AML Glossary of Terms

Caribbean Financial Action Task Force (CFATF)

A FATF-style regional body comprising Caribbean nations, including Aruba, the Bahamas, the British Virgin Islands, the Cayman Islands and Jamaica.

Eastern and Southern African Anti-Money Laundering Group (ESAAMLG)

A FATF-style regional body comprising countries from the Eastern region of Africa down to the Southern tip of Africa, established in 1999.

Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG)

A FATF-style regional body formed in October 2004 in Moscow.

Asia/Pacific Group on Money Laundering (APG)

A Financial Action Task Force (FATF)-style regional body consisting of jurisdictions in the Asia/Pacific Region.

Custodian

A bank, financial institution, or other entity that is responsible for managing, administering, or safekeeping assets for other persons or institutions. A custodian holds assets to minimize risk of theft or loss, and does not actively trade or handle the assets.

Debit Card

A card that permits an account holder to draw funds from an existing account. Debit cards are used to pay obligations or make purchases. Debit cards can be used in a variety of places, including on the internet. Debit cards often allow for movement of cash via cash-back transactions or withdrawals at ATMs.

Cash Collateralized Loans

A cash collateralized loan has cash deposits as the loan's collateral. The cash deposits can sometimes reside in another jurisdiction.

Bill Stuffing

A casino customer goes to various slot machines putting cash in the bill acceptors and collects cash-out tickets with nominal gaming activity, then cashes out at the casino cage or asks for a check.

Anti-Money Laundering International Database (AMLID)

A compendium of analyses of anti-money laundering laws and regulations, including two general classes of money laundering control measures—domestic laws and international cooperation—as well as information on national contacts and authorities. A secure, multilingual database, AMLID is an important reference tool for law enforcement officers involved in cross-jurisdictional work.

Arrest Warrant

A court order directing a law enforcement officer to seize and detain a particular person and require them to provide an answer to a complaint or otherwise appear in court.

Back-to-Back Letters of Credit

A form of financing in which Bank A issues a letter of credit as collateral to Bank B in order to issue a separate letter of credit to the beneficiary. This often happens when the underlying agreement between the applicant and beneficiary contains restrictions about the credit quality of the bank that is issuing the letter of credit, the location of the issuing bank, or other stipulations that prevent the applicant's bank from issuing a direct letter of credit to the beneficiary. A sanctions evader can use a back-to-back letter of credit to remove the name of a sanctioned bank from the documentation.

Denied Persons List (DPL)

A list, published by BIS, of individuals, entities, or companies that have been denied export privileges, most commonly because they have violated the Export Administration Act. American companies and individuals are forbidden from entering any export dealings with any person or entity on the DPL.

Consolidation of Goods

A method of sanctions evasion in which a person or organization either groups small shipments into one larger shipment or mixes restricted items in with other goods and does not declare those restricted items in shipping documentation.

Credit Cards

A plastic card with a credit limit used to purchase goods and services and to obtain cash advances on credit. The cardholder is subsequently billed by the issuer for repayment of the credit extended. Credit cards may be used to launder money when payments of the amounts owed on the card are made with criminal money.

Dual Control

A principle whereby at least two employees are required in order to complete an internal control task. The purpose of dual control is to protect against internal fraud and prevent internal control failure at a single point. Also referred to as "maker-checker" or "four-eyes."

Asset Protection

A process that includes reorganizing how assets are held so as to make them less vulnerable should a claim be made against a person. Asset protection is also a term used by tax planners for measures taken to protect assets from taxation in other jurisdictions.

Bank Secrecy Act (BSA) Compliance Program

A program that U.S.-based financial institutions—as defined by the Bank Secrecy Act—are required to establish and implement in order to control money laundering and related financial crimes. The program's components include at a minimum: the development of internal policies, procedures and controls; the designation of a compliance officer; ongoing employee training; and an independent audit function to test the program.

Boycott

A punitive withdrawal from business or social engagement with a government, organization, or individual as a sign of protest.

Currency Transaction Report (CTR)

A report that documents a physical currency transaction that exceeds a certain monetary threshold. A CTR can also be filed on multiple currency transactions that occur in one day exceed the required reporting amount. Some countries, including the U.S., have requirements addressing when CTRs should be filed with government authorities.

Bill of Lading

A required document that a carrier issues as a receipt of cargo. It includes the type and quantity of cargo, as well as the destination.

Alert

A review based on underlying red flags that requires analyst attention. Within know-your customer procedures, alerts are potential discrepancies that are flagged, either manually or through an automated system, based on defined red flags and underlying typologies. Within sanctions screening, an alert is a hit, or multiple hits, of an internal record checked against sanctions screening lists. If they cannot be resolved easily as false positives, alerts generally result in investigations.

Bureau of Industry and Security (BIS)

A section of the US Department of Commerce responsible for ensuring that trade sanctions are properly understood, implemented, and enforced in the United States. Among other tasks, the BIS regulates the import and export of sensitive, dual-use, and controlled goods and materials. The mission statement of the BIS is: "Advance US national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system and promoting continued US strategic technology leadership."

Customer Due Diligence (CDD)

A set of internal controls that enable a financial institution to establish a customer's identity, predict with relative certainty the types of transactions in which the customer is likely to engage, and assess the extent to which the customer exposes it to a range of risks (i.e., money laundering and sanctions). Organizations also need to know their customers through CDD to guard against fraud and comply with the requirements of relevant legislation and regulation. Effective CDD programs also help to protect banks' reputation and the integrity of banking systems by reducing the likelihood of banks becoming a vehicle for or a victim of financial crime. As such, they constitute an essential part of sound risk management.

Bill of Exchange

A shipping document that shows the means by which exporters are paid for the goods that are to be shipped, including information such as the names of the exporter, importer, issuing bank, and the bank where the funds will be drawn.

End-User Certificate

A shipping document used to certify that a buyer is the final recipient of the materials and is not planning to transfer the materials to another party.

Autonomous Sanctions

A single entity, whether a government or a coalition of governments, such as the EU, acting to implement and enforce a sanctions regime. See Unilateral Sanctions.

Asset Protection Trusts (APTs)

A special form of irrevocable trust usually created (i.e., settled) offshore for the principal purposes of preserving and protecting part of one's wealth from creditors. Title to the asset is transferred to a person named the trustee. APTs are generally used for asset protection and are usually tax neutral. Their ultimate function is to provide for the beneficiaries. Some proponents advertise APTs as allowing foreign trustees to ignore U.S. court orders and to simply transfer the trust to another jurisdiction in response to legal action threatening the trust's assets.

Batch Processing

A type of data processing and data communications transmission in which related transactions are grouped together and transmitted for processing, usually by the same computer and under the same application.

Affidavit

A written statement given under oath before an officer of the court, notary public, or other authorized person. It is commonly used as the factual basis for an application for a search, arrest or seizure warrant.

Casa de Cambio

Also called a "bureau de change" or an "exchange office," a casa de cambio offers a range of services that are attractive to money launderers: currency exchange and consolidation of small denomination bank notes into larger ones; exchange of financial instruments such as travelers checks, money orders and personal checks; and telegraphic transfer facilities.

Benami Account

Also called a nominee account. Held by one person or entity on behalf of another or others, Benami accounts are associated with the hawala underground banking system of the Indian subcontinent. A person in one jurisdiction seeking to move funds through a hawaladar to another jurisdiction may use a Benami account or Benami transaction to disguise his/her true identity or the identity of the recipient of the funds.

Concentration Account

Also called an "omnibus account." Held by a financial institution in its name, a clearing account is used primarily for internal administrative or bank-to-bank transactions in which funds are transmitted and commingled without personally identifying the originators.

Commission Rogatoire

Also known as letters rogatory, a commission rogatoire is a written request for legal or judicial assistance sent by the central authority of one country to the central authority of another when seeking evidence from the foreign jurisdiction. The letter typically specifies the nature of the request, the relevant criminal charges in the requesting country, the legal provision under which the request is made, and the information sought.

Compliance

An action or state of adhering to a set of legislation, regulations, rules, policy, specifications, or understood norms.

Automated Clearing House (ACH)

An electronic banking network that processes large volumes of both credit and debit transactions that originate in batches. ACH credit transfers include direct deposit payroll payments and payments to contractors and vendors. ACH debit transfers include consumer payments on insurance premiums, mortgage loans and other kinds of expenses.

Automated Teller Machine (ATM)

An electronic banking outlet that allows customers to complete basic transactions without the assistance of a bank employee. ATMs generally dispense cash, allow check and cash deposits and transfers to be made, as well as balance inquiries.

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 advisories and other warnings that list entities that did not merit being placed on the SDN list, but are still considered high risk. The FATF blacklist is a list of countries that FATF has determined are noncooperative in the international fight against money laundering and terrorist financing.

Embargo

An official government action to ban trade or commercial activity with a specific country, sometimes involving a specific trade product (e.g., a grain embargo or an oil embargo).

Cash-Intensive Business

Any business in which customers usually pay with cash for the products or services provided, such as restaurants, pizza delivery services, taxi firms, coin-operated machines or car washes. Some money launderers run or use cash-based businesses to commingle illegally obtained funds with cash actually generated by the business.

Criminal Proceeds

Any property derived from or obtained, directly or indirectly, through the commission of a crime.

Asset

Anything an individual or legal entity owns that has a monetary value. Fixed assets are those items, such as buildings and equipment, that will be used over a period of time; current assets include raw materials, cash, and any money other parties owe to the individual or legal entity.

Currency

Banknotes and coins that are in circulation as a medium of exchange.

CICAD (Comisión Interamericana para el Control del Abuso de Drogas or Inter-American Drug Abuse Control Commission)

CICAD has issued several sets of anti-money laundering recommendations, including amendments to the Organization of American States (OAS) Model Regulations issued in 1992. See Organization of American States-Inter-American Drug Abuse Control Commission

Cashier's Check

Common monetary instrument often purchased with cash. Can be used for laundering purposes, cashier's checks provide an instrument drawn on a financial institution.

Dilution of Sanctioned Ownership

Complex ownership structures involving multiple entities in different jurisdictions can reduce the percentage of a business that is owned by a sanctioned party so that it falls below thresholds which would prevent trade. This dilution allows a sanctioned country or entity to avoid the restrictions the sanctions create.

Concentration Risk

Concentration risk primarily applies to the asset side of the balance sheet. As a common practice, supervisory authorities not only require financial institutions to have information systems to identify credit concentrations, but also set limits to restrict bank exposure to single borrowers or groups of related borrowers. On the liability side, concentration risk is associated with funding risk, especially the risk of early and sudden withdrawal of funds by large depositors that could harm an institution's liquidity.

Electronic Money (E-Money)

Electronic cash represents a series of monetary value units in some electronic format, such as being stored electronically online, on the hard drive of a device, or on the microchip of a plastic card.

Domestic Transfer

Electronic funds transfer in which the originator and beneficiary institutions are located in the same jurisdiction. A domestic transfer therefore refers to any chain of wire transfers that takes place entirely within the borders of a single jurisdiction, even though the actual system used to send the wire transfer may be located in another jurisdiction or online.

Designated Non-Financial Businesses and Professions

FATF recommends certain standards apply to non-financial businesses and professions, including specifically: 1) Casinos (including Internet casinos); 2) Real estate agents; 3) Dealers in precious metals and precious stones; 4) Lawyers, notaries, other independent legal professionals and accountants. (Note that this refers to those who prepare or carry out certain duties on behalf of clients); 5) Trust and company service providers who prepare or carry out certain duties on behalf of their clients.

European Union Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing

First adopted by the European Union in June 1991 and updated in 1997, 2005, 2015, and 2018, the directive requires EU member states to prohibit and manage the risks of money laundering and terrorist financing. The directive applies to a broad spectrum of entities beyond just financial institutions, including accountants, notaries, trust companies, estate agents, tax advisors, art dealers, virtual currency exchanges, and gaming services. Member states must implement directive standards in several areas, especially related to customer due diligence, emerging risks, and consequences for failure to comply.

Decision Tree

Five-question process for determining which alerts can reasonably be discounted, and which others warrant an investigation.

Collection Accounts

Immigrants from foreign countries deposit many small amounts of currency into one account where they reside, and the collected sum is transferred to an account in their home country without documentation of the sources of the funds. Certain ethnic groups from Asia or Africa may use collection accounts to launder money.

Enhanced Due Diligence (EDD)

In conjunction with Customer Due Diligence, EDD calls for additional measures aimed at identifying and mitigating the risk posed by higher risk customers. It requires developing a more thorough knowledge of the nature of the customer, the customer's business and understanding of the transactions in the account than a standard or lower risk customer. A financial institution should ensure account profiles are current and monitoring should be risk-based.

Bearer Form

In relation to a certificate, share transfer or other document, a bearer form enables a designated investment or deposit to be sold, transferred, surrendered or addressed to a bearer without the need to obtain further written instructions.

Confiscation

Includes forfeiture where applicable, and means the permanent deprivation of funds or other assets by order of a competent authority or a court. Confiscation or forfeiture takes place through a judicial or administrative procedure that transfers the ownership of specified funds or other assets to the state. Upon transfer, the person(s) or entity (ies) that held an interest in the specified funds or other assets at the time of the confiscation or forfeiture lose all rights, in principle, to the confiscated or forfeited assets.

Bearer Negotiable Instruments

Includes monetary instruments in bearer form such as: negotiable instruments (including checks, promissory notes and money orders) that are either in bearer form, are endorsed without restriction, are made out to a payee, or are otherwise in such form that title thereto passes upon delivery.

Confidentiality

Keeping certain facts, data and information out of public or unauthorized view. In most jurisdictions, confidentiality is required when filing suspicious transaction or activity reports — the filing institution's employees cannot notify a customer that a report has been filed. In another context, a breach of confidentiality can occur when an institution discloses client information to enforcement agencies or a financial intelligence unit in violation of the jurisdiction's bank secrecy laws.

Bearer Share

Negotiable instruments that accord ownership in a corporation to the person who is in physical possession of the bearer share certificate, a certificate made out to "Bearer" and not in the name of an individual or organization.

Cardholder

Person to whom a financial transaction card is issued, or an additional person authorized to use the card.

Bank Secrecy

Refers to laws and regulations in countries that prohibit banks from disclosing information about an account—or even revealing its existence—without the consent of the account holder. Impedes the flow of information across national borders among financial institutions and their supervisors. One of FATF's 40 Recommendations states that countries should ensure that secrecy laws do not inhibit the implementation of the FATF Recommendations.

Comprehensive Sanctions

Sanctions that prohibit all transactions and activity with a sanctioned country by the sanctioning country except in rare, specific instances.

Asset Forfeiture

Similar to asset seizure, asset forfeiture is an important tool to help law enforcement agencies defund organized crime and prevent the commission of new crimes. In civil asset forfeiture, assets unrelated to the commission of a crime can be taken from the individual accused of committing a crime.

Automated Screening Tool (AST)

Software systems used by large financial institutions to facilitate the screening process, as opposed to manual screening. In general, ASTs are designed to screen against sanctions lists. ASTs generate hits against sanctions lists that may be consolidated into alerts based on, for example, a customer record. For one customer record there may be multiple hits against sanctions lists that are consolidated under one alert.

Cash Deposits

Sums of currency deposited in one or more accounts at a financial institution. Vulnerable to money laundering in the "placement phase," as criminals move their cash into the non-cash economy by making deposits into accounts at financial institutions.

Basel Committee on Banking Supervision (Basel Committee)

The Basel Committee was established by the G-10's central bank of governors in 1974 to promote sound supervisory standards worldwide. Its secretariat is appointed by the Bank for International Settlements in Basel, Switzerland. It has issued, among others, papers on customer due diligence for banks, consolidated KYC risk management, transparency in payment messages, due diligence and transparency regarding cover payment messages related to cross-border wire transfers, and sharing of financial records among jurisdictions in connection with the fight against terrorist financing. See www.bis.org/bcbs

Black Market Peso Exchange (BMPE)

The Black Market Peso Exchange (BMPE) is an example of a complex method of trade-based money laundering. The BMPE originally was driven by Colombia's restrictive policies on currency exchange. To circumvent those policies, Colombian businesses bypassed the government levies by dealing with peso brokers that dealt in the black market or parallel financial market. Colombian drug traffickers took advantage of this method to receive Colombian pesos in Colombia in exchange for U.S. drug dollars located in the U.S.

Egmont Group of Financial Intelligence Units

The Egmont Group of consists of a numerous national of financial intelligence units (FIUs) that meet regularly to find ways to promote the development of FIUs and to cooperate, especially in the area of information exchange, training and the sharing of expertise. The goal of the group is to provide a forum for FIUs to improve cooperation in the fight against money laundering and the financing of terrorism, and to foster the implementation of domestic programs in this field.

Custody

The act of or authority to safeguard and administer clients' investments or assets.

Blockade

The deployment of military resources by land, air, or sea, by a country or coalition to prevent the movement of goods or people into or out of a targeted country.

Asset Flight

The illegal practice of moving assets from one jurisdiction to another for the purpose of avoiding fines, confiscation, or other penalties.

Asset Mingling

The illegal practice of purchasing assets, such as real estate properties, using a blend of legal and illegal funds as a means of making matches more complicated.

Currency Smuggling

The illicit movement of large quantities of cash across borders, often into countries without strict banking secrecy, poor exchange controls or poor anti-money laundering legislation.

Economic Sanctions

The imposition of trade or financial restrictions and penalties by one or more countries against another country, entity, or individual with the purpose of changing a behavior. Economic sanctions can include actions such as tariffs, trade restrictions, and financial limitations.

Due Diligence

The investigation and examination of a company or group, conducted in the process of preparing for a business transaction. Due diligence should be completed before entering into any financial transaction or business relationship.

Control Effectiveness

The measurement of the quality of controls used to mitigate a business' inherent risks (also referred to as mitigation measures or quality of risk management). These controls should be both appropriate and effective to mitigate the identified sanctions risks. That is, they must be proportionate. Where there is an elevated risk, the controls should be more comprehensive to mitigate that risk.

European Union (EU)

The modern EU was founded in the Treaty of Maastricht on European Union, signed in 1992 and effective in 1993. The EU is a politico-economic union of member states located primarily in Europe. Member states have set up three common institutions (the European Parliament, the European Commission, and the Council of the European Union) to which they delegate part of their sovereignty so that decisions on specific matters of collective interest can be made democratically at the European level. As a result, people, goods, services and money flow freely through the EU.

Electronic Funds Transfer (EFT)

The movement of funds between financial institutions electronically. The two most common electronic funds transfer systems in the U.S. are FedWire and CHIPS. (SWIFT is often referred to as the third EFT system, but in reality it is an international messaging system that carries instructions for wire transfers between institutions, rather than the wire transfer system itself).

Counterparty

The other side of a transaction—the seller where one's customer is the buyer, or vice versa.

Asset Blocking

The practice of removing an individual or legal entity's access to assets during or as the result of an investigation into a sanctions violation. Asset blocking is also referred to as freezing an asset.

Asset Confiscation

The practice of taking ownership of an individual or legal entity's assets during or as the result of an investigation into a sanctions violation.

Dealing in Funds

The practice, which must be avoided, of a financial institution moving, transferring, altering, using, or accessing funds it has frozen. Dealing in funds also includes interacting with funds in any way that would result in any change to their volume, amount, location, ownership, possession, character, or destination, or any change that would enable the funds to be used, including portfolio management. Asset-freezing restrictions require that the frozen assets must be segregated.

Asset Freezing

The prevention of a person targeted by sanctions from accessing or using his or her bank account or other financial assets. Asset freezing is also referred to as blocking an asset.

Bank Secrecy Act (BSA)

The primary U.S. anti-money laundering regulatory statute (Title 31, U.S. Code Sections 5311- 5355) enacted in 1970 and most notably amended by the USA PATRIOT Act in 2001. Among other measures, it imposes money laundering controls on financial institutions and many other businesses, including the requirement to report and to keep records of various financial transactions.

Customer Relationship

The primary defense against sanctions evasion. A customer relationship encompasses any and all contact with a prospective customer. This includes dialogue that takes place during onboarding and conversations that occur as the customer uses the financial institution's products and services. People in the financial institution's management, marketing, operations, and compliance departments may take part in this communication.

Dollar Clearing

The process of converting clients' payments from a foreign currency into US dollars.

Delisting

The process of removing a sanctions target from a list after the restrictions imposed on them have been removed.

Batch Screening

The process of screening a firm's entire customer base and other associated entities, such as vendors, with ASTs on a periodic basis.

Dual-Use Goods

The products or technology that can be used for either military or civilian purposes. Most often, in diplomatic and political platforms, these are goods that can serve multiple uses at one time. An example is missile technology, which can be used for both scientific research and military action.

Correspondent Banking

The provision of banking services by one bank (the "correspondent bank") to another bank (the "respondent bank"). Large international banks typically act as correspondents for hundreds of other banks around the world. Respondent banks may be provided with a wide range of services, including cash management (e.g., interest-bearing accounts in a variety of currencies), international wire transfers of funds, check clearing services, payable-through accounts and foreign exchange services.

Anti-Money Laundering Program

The system designed to assist institutions in their fight against money laundering and terrorist financing. In many jurisdictions, government regulations require financial institutions, including banks, securities dealers and money services businesses, to establish such programs. At a minimum, the anti-money laundering program should include: 1. Written internal policies, procedures and controls; 2. A designated AML compliance officer; 3. On-going employee training; and 4. Independent review to test the program

Beneficial Owner

The term beneficial owner has two different definitions depending on the context: 1) The natural person who ultimately owns or controls an account through which a transaction is being conducted; 2) The natural persons who have significant ownership of, as well as those who exercise ultimate effective control over, a legal person or arrangement.

Beneficiary

The term beneficiary has two different definitions depending on the context: 1) The person (natural or legal) who benefits from a transaction, such as the party receiving the proceeds of a wire, a payout on an insurance policy; 2) In the trust context, all trusts (other than charitable or statutory-permitted non- charitable trusts) must have beneficiaries, which may include the settlor. Trusts must also include a maximum time frame, known as the "perpetuity period," which normally extends up to 100 years. While trusts must always have some ultimately ascertainable beneficiary, they may have no defined existing beneficiaries.

Embezzlement

The unlawful act of taking or misappropriating funds entrusted by an employer or organization for one's own use.

Delivery Channels

The ways in which products and services are provided by a firm to its customer (also referred to as servicing methods and distribution channels). For example, reliance upon brokers, intermediaries, and other independent third parties poses a higher sanctions risk than when a business interacts directly with customers and suppliers. The absence of face-to-face onboarding presents a higher risk than when customers are onboarded directly or through a domestic affiliate. Other delivery channels without face-to-face onboarding, such as internet banking and money services businesses, are also considered to pose a higher inherent sanctions risk. A delivery channel that processes payments quickly is also a higher risk.

Database, Third-Party

Third-party databases can be a good source of both primary and secondary information sources. Examples of third-party databases include rating agencies, stock exchanges, and legal databases. The information provided by third-party databases can be helpful but should never stand on its own.

Designated Categories of Offense

Those crimes considered by FATF to be money-laundering predicate offenses. Each country can separately decide how it will define specific offenses and their elements under its own domestic laws. Many nations do not specify which crimes can serve as predicates for laundering prosecutions and merely state that all serious felonies may be predicates.

Corporate Vehicles

Types of legal entities that may be subject to misuse such as private limited companies and public limited companies whose shares are not traded on a stock exchange, trusts, non-profit organizations, limited partnerships and limited liability partnerships, and private investment companies. Occasionally, it is difficult to identify the persons who are the ultimate beneficial owners and controllers of corporate vehicles, which makes the vehicles vulnerable to money laundering.

Alternative Remittance System (ARS)

Underground banking or Informal Value Transfer Systems (IVTS). Often associated with ethnic groups from the Middle East, Africa or Asia, and commonly involves the transfer of values among countries outside of the formal banking system. The remittance entity can be an ordinary shop selling goods that has an arrangement with a correspondent business in another country. There is usually no physical movement of currency and a lack of formality with regard to verification and record- keeping. The money transfer takes place by coded information that is passed through chits, couriers, letters, faxes, emails, text messages, or online chat systems, followed by some form of telecommunications confirmations.

Cross Border

Used in the context of activities that involve at least two countries, such as wiring money from one country to another or taking currency across a border.

Bank Draft

Vulnerable to money laundering because it represents a reputable international monetary instrument drawn on a reputable institution, and is often made payable—in cash— upon presentation and at the issuing institution's account in another country.