Your comprehensive guide to Anti-Money Laundering terminology
A set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. AML frameworks require financial institutions and other regulated entities to monitor customer transactions and report suspicious activity.
A comprehensive framework implemented by financial institutions to detect and prevent money laundering activities. It typically includes customer due diligence, transaction monitoring, suspicious activity reporting, and employee training.
Negative news or information about an individual or entity found in media sources that may indicate involvement in financial crime, corruption, or other illegal activities. Screening for adverse media is a key component of customer due diligence.
A bank account or financial product where the true identity of the account holder is not known or cannot be verified. Such accounts are prohibited under international AML standards.
The natural person who ultimately owns or controls a legal entity or arrangement, or on whose behalf a transaction is conducted. Financial institutions must identify and verify beneficial owners as part of their customer due diligence obligations.
U.S. legislation requiring financial institutions to assist government agencies in detecting and preventing money laundering. The BSA requires institutions to keep records of cash purchases and file reports of suspicious activity.
A list of individuals, entities, or countries that are subject to sanctions, embargoes, or other restrictions. Financial institutions must screen customers and transactions against blacklists to ensure compliance with sanctions regulations.
The process of collecting and verifying information about customers to assess their risk profile and ensure they are who they claim to be. CDD is a fundamental requirement of AML compliance and includes identity verification, risk assessment, and ongoing monitoring.
Measures and regulations designed to detect and prevent the funding of terrorist activities. CFT requirements are often implemented alongside AML controls and require institutions to identify and report potential terrorism financing.
A banking relationship where one bank provides services on behalf of another bank, typically in different jurisdictions. Correspondent banking relationships pose heightened money laundering risks and require enhanced due diligence.
A report that financial institutions must file with authorities for cash transactions exceeding a specified threshold, typically $10,000 in the United States. CTRs help authorities track large cash movements that may indicate money laundering.
The practice of financial institutions terminating or restricting business relationships with categories of customers perceived to pose higher money laundering or terrorism financing risks. While intended to reduce risk, excessive de-risking can have negative impacts on financial inclusion.
Non-financial sector businesses that are subject to AML/CFT obligations, including casinos, real estate agents, dealers in precious metals and stones, lawyers, notaries, and trust and company service providers.
The investigation and verification process conducted by financial institutions to know their customers and understand the nature of their business relationships. It includes collecting identification documents, verifying information, and assessing risk levels.
Additional customer due diligence measures applied to higher-risk customers, transactions, or business relationships. EDD may include obtaining additional information about the customer, the source of funds, the purpose of transactions, and implementing more frequent monitoring.
An international body of Financial Intelligence Units (FIUs) that promotes cooperation and information exchange among FIUs to combat money laundering and terrorist financing. The group provides a platform for secure communication between member FIUs.
An inter-governmental body established to set international standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system.
A central national agency responsible for receiving, analyzing, and disseminating suspicious transaction reports and other information related to money laundering, terrorist financing, and associated crimes to relevant law enforcement authorities.
The Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions to combat money laundering, terrorist financing, and other financial crimes.
A legitimate-appearing business entity created for the primary purpose of facilitating money laundering or other illegal activities. Front companies may be used to disguise the true ownership or source of funds.
Professionals who facilitate business transactions and can control access to the financial system, such as lawyers, accountants, and trust and company service providers. Gatekeepers are often subject to AML obligations due to their role in enabling financial transactions.
A term sometimes used to refer to lists of known or suspected organized crime figures. Financial institutions may use such lists as part of their risk assessment and screening processes.
The final stage of the money laundering process where laundered funds are reintroduced into the legitimate economy, making them appear as legitimate proceeds. This may involve purchasing assets, investing in businesses, or other financial transactions.
The process of confirming that a person is who they claim to be by checking government-issued identification documents and other reliable sources. Identity verification is a critical component of customer due diligence.
The process of verifying the identity of clients and assessing their suitability and potential risks for the business relationship. KYC procedures are a critical element of AML compliance and include collecting identification information, verifying documents, and understanding the nature of customer activities.
Similar to KYC but focused on verifying the legitimacy and ownership structure of business entities. KYB includes verifying business registration documents, identifying beneficial owners, and understanding the nature of the business operations.
The second stage of money laundering where criminals engage in a series of complex financial transactions to distance illegal proceeds from their source. This may involve multiple transfers between accounts, currency exchanges, or purchasing and reselling assets.
The automated process of comparing customer names and transaction details against various watchlists, sanctions lists, and PEP databases to identify potential matches that require further investigation.
The process of concealing the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses. Money laundering usually involves three stages: placement, layering, and integration.
A designated individual within an organization who is responsible for overseeing and managing the firm's anti-money laundering program, receiving internal suspicious activity reports, and filing reports with the FIU.
Businesses that provide money transmission services, currency exchange, check cashing, or money orders. MSBs are considered high-risk for money laundering and are subject to specific AML regulations.
An individual who holds or has held a prominent public function, 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. PEPs and their close associates are considered higher risk for money laundering due to their position and influence.
The first stage of money laundering where illegal proceeds are introduced into the financial system. This might involve depositing cash into bank accounts, purchasing financial instruments, or acquiring high-value goods.
The underlying crime that generates proceeds which are then laundered. Common predicate offenses include drug trafficking, fraud, corruption, tax evasion, and human trafficking.
A methodology where institutions assess the money laundering and terrorist financing risks associated with their customers, products, services, and geographic locations, and apply AML controls proportionate to those risks. Higher-risk relationships receive enhanced scrutiny and controls.
An indicator or warning sign of potentially suspicious activity that may warrant further investigation. Red flags might include unusual transaction patterns, reluctance to provide information, or transactions inconsistent with a customer's profile.
Technology solutions designed to help financial institutions comply with regulatory requirements more efficiently and effectively. In AML, RegTech includes transaction monitoring systems, screening tools, and automated reporting solutions.
A document that financial institutions must file with their national FIU when they detect a transaction or pattern of activity that may indicate money laundering, terrorist financing, or other criminal activity. SARs are a critical tool for law enforcement investigations.
The process of checking customers, transactions, and business partners against government-issued sanctions lists to ensure compliance with international sanctions regimes. Institutions must block or reject transactions involving sanctioned parties.
A money laundering technique where large amounts of cash are broken down into smaller, less suspicious amounts that fall below reporting thresholds, and then deposited into multiple accounts or locations. Also known as structuring.
A company without active business operations or significant assets, often used to disguise ownership or facilitate money laundering. Shell companies may be legitimate for certain business purposes but require enhanced due diligence due to their higher risk profile.
Information about the origin of the particular funds or assets used in a business relationship or transaction. Understanding the source of funds helps institutions assess whether funds may be linked to criminal activity.
Information about how a customer acquired their total net worth. This is particularly important for high-risk customers such as PEPs, where understanding how wealth was accumulated helps assess corruption or other financial crime risks.
The ongoing process of reviewing customer transactions to identify unusual patterns or activities that may indicate money laundering or other financial crimes. Automated systems typically flag transactions that meet certain criteria for manual review.
The provision or collection of funds with the intention that they be used to support terrorist acts or terrorist organizations. Unlike money laundering, terrorist financing may involve funds from legitimate sources.
The potential for losses or compliance failures arising from relationships with external parties such as vendors, agents, or business partners. Financial institutions must assess and manage third-party AML risks.
The act of informing someone that they are under investigation or that a suspicious activity report has been filed about them. Tipping off is prohibited in most jurisdictions as it may allow criminals to evade detection.
The process of disguising proceeds of crime and moving value through the use of trade transactions to legitimize their illicit origins. This can involve over or under-invoicing goods, multiple invoicing, or falsely describing goods.
The natural person who ultimately owns or controls a legal entity or arrangement. Identifying UBOs is essential for understanding who really controls corporate entities and assessing money laundering risks.
Transactions or patterns of behavior that deviate from a customer's expected profile or normal banking activity. While not necessarily suspicious, unusual activity warrants further investigation to determine if it indicates potential money laundering.
Digital representations of value that can be digitally traded or transferred and can be used for payment or investment purposes, including cryptocurrencies. Virtual asset service providers are increasingly subject to AML regulations.
The process of confirming that information provided by a customer is accurate through independent, reliable sources. Verification is a key component of customer due diligence and must be conducted using credible, independent documentation or data.
A compilation of names of individuals and entities who pose heightened risk, including those subject to sanctions, PEPs, and those with adverse media. Financial institutions screen customers and transactions against watchlists as part of their AML controls.
An association of global banks that develops frameworks and guidance for the management of financial crime risks, particularly in the areas of Know Your Customer, Anti-Money Laundering, and Counter Terrorist Financing policies.
An electronic transfer of funds across a network. Wire transfers are subject to specific AML requirements, including the inclusion of complete originator and beneficiary information to enable detection of suspicious transactions.
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