

  • whether they are connected with an organized criminal group,
  • whether they engage in financial abuse,
  • whether they engage in money laundering
  • whether they are involved in terrorism financing.

The KYC procedure allows for avoiding transactions burdened with risk and suspicion of involvement in an illegal scheme – terrorism financing.

Who must implement the KYC procedure?

The obligation to implement the KYC procedure rests with the obligated institutions. They are listed in the Act of 1 March 2018, on Counteracting Money Laundering and Terrorism Financing. Obligated institutions include:

  • national banks,
  • investment funds,
  • entrepreneurs conducting exchange office activities,
  • tax advisors,
  • real estate brokers.

The full list of obliged institutions can be found here: https://www.iaml.com.pl/wiedza/instytucje-obowiazane/.

If you have more questions about AML/KYC procedures, our experts will help you with legal advice. Do not hesitate to contact our law firm.

FAQ – Frequently Asked Questions about AML/KYC procedures

What are AML/KYC procedures?

They are used by financial institutions to prevent money laundering and terrorism financing.

Why are AML/KYC procedures important for companies?

Companies must adhere to AML/KYC procedures to comply with legal requirements. It prevents financial risk and maintains the trust of customers and business partners.

What are the basic objectives of AML/KYC procedures?

The primary goals of AML/KYC procedures are customer identification and transaction monitoring. Reporting suspicious activities to prevent illegal financial actions is also crucial.

Do AML/KYC procedures only apply to financial companies?

No. AML/KYC procedures are also used in other industries e.g. real estate, retail trade, or legal services. They are useful wherever there is a risk of money laundering or terrorism financing.

What are the consequences of not complying with AML/KYC procedures?

Companies expose themselves to high financial penalties, reputational damage, and the risk of losing licenses to operate if they do not comply with AML/KYC procedures.

What information is collected during KYC procedures?

During KYC procedures, customer identity information is collected. For example: name, address, identification number, and the source of financial funds.

What are the differences between AML and KYC?

AML focuses on preventing money laundering. KYC focuses on customer identification and monitoring their activities.

Are AML/KYC procedures an international standard?

Yes. AML/KYC procedures are recognized as an international standard. They are regulated by various supervisory bodies and international organizations.

Do AML/KYC procedures violate customer privacy?

AML/KYC procedures aim to balance preventing criminal activities with maintaining customer privacy.

What are the most common methods used by companies to comply with AML/KYC procedures?

Companies use various methods, including customer identity verification, transaction monitoring, employee training, and the use of technology to detect financial irregularities.

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