Criminals launder up to 5% of global GDP annually, according to UN estimates. With the global GDP for 2024 estimated at $106.17 trillion, this equates to as much as $5.31 trillion in illicit funds infiltrating financial systems. The rise of real-time digital payments has further complicated efforts to combat money laundering, creating new vulnerabilities while offering convenience to consumers and businesses.
To fight back, strong anti-money laundering (AML) frameworks are essential. Transaction monitoring plays a key role, and regulators like FinCEN and the UK’s FCA enforce compliance with international AML standards.
What Is Transaction Monitoring in AML?
AML transaction monitoring is the process of analyzing financial transactions—both historical and real-time—to detect suspicious behavior that may indicate money laundering, terrorist financing, or other types of financial crime. It plays a critical role in helping financial institutions meet regulatory requirements and maintain compliance with global anti-money laundering (AML) laws.
Transaction monitoring systems continuously screen customer activity such as transfers, deposits, withdrawals, and payments. They flag anomalies that exceed predefined risk thresholds or deviate from expected behavior, such as unusual transaction volumes, activity in high-risk regions, or rapid movement of funds. Alerts generated by these systems are escalated to compliance and risk teams for investigation and, when necessary, filing of Suspicious Activity Reports (SARs) or Suspicious Transaction Reports (STRs).
Modern AML transaction monitoring solutions combine rule-based logic with machine learning to detect patterns across large datasets. AI helps reduce false positives and identify emerging threats, while compliance teams provide human oversight and contextual judgment. Leading platforms also integrate fraud prevention tools, behavioral analytics, and a user-friendly dashboard, empowering teams to act faster and with greater precision.
How Does AML Transaction Monitoring Work?
AML transaction monitoring uses software to continuously analyze customer transactions in real time or retrospectively to detect suspicious behavior that could indicate money laundering, terrorist financing, or other financial crimes. These systems are essential for meeting global anti-money laundering compliance obligations.
Modern platforms flag transactions that exceed predefined thresholds, show abnormal patterns, or deviate from customer risk profiles. Alerts are then routed to compliance teams for review. Crucially, monitoring also involves screening customers and counterparties against sanctions lists, watchlists, and PEP databases to reduce exposure to high-risk individuals or entities.
Here’s how the AML transaction monitoring process typically works:
- Real-time data collection: All transaction data is captured and analyzed — including amounts, time, geolocation, device ID, payment type, and IP address — often in real time.
- Screening against watchlists: The system checks customers and transactions against PEP, OFAC, and other global sanctions lists to prevent illegal involvement.
- Pattern and risk analysis: Rule-based logic and machine learning models evaluate transactions for anomalies such as unusual volume, velocity, or location, and compare them to historical behavior and peer group norms.
- Alert generation: Transactions that surpass risk thresholds or match suspicious criteria trigger alerts. These are ranked by priority, risk score, or SLA.
- Case investigation: Compliance analysts review alerts, annotate findings, and determine whether further action is required, such as filing a Suspicious Activity Report (SAR) or other regulatory documentation.
- Continuous learning and optimization: Feedback loops help refine detection models. Some platforms use velocity rules, behavioral analytics, or fraud signals from onboarding and logins to improve risk scoring accuracy.
Effective AML monitoring is no longer just about batch processing. Today’s leading solutions offer real-time detection, integration with fraud signals, and flexible workflows that align with compliance team SLAs — supporting faster investigations, better reporting, and fewer false positives.
Why Is AML Transaction Monitoring Important?
AML transaction monitoring is essential for detecting and preventing financial crimes such as terrorist financing, human trafficking, corruption, and arms trading. It helps financial institutions comply with strict regulations by flagging unusual patterns in customer transactions for further review. Early detection allows compliance teams to investigate suspicious activity before it escalates, reducing exposure to legal, financial, and reputational risk.
Beyond regulatory compliance, effective transaction monitoring supports smarter risk management and stronger customer due diligence. By continuously analyzing customer behavior, businesses can reassess risk levels, allocate resources more effectively, and maintain the integrity of their operations. A well-implemented AML program also builds trust with customers and regulators, reinforcing the institution’s commitment to financial crime prevention.
Learn how transaction monitoring works and discover the best software and tools to mitigate risks.
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AML Transaction Monitoring System
Modern AML transaction monitoring systems prioritize real-time detection, helping teams spot suspicious activity as it occurs. By combining behavioral and fraud signals—like IP, device, and velocity data, with AML alerts, institutions gain a clearer view of risk and can better distinguish between money laundering and other threats.
Customizable, no-code rules reduce false positives and surface only relevant alerts, while automated triage routes cases by risk, SLA, or workload. Direct access to updated sanctions, crime, and PEP lists, along with proprietary risk signals, supports accurate decision-making.
Investigations are streamlined through built-in case management tools that centralize evidence, notes, and audit trails. AI-powered regulatory reporting simplifies SAR filing, and a single API integrates AML screening, monitoring, fraud detection, and reporting, ensuring consistency and easier implementation.
How to Set Up Transaction Monitoring in AML
To set up AML transaction monitoring, the first step is to customize rules and alert triggers based on the regulatory requirements you must adhere to. Note that various regulatory agencies may have different requirements you must adjust for and accommodate.
For example, setting up rules that monitor for:
- Large transactions: Monitoring transactions above a certain threshold to identify potentially high-risk activity.
- Unusual patterns: Detecting abnormal transaction patterns or behaviors that deviate from a customer’s normal activity.
- Structuring or smurfing: Identifying multiple smaller transactions designed to evade reporting thresholds.
- Rapid movement of funds: Detecting swift movement or velocity of funds between accounts, or if outflows rise over a certain amount, may suggest illicit activity.
- High-risk countries: Flagging transactions involving countries known for money laundering or terrorism financing.
- Politically Exposed Persons (PEPs): Monitoring transactions involving individuals with political influence to prevent corruption or bribery.
- Sanctions Screening: Checking transactions against government-issued sanctions lists to identify dealings with restricted entities.
Setting Up AML Transaction Thresholds
You’ll need to set up a rule to ensure that transactions over a certain threshold are logged and monitored.
To do so, use the “compare” parameter and the operator “greater or equal to.” The demonstration value is $3,000, the most recent US banking AML requirement. Every time this setting is met, the rule will trigger. Note that you can manage currencies in settings and change each currency at the rule level.
Setting Up a Rule for High-Risk Countries
To set up a rule using high-risk countries, you’ll want to:
- Define the high-risk countries by creating a custom list titled “High-Risk Countries.”
- Examine IP addresses and complete data for the IP country, adding those found on the international sanctions lists. Notice that SEON uses the country code.
- Create your rule and title it “IP country is AML HIGH RISK.”
This rule checks if a user’s IP is on the list of high-risk countries and, if so, will create a REVIEW alert that you can choose to automatically APPROVE or DECLINE the user’s transaction based on your risk appetite.
If it’s sent for manual review, your AML compliance team can check the transaction details for more information – or log the details to submit a Suspicious Activity Report (SAR).
Setting Up Velocity Rules for Suspicious Transaction Behavior
Slightly more complex, velocity rules are designed to alert your team when a user suddenly increases their normal transaction volumes.
The velocity rule showcased here:
- Aggregates the amount of all transactions over 24 hours
- Looks for an increase in spending over 200%
Here is what it looks like on the dashboard when turning on the rule, setting parameters and once the rule has been triggered.
Transaction Monitoring: Key Takeaways
In AML, transaction monitoring is essential for safeguarding financial institutions and companies from being exploited for money laundering, ensuring compliance with regulations, and maintaining financial integrity. As fraudsters increasingly leverage advanced technologies and real-time digital payments, proactive oversight through transaction monitoring becomes crucial in detecting and preventing illicit activities.
Tools like SEON’s AML transaction monitoring empower your anti-fraud and money laundering prevention strategy by providing access to hundreds of user identity and transaction data points. These insights enable the creation of customized, flexible, and powerful rules to mitigate AML risks while also protecting against other types of fraud.
Automate AML: pre-KYC screening, checks, monitoring, alerts, and reporting — all in one real-time solution aligned with your SLAs.
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Related Articles of Transaction Monitoring Across Industries
- Digital Banking: Transaction Monitoring in Digital Banking
- Payments: Transaction Monitoring for Fraud and Payments
- iGaming: Transaction Monitoring in iGaming
- Retail: Transaction Monitoring in Online Retail
- Forex: Transaction Monitoring in Forex Trading
- Crypto: Transaction Monitoring in the Crypto Space
Frequently Asked Questions
AML transaction monitoring is a key part of national and international anti-money laundering strategy, which forces companies to examine transactions over a certain threshold. The transactions must be linked to someone’s identity to reduce the risk of money laundering.
Global AML regulations, such as the FATF Recommendations, the EU AML Directives, and the U.S. Bank Secrecy Act, require financial institutions to monitor transactions for suspicious activity. Failure to implement effective monitoring can result in significant penalties, including multimillion-dollar fines, regulatory sanctions and even criminal liability for compliance failures. Regulators like FinCEN, the European Banking Authority and the UK’s FCA actively enforce these obligations worldwide.
For banks and other fintech organizations, this works by having software monitor all transactions and flag all those that exceed a certain threshold for investigation, which often involves manual review. Additionally, the system ascertains that customers are not on PEP or sanctions lists. If anything seems suspicious after this, the bank ought to file a suspicious activity report (SAR).
The main challenges in the transaction monitoring process include high false positives that waste time and resources, constantly evolving fraud tactics that outpace static systems, complex and changing regulations across regions, and the need to balance strong security with a smooth customer experience. To overcome these, businesses must adopt automated, adaptive, and risk-based approaches for more accurate and efficient monitoring.
Payment screening is the process of vetting payments against watchlists before they enter the system, aiming to stop suspicious activity upfront. Transaction monitoring, on the other hand, is the process of continuously analyzing payments for unusual patterns that could signal financial crimes.
Sources
- UNODC: Money Laundering portal
- United Nations: Money Laundering
- Trading Economics: World Full Year GDP Growth
