Glossary of Words: AML/CFT context

 Those readers who are not from banking & finance background may find it difficult to grasp the meaning of some of the words frequently used in the AML/CFT language. Selected words are listed against their explanation.

ACAMS - Association of Certified Anti-Money Laundering Specialists

International membership organization comprising of public and private sectors dedicated to the identification and prevention of money-laundering activities in USA

 

AML/CTF Compliance Audit

 

The procedure to review the AML/CTF policies, test the compliance procedures, and assess the KYC for clients. It also evaluate all financial transactions. Moreover it gauges the efficiency of the AML systems implemented in the company.

 

AMLID - Anti-Money Laundering International Database

 

A compendium of analyses of anti-money laundering laws and regulations, including both domestic laws and international cooperation and information on national contacts and authorities.

 

Anti-Money Laundering Act of 2020 (AMLA)

Legislation passed by Congress with sweeping legislative changes to the Bank Secrecy Act (BSA of USA)

 

Anti-Money Laundering and Countering the Finance of Terrorism (AML/CFT) Supervision Report

An annual report on AML and CTF supervision, outlining supervisory and enforcement data on both the statutory and Professional Body Supervisors. It highlights any notable changes in supervisory activity and any fines that supervisors have issued

 

ARS- Alternative Remittance System

Asset Blocking

 The practice of restricting an individual's or legal entity's access to assets during or because of a sanction enquiry. Asset blocking is also known as asset freezing.

 Asset Confiscation

 The practise of confiscating an individual's or legal entity's assets during or after an investigation into a sanctions violation.

 Asset Flight

 The illegal transfer of assets from one jurisdiction to another in order to avoid fines, seizures, or other penalties.

As Soon as Practicable (Canada)- The expected time within which a suspicious transaction report (STR) can be submitted to FINTRAC taking into account the facts and circumstances of the situation.

 

ASTR (Canada)- Attempted Suspicious Transaction Report

 

A report that is filed when an individual initiates and then abandons a financial transaction in a way that looks suspicious.

 

AST- Automated Screening Tool

 

A sanctions, PEP, and adverse media screening tool powered by AI, natural language processing and machine learning with automated search functionality. ASTs, like our very own SmartScan, offers intelligent search and a scoring engine that works to minimize manual intervention while significantly reducing False Positives.

 

ATF- Anti-Terrorist Financing

 

The same thing as Counter Terrorist Financing (CFT) and is often used interchangeably

 Autonomous Sanctions

A single entity, such as a government or a coalition of governments, acts to implement and enforce a sanctions regime, for instance the EU.

Any system used for transferring money from one location to another while operating outside of traditional banking channels.

 

Bank Secrecy Act (BSA)

The main U.S. anti-money laundering regulatory act (Title 31, U.S. Code Sections 5311- 5355) that was enacted in 1970 and set standards for money laundering reporting and record-keeping for financial institutions. 

 Blacklist

 An internal list of names (including places, persons, entities, and individuals) that are screened to identify any sanctions exposure, in addition to government and vendor-maintained sanctions lists. Other potential additions to a firm's internal blacklist may come from OFAC, USA  advisories and other warnings that list entities that did not merit being placed on the SDN list but are still considered high risk.

 

BO – Beneficial owner

A beneficial owner is an individual who enjoys the benefit of or controls a legal entity or property. Although the property or entity is in someone else’s name.

Business Relationship (Canada)- The connection between a reporting entity and a client to conduct financial transactions or provide services related to those transactions. This relationship can be account-based, where the client holds an account with the reporting institution, or non-account-based, but recurring.

 

Criminal Proceeds

 

The outcomes of criminal activities in terms of property or legal documents proving the title or interest in such property are called criminal proceeds.

 

Customer Due Diligence (CDD)

The processes designed to perform the necessary checks on any customer to ensure the legitimacy and understand risks associated with retaining the customer.

 

Counter-Terrorism Financing (CTF)

Set of government laws and regulations seeking to prevent funding of activities that the government designates as terrorists.

 

Currency Transaction Report (CTR)

A report that all FIs are required to file with FinCEN for any transaction that exceeds $10,000.

 

Customer Identification Document (CID)

Documentation confirming an applicant's identity (i.e., passport, driver’s license, government-issued I.D.).

 

Customer Identification Program (CIP)

A requirement by certain governments that financial institutions need to verify the identity of individuals wishing to conduct financial transactions with them. CIP is popularly known as KYC. The CIP must be incorporated into the bank's AML compliance program.

 

Currency Smuggling

The illegal movement of large quantities of cash across geographical borders.

 

Denied Persons List (DPL)

A list of individuals and organizations whose export privileges have been restricted by the US Department of Commerce.

Delisting

The removal of a target from a sanctions list after the appropriate sanctions have been lifted.

 

Document verification (Doc-V)

A process utilized during identity verification to confirm whether official documents — such as a driver’s license, passport, bank statement, etc. — are authentic or not.

 

DNFBPs – Designated Non-Financial Businesses and Professions

 

FATF recognizes some non-financial businesses and professions that have the same risk of money laundering. It also accounts for terrorism financing as the financial institutions and businesses. These DNFBPs also include casinos, dealers in precious metals and stones, trusts and company service providers. Additionally, others are real estate agents, and lawyers, notaries, and other independent legal professionals and accountants.

 

EDD – Enhanced due diligence

 

A better form of CDD is EDD. It is the process of ascertaining the risks of a customer or client to a company. Specifically when the customer or client is highly suspicious. Moreover EDD is different from CDD since it requires additional checks and verifications on the customer.

 

Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act

A law that was introduced in 2021 to close gaps in the BSA and Patriot Act by extending AML requirements to professional service providers involved in financial transactions — most notably third-party payment service providers and including some fintechs. USA

 

European Banking Authority (EBA)

The European Banking Authority (EBA) is an independent EU Authority that works to ensure effective and consistent prudential regulation and supervision across the European banking sector. 

 

European Financial and Economic Crime Center (EFECC)

The EFECC provides support to Europol partners and Member States to prevent and combat financial and economic crime, including money laundering, corruption, and fraud that target consumers as well as businesses and countries. 

 

Egmont Group of Financial Intelligence Units

International organization facilitating the secure exchange of financial intelligence. 

Electronic Identity Verification (eIDV)

eIDV is a way of confirming an individual’s identity online, usually through a combination of public information and private databases.

 

Embezzlement

The misuse of funds placed in an individual’s trust or that belong to their employer.

 

Financial Action Task Force-Style Regional Body (FRSB)

Chartered by a group of nations to form an affiliated global network in combating money laundering and terrorist financing.

 

Front company

 

A front company is the face of a company used to protect the actual company or owners from liability or investigation. For example, in the case of criminal or illegal activities such as money laundering.

 

FRAML

The term FRAML (abbreviation of Fraud Prevention + Anti Money Laundering) is gaining traction in the compliance industry. A growing trend in financial institutions to view the approaches to managing fraud and anti-money laundering holistically in order to better mitigate financial risk within the organization.

 

FIU – Financial Intelligence Unit

 

FIUs are central, national agencies in each country to combat money laundering and terrorism financing. Such national FIUs receive financial information from competent authorities regarding suspicious money laundering activities, analyze them, and disseminate it further to authorities requesting further insights on criminal activities and terrorism financing operations.

Front office 

The front office is a revenue generating function within an investment bank. It provides client services through trading activities in the wholesale markets and sales.

 

Front Running 

Front Running is when a trader uses privileged information not available to the public, such as pending customer orders, to trade on their own behalf. It’s an unethical trading practice that involves using non-public information to gain an unfair advantage, which is not just unethical, but potentially illegal.

 

FATF - Financial Action Task Force

Intergovernmental association developed by the G7 countries to develop strategies to combat money laundering. 

FinCEN - Financial Crimes Enforcement Network

A part of the United States Department of Treasury focused on analyzing financial information to combat money laundering and terrorist financing. 

 

Foreign Bank and Financial Accounts Report (FBAR)

FinCEN form 114 that must be filed if the individual’s foreign financial accounts’ values exceed $10,000.

 

Financial inclusion

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.

Financial Industry Regulatory Authority

The non-governmental Financial Industry Regulatory Authority (FINRA) is an independent organization writing and enforcing rules that govern registered brokers and broker-dealers in the U.S.A

Financial Conduct Authority - As an independent financial regulatory body of the U.K., the Financial Conduct Authority (FCA) regulates the conduct for 59,000 financial firms and markets in the U.K. For over 18,000 firms, it’s also the regulator. The FCA aims to make markets work well for individuals, businesses, and for the overall economy.

 

Fifth EU Anti-Money Laundering Directive (5AMLD)

A directive to improve the European Union’s (EU) legal framework to prevent money laundering and terrorist financing. Although the UK is no longer part of the EU, the UK agreed to pursue this directive. 

General Data Protection Regulation (GDPR) - The General Data Protection Regulation (GDPR) is a law approved by the European Union (EU) that sets guidelines for the collection and processing of personal information. It establishes data privacy as a human right (including the right to access, correct, erase, or port personal data), baseline requirements for data protection, and provides standardized application of data protection rules across the EU.

Grey List(Jurisdictions under Increased Monitoring)

This statement identifies countries that are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.

This list is often externally referred to as the grey list.

 

Gatekeepers

Gatekeepers are the persons that are a go-between two persons or two activities. In the case of money laundering, lawyers, accountants, trusts, notaries, investment advisors, and company service providers help in the movement of money from one place to another. Therefore, they are called gatekeepers. Moreover It is essential to identify the relevant gatekeepers of a transaction to prevent money laundering operations.

Governance

It is a set of all the processes of governing a company or government or institution. For example, the accountability structure, control systems, decision-making processes. Moreover there are other norms of keeping a company’s operations organized.

High-Risk Jurisdictions subject to a Call for Action (i.e. "black list")

This statement,  (previously called "Public Statement"), identifies countries or jurisdictions with serious strategic deficiencies to counter money laundering, terrorist financing, and financing of proliferation. For all countries identified as high-risk, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system from the ongoing money laundering, terrorist financing, and proliferation financing risks emanating from the country.

This list is often externally referred to as the black list.

The FATF blacklist is a list of countries that FATF has determined are noncooperative in the international fight against money laundering and terrorism financing

Human Smuggling

Illegal entry or transport of a human being from one country to another against the laws is human smuggling.

Human Trafficking

It refers to the trade of human beings across international borders. For example, sexual slaves, exploit them, or make them forced laborers.

Her Majesty's Revenue & Customs (HMRC) Money Laundering Regulations

Regulations for anti-money laundering that apply to certain institutions, particularly those not supervised by The Financial Conduct Authority (FCA) or another supervisory authority. 

Her Majesty's Treasury (HMT)

HMT includes the Office of Financial Sanctions, which is responsible for imposing sanctions, maintaining the HMT Financial Sanctions List, and examining organizations' AML compliance. The Office of Financial Sanctions Implementation (OFSI) is also part of HMT and is responsible for enforcing financial sanctions. 

 

Investigation

The process of performing due diligence in response to an alert raised for a customer by obtaining, evaluating, and storing any information, docs, or other research; this may also lead to escalation for enhanced due diligence (EDD).

Identity Verification (IDV)

Mechanism to ensure that the customers a business is interacting with are who they say they are.

Informal Value Transfer System (IVTS)

A network that receives money for the purpose of making those funds available to a third party in a different geographical location.

Integration

It is the third stage of the money laundering process. For example, the money moves in the system as clean money.

Identity Theft

Identity theft is the process used by criminals to obtain an individual’s personal and financial information without their permission. It is done to carry out unauthorized transactions or criminal activities.

KYC – Know Your Customer

KYC is the process of verifying the identity of your customers to understand their suitability for your business. Additionally it is to know the risks for the company in maintaining the relationship with them.

KYE – Know Your Employees

The process implemented by companies to check and verify the identity of their employees.

 

 Know Your Business (KYB)

An AML regulation that requires financial institutions to verify the identity of the ultimate business owner of a company. 

 

Know Your Transaction (KYT)

The process of monitoring every customer transaction to make sure it is not fraudulent.

Knowledge-based authentication (KBA)

A method of authentication that asks the user to answer at least one question to verify their identity (e.g., “what street did you grow up on?). 

 

Layering

It is the second stage of the money laundering process, in which the illicit money is covered under a protective layer of financial transactions to take it far away from the crime so that the origins cannot be sourced back.

Layering is the stage in money laundering where the goal is to distance illicit funds from their source. This is achieved by creating a complex series of financial transactions, making the money's origins increasingly difficult to trace. Think of it as a magician's misdirection: the more movements and exchanges the funds go through, the harder it becomes for regulators or investigators to follow the trail.

Money Laundering Reporting Officers (MLRO)

An employee who oversees a firm's compliance with the regulations on money laundering.

Money laundering

Concealing the source, movement, or usage of funds that are derived from illicit sources in an effort to make them appear legitimate.

Money Mule

A person who moves money that was illegally acquired.

Money Services Business (MSB)

Any person or business doing cash-related activities such as currency exchange, issuing traveler’s/cashier’s checks/cheques, money transmission.

 

MONEYVAL

MONEYVAL is the shortened name for The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism. This is a monitoring body of the Council of Europe, responsible for assessing compliance with international standards to counter money laundering

Mutual Evaluation Report

Financial Action Task Force (FATF) 2013/2023 Mutual Evaluation Report

The Financial Action Task Force is an intergovernmental watchdog responsible for producing international standards to combat money laundering, terrorism financing, and more. Their Mutual Evaluation Report is a review of the effectiveness of the country's AML/CFT system

 

National Risk Assessment (NRA)

An annual process to identify all the major national threats that may significantly impact the nation for the selected period. 

 

National Crime Agency (NCA)

The leading UK agency against organized crime, including fraud, money laundering, illicit finance, bribery, corruption, sanctions evasion, drug trafficking, cybercrime, and more. 

Ongoing fraud monitoring
The process of observing ongoing financial and account activity to detect and prevent fraudulent activity. 

Organized criminal groups (OCGs)

Often responsible for money laundering, including cash-based money laundering.

OCC - Office of the Comptroller of the Currency

A part of the United States Department of Treasury, ensuring the proper and safe access to financial services by banks and other financial institutions. 

Office of Foreign Assets Control (OFAC)

A financial intelligence and enforcement agency of the U.S. Treasury Department. It administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives.

An officially valid document (OVD)

A document that is legally acceptable, usually because it has been created according to official rules. Some examples of OVDs include:

 

1. Passport
2. Driving license
3. Voter's identity card issued by the Election Commission of India
4. Job card issued by NREGA and signed by a state government official

5. The letter issued by the National Population Register containing details of name, address or

6.  Any other document as notified by the Central Government in consultation with the Regulator;

(PAN was removed from OVL by amendments to PMLR 2005 in  June 2017. Proof of Aadhar Number included in item 6 )

An offshore financial center (OFC). 

A country or jurisdiction that offers financial services to non-residents on a scale that's disproportionate to its domestic economy's size and financing. The term "offshore" refers to the prevalence of non-resident financial activity in an economy, not to a physical location.

Patriot Act

The Patriot Act was passed in 2001 in response to the 9/11 terrorist attacks and required banks to establish more robust AML programs and perform customer due diligence, including KYC and KYB checks, to prevent financial crimes such as terrorist financing, human trafficking, and money laundering. 

 

Perpetual KYC

The process of automating recurring KYC, KYB, and sanctions checks based on specific rules or “triggers” instead of at periodic intervals. Also known as continuous KYC, ongoing KYC, or simply “pKYC.” 

 

 Personally Identifiable Information (PII)

Any data that could potentially identify a specific individual. E.g., social security number, government-issued identification, birth date, birthplace, address, etc.

 

Politically Exposed Person (PEP)

A PEP is an individual who has been entrusted with prominent public functions in a foreign country, such as a head of state, senior politician, senior government official, judicial or military official, senior executive of a state-owned corporation or important political party official, as well as their families and close associates.

 

Payment Services Directive (PSD2)- Revised

European regulation for electronic payment services. Updated guidance from the original Payment Services Directive (PSD), in particular, to account for the increase in online payment fraud and the growth of APIs

 

Proceeds of Crime Act (POCA)

POCA is UK law that allows for the confiscation or recovery of the proceeds from crime and contains the principal money laundering legislation in the UK. 

 

Placement

It is the first stage of the money laundering process. For example, illicit money enters the financial system.

 

Potential Suspicious Activity Report (PSAR)

A PSAR (which are primarily applicable for fintechs with a backing bank) is a filing the fintech company’s compliance manager provides to their backing banks to advise the bank to file a SAR (without doing it themselves).

 

Relative and close associates (RCAs)

A person that is considered to be a politically exposed person (PEP) because of their close proximity to another person on a PEP list.

 

Reporting Entity

Any entity on which individuals rely on for financial services and which is obligated to report on a specific activity, such as MSBs, insurance companies, and securities dealers.

 

Risk-based approach (RBA)

An approach to compliance and fraud risk management where a bank or fintech continuously monitors a customer’s evolving risk level to inform which additional layers of compliance and fraud checks to impose on them.

 

Risk Profiling

 

It is the process of identifying a customer’s risk profile, meaning identifying their risk capacity and tolerance to risk. Additionally, it also identifies expected returns.

 

 

Sanctions Compliance Officer (SCO)

Member of the organization who is responsible for overseeing the sanctions compliance program.

 

Sanctions compliance program (SCP)

A mechanism to assist financial institutions in their sanctions screening and managing the associated risk.

 

Sanctions Screening

An AML control that banks and fintechs are obligated to perform to ensure they are not doing business with any individuals or corporations on sanctions watchlists. 

 

Shell Company

 

An entity that does not have active business operations but is set up to achieve specific business objectives such as reducing tax liabilities, shielding an entity from legal risks, raising capital, and oftentimes, for illegal purposes such as laundering money, hiding beneficial ownership from law enforcement or circumventing sanctions.

While shell companies are often regarded negatively, they are also used legally by large corporations and individuals. For example, in USA, a Special Purpose Acquisition Company (SPAC) is used to raise capital through the public issue of shares to acquire an existing private company. SPAC by themselves may not have any business operations or workforce and therefore are referred to as Shell Companies. In the U.S., SPACs are registered with the SEC and considered publicly traded companies. The general public may buy their shares on stock exchanges before any merger or acquisition takes place. For this reason they have at times been referred to as the "poor man's private equity funds

 

SDD – Simplified Due Diligence

 

If a customer poses a lower risk of money laundering or criminal activity. Companies also conduct a simplified form of CDD, called SDD. 

 

 

Sixth Anti-Money Laundering Directive (6AMLD)

The most recent update to the EU’s anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. The update includes the extension of criminal liability for money laundering to cover corporate persons

Smurfing

A money laundering technique by using multiple transactions or individuals to conceal the movement of funds that would exceed reporting thresholds.

 

Source of Funds (SOF)

 

Describes the origin of a customer’s funds that are being transferred into a given account, i.e., the name of the institution from which funds are expected and the type ACH, wire transfer, etc.

 

Special Interest Entity (SIE)

Organizations that are deemed high-risk and either are or suspected of being involved in criminal activity.

 

Special Interest Person (SIP)

Similar to PEP, sanctioned individuals that present a higher risk of money laundering.

Step-up verification
An additional identity verification step that you only present to high-risk customers if they trigger certain risk thresholds during onboarding or ongoing monitoring.

 

Structuring

Distribution of funds into smaller amounts to bypass reporting requirements (smurfing is a method to structure funds).

 

SAR – Suspicious Activity Report

 

In the case of suspicions of money laundering activities, financial institutions and other bodies subject to AML regulations. They also submit reports to the FIU regarding the suspected activities. Therefore, these reports are called SARs.

STR – Suspicious Transaction Report

 

STRs are the same as SARs; different countries have different terms for it.

Sanctions
Ways to restrict or control organizational behavior due to societal, economic, or political issues.

 

 

Specially Designated Nationals (SDNs)

The Specially Designated Nationals and Blocked Persons List, also known as the SDN List, is a United States government sanctions/embargo measure targeting U.S.-designated terrorists, officials and beneficiaries of specific authoritarian regimes, and international criminals (e.g., drug traffickers).

 

Tax haven

 

Some countries attract businesses to operate in their countries by offering tax incentives, or tax avoidance possibilities. These countries are called tax havens.

 

Trade-based money laundering (TBML)

Using trade activity to disguise proceeds originally obtained from crime or other illegal activity.

Transaction Monitoring

The process of looking at financial account activity — including customer transactions, money transfers, ATM withdrawals, etc. — against a set of rules to determine if the event or transaction should be approved, further investigated, reported, or denied. Transaction monitoring helps banks and fintechs prevent money laundering, fraud, terrorist financing, identity theft, drug trafficking, and other illegal activity

 

Typologies Research

 

A way to analyze and research money laundering (ML) and terrorist financing (TF) methods. This research can help inform the public and authorities about trends, risks, and vulnerabilities in the financial and non-financial sectors. Typologies can also help institutions anticipate potential risks and act accordingly.

Ultimate Beneficial Owner (UBO)

The UBO is the person or persons who have significant ownership of an account through which the transaction is happening. 

 

Watchlists

Watchlists are lists of sanctioned entities — including people and businesses — suspected of being money launderers, terrorists, fraudsters, human/drug/arms traffickers, or politically exposed persons (PEPs).

 

Whitelisting

 

A feature in sanctions screening software that can help reduce false positives in transaction monitoring for AML/CFT. Whitelisting allows an institution to identify trusted accounts with expected transaction behavior and automatically waive false positives for those accounts. For example, a corporate account that normally sends multiple payments to vendors could be whitelisted.

Whitelisting can help institutions to focus on transactions that present true risk, Align with the needs of AML compliance, and Conserve resources.

 

Wolfsberg Group

A group of 12 international banks to develop industry standards for global anti-money laundering activities. 

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