What does it mean to "freeze" a financial account in AML practices?

Freezing a financial account in Anti-Money Laundering (AML) practices refers to the action of temporarily halting transactions on an account that is suspected of being involved in illegal activities. This measure is vital for preventing any further movement of potentially illicit funds while investigations are conducted. By freezing the account, financial institutions can mitigate risks associated with money laundering and ensure compliance with regulatory requirements.

During this period, account holders cannot make withdrawals, deposits, or any other transactions, allowing authorities the necessary time to investigate the source of funds and the legitimacy of the account activities. If suspicions are confirmed, the account may ultimately be closed or flagged for further legal action.

The other choices don't accurately reflect the purpose or nature of a freeze in AML contexts. Permanently closing an account eliminates any opportunity to investigate further, increasing the risk of overlooking illicit activity. Increasing an account's interest rate or transferring it to another institution does not contribute to the goal of preventing potentially illegal transactions and would not address the suspicions prompting the freeze.