50 AML & Compliance Terms You Need to Know

The effort to remain compliant amid AML’s ever-increasing regulations can bring many unknown terms to grasp. The list can easily be extended given the numerous authorities, regulations, and tools. In this post, we have compiled the most commonly used terms in the regulatory landscape. 

50 Anti Money Laundering & Compliance Terms You Need to Know 

1. AML (Anti-Money Laundering)

We can define AML as a well-established set of laws, regulations, and procedures designed to prevent criminals from disguising illicit funds as legitimate.

2. KYC (Know Your Customer)

KYC refers to the process of verifying the identity of clients during customer onboarding. It includes processes such as Customer Due Diligence, Enhanced Due Diligence and risk profiling. 

3. KYB (Know Your Business)

KYB is similar to KYC but instead of individuals, it is applied to the companies. During KYB, institutions verify the legitimacy of a company through means like UBO (Ultimate Beneficial Owner) checks and company screening.

4. CDD (Customer Due Diligence)

As we have mentioned in the Know Your Customer’s definition, CDD is a part of KYC. It is one of the key requirements of staying compliant and helps verify the identity of customers, assess their risk levels, and monitor their activities over time. 

5. EDD (Enhanced Due Diligence)

For higher-risk entities, such as offshore accounts or Politically Exposed Persons, Customer Due Diligence is not enough. EDD goes beyond standard CDD checks by requiring additional information, source of wealth checks, imposing stricter verification and monitoring. 

6. Ongoing Monitoring

Ongoing Monitoring can be described as the process of continuously reviewing and assessing customer behavior and profile. With ongoing monitoring, you can receive real-time alerts, detect risks post-onboarding and and adjust risks dynamically. 

7. PEP (Politically Exposed Person)

We consider individuals who have prominent public roles, like government officials, or those who are related to them as PEPs. Being a PEP doesn’t mean that they are guilty but nevertheless, their public role and influence makes it obligatory to approach with heightened scrutiny.

8. Sanctions Screening

Sanctions screening is the process of checking individuals, businesses, transactions or counterparties against sanctions lists. These lists are often maintained by governments and international bodies such as OFAC, EU and UN, in order to identify restricted parties through screening. 

9. Adverse Media

Adverse Media refers to any publicly available negative news about an entity that may show the signs of criminal coverage, reputational risk, and compliance issues. 

10. SAR (Suspicious Activity Report)

Suspicious Activity Reports can be described as a formal declaration that regulated entities must file with their relevant authorities, such as Financial Intelligence Units, when they detect a suspicious behavior. These reports are one of the most crucial AML obligations, and should not be neglected in any case. 

11. CTR (Currency Transaction Report)

Financial regulatory bodies require a Currency Transaction Report when a transaction exceeds a specific threshold, which depends on the jurisdiction. For example, FinCEN decided its cash reporting rules to be $10,000 in the U.S.A.

12. UBO (Ultimate Beneficial Owner)

According to the Financial Action Task Force (FATF), a UBO is the natural person or persons who ultimately controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement. Identification of UBOs become especially important when dealing with hidden ownerships such as shell companies. 

13. FATF (Financial Action Task Force)

The FATF is an intergovernmental organization founded in 1989 on the initiative of the G7, with an aim to combat global money laundering and terrorist financing. The FATF expects countries to comply with the FATF’s 40 Recommendations, which encompass numerous preventive measures, law enforcement powers, and international cooperation. Compliance of a country is often mutually evaluated and in the case of non-compliance, a country may get listed on the greylist or blacklist.  

14. FIU (Financial Intelligence Unit)

A Financial Intelligence Unit is a national AML authority responsible for receiving, analyzing and transmitting the reports of suspicions identified and filed by the private sector. These serve as AML authorities, reporting hubs, and are also responsible for data analysis.  

15. goAML

goAML is UNODC’s (United Nations Office on Drugs and Crime) response to financial crimes. It is an application developed for Financial Intelligence Units (FIUs), which allows submitting STRs, facilitating AML software integration and processing financial crime reports. 

16. OFAC

OFAC is an office of the U.S. Department of the Treasury responsible for administering and enforcing economic sanctions against countries and groups of individuals. OFAC also maintains the SDN list (Specially Designated Nationals and Blocked Persons List), which prohibits the dealings between U.S. persons/business and listed entities. It is also able to freeze assets of sanctioned parties within the U.S.

17. FinCEN

FinCEN (Financial Crimes Enforcement Network) is another bureau of the U.S. Department of the Treasury, which aims to protect the U.S. financial system from all kinds of illicit activities through enforcing laws like the Bank Secrecy Act. 

18. MASAK

MASAK is Turkey’s FIU, which operates under the Ministry of Treasury and Finance. It is the main AML authority in the country, and responsible for receiving suspicious reports and safeguarding compliance with national AML standards.  

19. Smurfing

We can define smurfing as a money laundering technique consisting of breaking down large amounts of illicit funds into smaller transactions, often by using multiple individuals. While doing this, fraudsters often try to stay below reporting thresholds in order to avoid detection. 

20. Structuring

Smurfing and structuring can be sometimes used interchangeably, however structuring can be considered as an umbrella term. It basically concerns all tactics of breaking up a large transaction to avoid detection.

21. Placement

Placement is the first part of money laundering process, which means introducing illicit funds into the financial system in some form. Some examples of placement are: Purchases in cash, funneling the illegal funds into weakly regulated jurisdictions, false invoicing and casinos.

22. Layering

Layering is the second stage of a money laundering process, in which criminals move illicit funds through complex transaction patterns in order to hide their origin. Some methods of layering include wire transfers, complex chains, or using offshore entities. 

23. Integration

This is the final stage of money laundering. After the placement and layering stages are over, illicit funds are reintroduced into the economy as clean and legal. Criminals often utilize real estate, investments, or luxury goods in this part. 

24. Shell Company

If a legal entity seems to exist but has minimal or even no activity at all, it is referred to as a shell company. These are often used to launder money and evade taxes or sanctions. 

25. Red Flags

Red flags are warning signs, indicators or unusual behaviors that suggest potential financial crimes such as high-value transfers, inconsistent behavior or third-party payments. 

26. Sanctions List

These publicly maintained registers list individuals, entities, organizations or countries that are subject to restrictions due to their risks. OFAC list and UN watchlists are a few of the most prominent examples of sanctions lists.

 

27. Travel Rule

Travel Rule is a requirement under FATF Recommendations that obligates financial institutions to collect, hold and transmit sender/receiver information when transactions exceed a certain threshold.

28. AML/CFT

Anti-Money Laundering / Countering the Financing of Terrorism is a dual compliance regulatory framework that aims to prevent, detect and combat money laundering and the financing of terrorism. 

29. High-Risk Jurisdiction

According to the FATF’s description, this term covers countries that are not well-equipped to counter money laundering, terrorist financing, and financing of proliferation. These countries often appear on the FATF’s greylist and blacklist, which makes it vital to apply strict risk assessment and due diligence when dealing with entities from these jurisdictions. 

30. Terrorist Financing

This one is pretty self-explanatory. It basically refers to the act of providing funds to support terrorist acts. These funds may originate from NGO abuse, untraceable cash, or several other types of criminal funding. 

31. Monetary Thresholds

These are specific thresholds set by regulators that trigger specific AML obligations. When these thresholds are exceeded, systems trigger alerts. 

32. Blacklist Monitoring

The term “blacklist monitoring” means that regularly checking customers, transactions, counterparties, or business relationships against blacklists. The aim here is to identify if any of the parties are subject to restrictions, sanctions, or regulatory warnings. 

33. VASP (Virtual Asset Service Provider)

A VASP is a non-traditional financial entity that provides services like transferring crypto, securing wallets, or offering financial services tied to token issuance. However, under FATF guidance, these are treated no different than traditional financial institutions, which obligates them to adhere to several regulations, such as exchange compliance, registration, and KYC. 

34. Risk-Based Approach (RBA)

Risk-based approach allows entities to take the appropriate mitigation measures by identifying, assessing, and understanding the money laundering and terrorist financing risk. It should be noted that these risks continue to be adjusted over time with the help of tools like dynamic monitoring.

35. Screening Tool

Financial institutions and other regulated entities use screening tools to automatically check their customer data against sanctions lists, PEP watchlists, adverse media and other risk databases.

36. Transaction Monitoring

Transaction Monitoring refers to the continuous tracking and reviewing of transactions to detect irregular or suspicious activities. This could be done in real-time or with batches. Numerous tools offer applying AML triggers to generate fraud alerts when transactions deviate from expected behavior. 

37. Fuzzy Matching

Fuzzy Matching is a screening method that uses approximate search methods to identify potential matches between customers and watchlists. However, these may not always be identical. Thus, fuzzy matching helps with alias detection, catching name variants and transliterations, and applies tools like phonetic matching. 

38. Batch Screening

We call the process of submitting multiple entity records at once to be compared in mass against numerous watchlists batch screening. This way, institutions can run watchlist comparisons in large volumes to identify any matches or potential risks. 

39. Name Screening

This type of screening concerns checking customer, counterparty, or transaction names against lists such as sanctions lists, PEP databases, and adverse media sources in order to detect potential financial crime risks. 

40. Client Risk Scoring

We can define client risk scoring as the process of assigning risk levels to customers depending on the factors like their jurisdiction, occupation, and industry. This way, customers get assigned scores such as low, medium, or high risk.

41. AML Compliance Officer

These are designated officers in obligated entities who are responsible for overseeing policies and procedures, ensuring effective reporting responsibilities, managing risk assessments and applying audit oversight. 

42. False Positive

False positive refers to the act of an automated system flagging a customer, transaction, or name as a potential match to a suspicious activity but the alert turns out to be harmless. These false positive cases create alert noise and always require human review.  

43. AML Audit

AML Audits are independent internal control reviews that assess the effectiveness of an institution’s AML framework.

44. RegTech

RegTech (Regulatory Technology) is relatively a newly coined term, which refers to the use of advanced technological tools helping institutions to stay compliant. In the recent years, RegTechs have started to increasingly leverage latest developments like AI, machine learning, and big data.

45. ID Verification

We call the process of confirming a customer’s identity during onboarding ID verification. There are several methods of ID verification such as document scans, biometric checks, and other secure digital ID systems. 

46. Sanctions

Sanctions are best explained as restrictive measures by governments, or international bodies like OFAC, the EU lists or UN sanctions. These aim to limit dealings with targeted entities. 

47. OCR (Optical Character Recognition)

OCR can be defined as a technology that converts the documents and images you scan into text that is readable by machines. In AML, it is mostly used for ID scans and data extraction. 

48. Embargo

An embargo refers to trade restrictions imposed by governments. Governments often apply these to pressure governments, show security concerns, or enforce policies. 

49. Blacklist

Blacklists are official registers that encompass denied parties such as individuals, companies or jurisdictions that are considered high-risk. Any activity with these parties can result in enforcement action.  

50. Watchlist

Watchlists consist of PEPs, individuals, organizations with suspected terrorism ties or potential to be linked to other financial crimes. 

Why Knowing These Terms Matters?

If you wish to avoid repercussions of non-compliance such as financial penalties, loss of reputation and trust, or even the revocation of your license, you need to get a good grasp of these terms. This doesn’t mean that you need to master all of these concepts but at least, you need a thorough understanding of these terms in order to stay compliant. Fortunately, there are many tools available to help you.

How Sanction Scanner Helps

At Sanction Scanner, we support all major AML requirements. So, let’s go into more detail. 

First of all, Sanction Scanner allows you to automatically screen your customers against sanctions lists, PEP lists, global watchlists, and adverse media. Our lists feature more than 200 countries and 3000 sources. We also update these every 15 minutes. 

Moreover, our tools conduct Know Your Business and Ultimate Beneficial Owner checks through more than millions of data just in a few seconds. Sanction Scanner’s systematic approach allows you to search the business, scan and retrieve official data, detect UBOs automatically, screen for risk, and monitor continuously. 

Furthermore, Sanction Scanner can monitor your customer transactions in real-time to detect suspicious activities, which you can easily integrate into your project with API. Our transaction monitoring tools allow you to set rules and create scenarios with the rule-writing features. This way you can reduce false positives up to 96.99% and your control workload up to 80%. 

In addition to transaction monitoring, we offer screening as well. This allows you to check the receiver and sender without any delay. We have developed a system that provides you with comprehensive results by configuring the data it collects with unique algorithms developed with artificial intelligence. Alongside this, our customer risk assessment tools are also worth highlighting. We have mentioned the risk-scoring a few times in our glossary. This is not only a requirement but also an effective way to decrease your workload. Our risk-based compliance management can strengthen your business with more control compliance, learn more about your risky customers, and use these risk assessment criteria in your rules with the risk-based scorecard review. 

Also, it allows you to write the most appropriate rules and scenarios for customers’ risk scores according to your risk appetite without writing code. If you do not wish to write your own, we got you covered as well. We have default rule sets suitable for every sector. We offer several other features such as powerful case management, full audit trails, user-friendly dashboard, live transaction screen, and integrated sanction and PEP query. These are only a part of what we provide. If you would like to find out more, do not hesitate to contact us.