A

Adverse Media (Negative News)

Information found in various media sources (news articles, blogs, social media) that may negatively impact an individual's or entity's reputation, indicating potential involvement in financial crimes, terrorism, fraud, or other illicit activities.

Annual Employee Training

Regular training of personnel on AML policies, procedures, relevant laws, and money laundering detection techniques to ensure ongoing compliance awareness.

Anti-Money Laundering (AML)

Laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. AML regulations require financial institutions to monitor customers' transactions and report suspicious financial activities.

AML Compliance Program

A comprehensive system of internal policies, procedures, controls, and training implemented by financial institutions to ensure compliance with AML laws and regulations. This typically includes CDD measures, risk assessments, monitoring, and reporting systems.

Asset Freezing

A legal process that prevents individuals or entities from accessing or transferring designated assets. Commonly used as part of economic sanctions to restrict access to funds and economic resources by sanctioned parties.

B

Beneficial Owner

The natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes persons who exercise ultimate effective control over a legal entity or arrangement.

Beneficial Ownership Registry

A centralized database that records and maintains information about the individuals who ultimately own or control legal entities, providing transparency about company ownership structures.

Beneficial Ownership Threshold

The percentage of ownership in a legal entity that triggers the requirement to identify and verify the identity of the beneficial owner(s). Common thresholds include 10%, 20%, and 25% ownership.

Biometric Verification

The use of unique physical or behavioral characteristics (such as fingerprints, facial recognition, voice patterns) to verify an individual's identity as part of the customer due diligence process.

Black Market Peso Exchange (BMPE)

A complex money laundering technique used to convert drug dollars into local currency through trade-based money laundering. Originally associated with Colombian drug cartels but has evolved to include various forms of trade-based money laundering.

C

Cash Transaction Report (CTR)

A report filed by financial institutions for cash transactions exceeding a specific threshold (typically $10,000 in the US). These reports help regulatory authorities identify potential money laundering activities.

Compliance Officer

The individual responsible for overseeing a financial institution's AML program, ensuring compliance with regulations, and serving as the primary contact for regulatory agencies.

Correspondent Banking

An arrangement where one bank (the correspondent) provides services to another bank (the respondent), often to facilitate international transactions and services in jurisdictions where the respondent bank has no physical presence.

Country Risk Assessment

Evaluation of money laundering and terrorist financing risks associated with conducting business in specific countries or jurisdictions, considering factors like regulatory frameworks, corruption levels, and prevalence of financial crimes.

Customer Due Diligence (CDD)

The process of identifying and verifying the identity of clients and assessing their risk levels. CDD may include collecting and analyzing information about a customer's background, financial behavior, and transaction patterns.

Customer Risk Rating

A classification system that assigns risk levels to customers based on various factors, including their business activities, transaction patterns, geographic locations, and types of products or services used.

Counter-Terrorist Financing (CTF)

Efforts to prevent and detect the provision of financial support for terrorist activities, organizations, or individual terrorists. CTF regulations are often closely integrated with AML frameworks.

D

De-risking

The practice of financial institutions terminating or restricting business relationships with clients or categories of clients perceived as high risk, often to avoid rather than manage risk. This can adversely affect financial inclusion.

Digital Identity Verification

The process of confirming an individual's identity electronically, often using technology to verify identity documents, biometric data, or digital footprints in compliance with KYC requirements.

Documentary Verification

The process of examining official documents (passports, driver's licenses, incorporation papers, etc.) to confirm the identity of an individual or entity as part of the KYC procedure.

Dual-Use Goods

Items that have both commercial and military applications. Export of such goods is often restricted under sanctions regimes to prevent their use in military or weapons development programs by sanctioned entities.

E

Economic Sanctions

Financial penalties imposed by governments against targeted countries, entities, or individuals to achieve specific foreign policy or national security objectives. Types include blocking assets, trade restrictions, and travel bans.

Emergency Economic Powers

Legal authorities (such as the International Emergency Economic Powers Act in the US) that allow governments to block transactions and freeze assets in response to unusual or extraordinary threats to national security, foreign policy, or the economy.

Enhanced Due Diligence (EDD)

Additional scrutiny and deeper investigation applied to high-risk customers, transactions, or situations. EDD may include obtaining extra information, senior management approval, and increased monitoring of the business relationship.

Export Controls

Regulations governing the shipment of specific goods, technology, and information to foreign countries, particularly those under sanctions or subject to trade restrictions.

F

FATF Recommendations

International standards set by the Financial Action Task Force to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system. These recommendations serve as a framework for countries to implement in their national laws.

Financial Action Task Force (FATF)

An intergovernmental organization established in 1989 to develop and promote policies to combat money laundering and terrorist financing. FATF sets international standards, assesses jurisdictions' compliance, and identifies high-risk countries.

Financial Intelligence Unit (FIU)

A national agency responsible for receiving, analyzing, and disseminating financial information related to money laundering and terrorist financing. FIUs serve as central repositories for suspicious transaction reports and other financial intelligence.

FinTech Risk Assessment

Evaluation of money laundering, terrorist financing, and sanctions risks specific to financial technology products, services, and delivery channels, considering their unique characteristics such as non-face-to-face customer relationships.

Freeze Order

A legal directive requiring financial institutions to prevent the movement, transfer, or disposal of specific funds or assets. Typically issued as part of sanctions enforcement or in response to suspected financial crimes.

G

General License (Sanctions)

A regulatory authorization that permits specific types of transactions that would otherwise be prohibited by sanctions. General licenses typically cover humanitarian activities, telecommunications, or personal remittances to sanctioned countries.

Geographic Risk

The level of money laundering or terrorist financing risk associated with specific countries, regions, or jurisdictions. Factors include regulatory quality, corruption levels, and prevalence of criminal or terrorist activities.

Global Sanctions List

A comprehensive database combining various sanctions lists (UN, EU, OFAC, etc.) used by financial institutions to screen customers and transactions against sanctioned individuals, entities, and countries.

Governance Framework

The system of rules, practices, and processes by which a financial institution directs and controls its AML and sanctions compliance activities, including board oversight, management roles, and reporting lines.

H

Hawala

An informal value transfer system operating outside traditional banking channels, based on honor and a large network of money brokers (hawaladars). While often legitimate, hawala can be used for money laundering due to its lack of formal records.

High-Risk Customer

Clients who present an elevated risk of money laundering or terrorist financing based on factors such as their business type, geographic location, political exposure, transaction patterns, or use of high-risk products/services.

High-Risk Jurisdiction

Countries or territories identified as having strategic deficiencies in their AML/CTF regimes or presenting elevated risks due to factors such as corruption, criminal activity, or inadequate regulatory oversight.

I

Independent Testing

Periodic review and evaluation of a financial institution's AML program by qualified, objective parties (internal or external) to assess its effectiveness and compliance with regulatory requirements.

Integration

The final stage of money laundering where laundered funds are reintroduced into the legitimate economy, making the criminal origin of the funds difficult to trace. This often involves investments in real estate, businesses, or luxury assets.

Internal Controls

Policies, procedures, and systems implemented within a financial institution to ensure compliance with AML and sanctions regulations, detect suspicious activities, and mitigate compliance risks.

J

Joint Money Laundering Steering Group (JMLSG)

A UK body that provides guidance on AML procedures for the financial services industry, representing a collaborative approach between industry and regulators to combat financial crime.

Jurisdiction Risk Assessment

Analysis of money laundering and terrorist financing risks at a national level, identifying threats, vulnerabilities, and potential impacts on the country's financial system and developing appropriate mitigating measures.

K

Know Your Customer (KYC)

A process of identifying and verifying the identity of clients when opening accounts and periodically thereafter. KYC helps prevent identity theft, fraud, money laundering, and terrorist financing.

Know Your Customer's Customer (KYCC)

An enhanced due diligence practice where financial institutions gather information about their customers' customers, often applied in correspondent banking and payment processing relationships to manage intermediary risk.

Know Your Employee (KYE)

Policies and procedures to screen and monitor employees to prevent internal fraud, corruption, or complicity in money laundering schemes. Includes background checks, ongoing monitoring, and conflict of interest reviews.

Know Your Transaction (KYT)

The process of monitoring and analyzing transactions to ensure they are consistent with the customer's profile, business activities, and risk assessment. KYT helps identify suspicious transactions that may indicate money laundering.

L

Layering

The second stage of money laundering where the source of illegally obtained funds is disguised through a series of complex transactions (transfers, conversions, purchases) to obscure the audit trail and sever the link to the original crime.

Lookup Service

An electronic database or system used to check names against sanctions lists, PEP databases, and other watchlists as part of customer due diligence and transaction screening processes.

M

Money Laundering

The process of making illegally-gained proceeds (dirty money) appear legal (clean). It typically involves three stages: placement, layering, and integration of illicit funds into the legitimate financial system.

Money Laundering Reporting Officer (MLRO)

A designated person within a financial institution responsible for overseeing AML compliance, receiving internal suspicious activity reports, making decisions on external reporting, and serving as the main contact with regulatory authorities.

Money Mules

Individuals who transfer illegally acquired money on behalf of others, often unwittingly. Money mules may be recruited through job advertisements, social media, or dating websites, and are used to break the chain between criminals and their victims.

Money Services Business (MSB)

Non-bank financial institutions that transmit or convert money, including currency exchanges, check cashing services, money transfer services, and issuers of traveler's checks or money orders. MSBs are subject to specific AML regulations.

Mutual Evaluation Report

An assessment of a country's AML/CTF system against the FATF Recommendations, examining both technical compliance with the standards and the effectiveness of implementation. These reports are published by FATF or regional bodies.

N

Named Person

An individual explicitly identified on a sanctions list, resulting in restrictions on their financial and economic activities. Financial institutions must block transactions and freeze assets belonging to named persons.

National Risk Assessment (NRA)

A country-level evaluation of money laundering and terrorist financing risks, analyzing threats and vulnerabilities to identify priority areas for improvement in the national AML/CTF framework.

Non-face-to-face Verification

Identity verification processes used when customers cannot be physically present, including video identification, digital ID verification, or other remote onboarding techniques that comply with AML regulations.

O

Office of Foreign Assets Control (OFAC)

A U.S. Treasury Department agency that administers and enforces economic sanctions programs against countries, entities, and individuals. OFAC maintains various sanctions lists, including the Specially Designated Nationals (SDN) List.

Ongoing Monitoring

The continuous review of customer relationships and transactions to ensure consistency with the institution's knowledge of the customer, their business, risk profile, and source of funds, helping to identify unusual or suspicious activities.

Ownership Threshold

The minimum percentage of ownership in a legal entity that triggers beneficial ownership identification requirements. Commonly set at 25%, though some jurisdictions or institutions may use lower thresholds for higher-risk scenarios.

P

Parallel Currency Transaction

Multiple cash transactions conducted on the same day that are intentionally structured to avoid currency transaction reporting requirements, often by using different branches, tellers, or nominees.

Periodic Review

Scheduled reassessment of customer information, risk ratings, and transaction activity to ensure continued compliance with KYC requirements and to identify any changes that might affect the customer's risk profile.

Placement

The initial stage of money laundering where illegal proceeds are introduced into the financial system, often through deposits, purchases, or currency exchanges.

Politically Exposed Person (PEP)

An individual who holds or has held a prominent public position that could be abused for money laundering or corruption purposes. PEPs include senior politicians, government officials, judicial or military officials, senior executives of state-owned corporations, and their family members and close associates.

Primary Money Laundering Concern

A designation applied to financial institutions, jurisdictions, or classes of transactions that present a high risk of money laundering, potentially leading to enhanced regulatory measures or restrictions on financial interactions.

Proliferation Financing

The provision of funds or financial services used for the manufacture, acquisition, development, export, or transfer of nuclear, chemical, or biological weapons in violation of international obligations. Countering proliferation financing is a key component of sanctions compliance.

R

Red Flags

Indicators or warning signs that may signal potential money laundering, terrorist financing, or sanctions evasion activities. These can include unusual transaction patterns, inconsistent customer information, or connections to high-risk jurisdictions.

Regtech

Technology designed to help financial institutions meet regulatory requirements more efficiently and effectively. In AML and sanctions compliance, regtech solutions may include automated screening, transaction monitoring, risk assessment, and reporting tools.

Remote Onboarding

The process of establishing a new customer relationship digitally without in-person interaction. AML-compliant remote onboarding must include robust identity verification methods to mitigate the increased risks of fraud and impersonation.

Risk-Based Approach (RBA)

A strategy where financial institutions allocate their compliance resources according to the level of risk, applying enhanced measures where risks are higher and simplified measures where risks are lower. This approach allows for more efficient resource allocation while focusing on higher-risk areas.

Risk Assessment

The systematic evaluation of money laundering, terrorist financing, and sanctions risks faced by a financial institution, considering factors such as customer types, geographic locations, products/services, and delivery channels.

S

Sanctions

Economic or political measures imposed by countries or international organizations against specific countries, entities, or individuals to achieve foreign policy or national security objectives. Sanctions may include asset freezes, trade restrictions, travel bans, or arms embargoes.

Sanctions Compliance Program (SCP)

A framework of policies, procedures, and controls designed to ensure adherence to applicable sanctions regulations. An effective SCP typically includes management commitment, risk assessment, internal controls, testing, and training.

Sanctions Screening

The process of checking customers, transaction parties, and other relevant entities against sanctions lists to identify and block prohibited business relationships or transactions with sanctioned parties.

Sectoral Sanctions

Restrictions targeting specific sectors of a country's economy (e.g., financial, energy, defense) rather than comprehensive measures against the entire country. Sectoral sanctions prohibit certain types of transactions while allowing others.

Shell Bank

A bank that has no physical presence in the country where it is incorporated and is not affiliated with a regulated financial group. Financial institutions are generally prohibited from maintaining correspondent relationships with shell banks due to high money laundering risks.

Simplified Due Diligence (SDD)

Reduced customer verification measures that may be applied where money laundering or terrorist financing risks are lower. SDD must still provide adequate verification of customer identity but can involve less rigorous documentation requirements.

Specially Designated Nationals (SDN) List

A list maintained by the U.S. Office of Foreign Assets Control (OFAC) identifying individuals and entities with whom U.S. persons are generally prohibited from dealing. Assets belonging to SDNs must be blocked when under U.S. jurisdiction.

Smurfing (Structuring)

The practice of breaking down large financial transactions into smaller amounts to avoid triggering reporting thresholds or regulatory scrutiny. This is a common money laundering technique and is generally illegal in most jurisdictions.

Source of Funds

The origin of the money used in a business relationship or transaction (e.g., employment income, inheritance, business profits). Verifying the source of funds is a key component of customer due diligence to prevent money laundering.

Source of Wealth

The origin of a customer's total assets (how they acquired their overall wealth). Understanding source of wealth is important for high-risk customers, particularly PEPs, to ensure their wealth was accumulated legitimately.

Strict Liability

A legal standard in some sanctions regimes where violations can result in penalties regardless of whether the person knew or intended to violate the sanctions. This underscores the importance of comprehensive compliance programs.

Suspicious Activity Report (SAR)

A document filed by financial institutions with regulatory authorities to report suspected money laundering, terrorist financing, or other financial crimes. SARs are a critical source of information for financial intelligence units and law enforcement.

T

Terrorist Financing

The provision or collection of funds with the intention they should be used to carry out terrorist acts or support terrorist organizations. Unlike money laundering, terrorist financing can involve legally obtained funds directed toward illegal activities.

Third-Party Intermediaries

Individuals or entities acting on behalf of another party in financial transactions. These intermediaries present specific AML risks as they may obscure the identity of the ultimate beneficial owner or the source of funds.

Tipping Off

The act of disclosing information to a customer or third party that could prejudice an ongoing or potential investigation into money laundering or terrorist financing. Tipping off is prohibited in most jurisdictions and can undermine law enforcement efforts.

Trade-Based Money Laundering (TBML)

The process of disguising the proceeds of crime and moving value through trade transactions to legitimize their illegal origins. TBML techniques include over/under-invoicing, multiple invoicing, phantom shipments, and misrepresenting quantity or quality of goods.

Transaction Monitoring System (TMS)

Automated software that reviews customer transactions to identify unusual or suspicious patterns that may indicate money laundering, terrorist financing, or sanctions evasion activities. These systems typically use rule-based algorithms and risk-scoring methodologies.

U

Ultimate Beneficial Owner (UBO)

The natural person(s) who ultimately owns or controls a legal entity or arrangement. Identifying UBOs is a critical component of customer due diligence to prevent the misuse of legal entities for money laundering or terrorist financing.

UN Sanctions

Measures imposed by the United Nations Security Council against countries, entities, or individuals. UN sanctions are binding on all member states and typically target threats to international peace and security, including terrorism and weapons proliferation.

Unusual Transaction

Activities that deviate from a customer's expected behavior or normal transaction patterns. Unusual transactions may warrant additional scrutiny to determine whether they are suspicious and should be reported to authorities.

V

Virtual Asset Service Provider (VASP)

Entities that exchange between virtual assets and fiat currencies, between virtual assets, transfer virtual assets, or provide financial services related to virtual assets. VASPs are increasingly subject to AML/CTF regulations in many jurisdictions.

Verification

The process of confirming the identity information provided by a customer through reliable and independent sources, such as government-issued identification documents, utility bills, or electronic database checks.

W

Watchlist

A database of individuals, entities, and countries subject to sanctions, restrictions, or enhanced monitoring. Financial institutions screen customers and transactions against these lists to identify prohibited relationships or activities.

Wildlife Trafficking Finance

The financial flows associated with the illegal trade in protected wildlife species. AML frameworks are increasingly being applied to combat wildlife trafficking as part of broader efforts against environmental crimes.

AML & Sanctions Compliance Glossary

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