The financial industry has been facing money laundering challenges since years; in recent years, even some of the non-financial businesses have been inundated with money laundering risks. The national, regional, and international organizations and associations have responded to these high risks with relevant anti-money laundering policies and regulations for countries and companies.
However, a key issue is that businesses, employees, and people across the world are not aware of all the terms used in the money laundering dictionary. Once they understand the AML glossary, only then they will have a better understanding of the AML regulations, laws, legislation, policies, and guidelines. It is the duty of governments and economies to make their citizens aware of such AML dictionary words to prevent the risks of money laundering and criminal activities.
In this article, we provide you a money laundering glossary so that you understand the terms and contribute to the prevention of money laundering activities in your company or country through the identification of suspicious transactions.
Why you should know these terms?
It is important for you to know the specific terms and concepts in the AML dictionary because you will have a better understanding of AML laws and regulations. Employees in the AML teams or management positions in the company need to understand the money laundering dictionary terms in a better way to contribute to the relevant decisions, plans, and strategies for AML.
The process of making money through illegal means and methods such as terrorist funding or drug trafficking and concealing the source of income by showing it as legitimate income by passing it through a sequence of commercial, legal transactions is called money laundering.
AML – Anti-money laundering
The set of laws, processes, procedures, systems, and controls that can help to detect, prevent, and control the laundering of money is called anti-money laundering (AML).
Adherence to a set of rules, regulations, policies, guidelines, legislation, and laws is called compliance.
AML compliance officer
An AML compliance officer is a senior officer who handles the AML programs and policies in a company and ensures to make the company compliant with all the relevant AML regulations and laws.
Anti-Money Laundering International Database (AMLID)
A multi-lingual database of the research and analysis of various national and international AML laws and regulations useful to the enforcement officers is called AMLID.
CTF – Counter-terrorism financing
CTF means the laws and policies adopted by countries to detect, investigate, and report any activities that lead to the funding of terrorism activities such as recruiting terrorists, maintaining logistics, or carrying out terrorism operations.
It is the first stage of the money laundering process, in which illicit money enters the financial system.
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.
It is the third stage of the money laundering process, in which the money moves in the system as clean money.
KYC – Know Your Customer
KYC is the process of verifying the identity of your customers to understand their suitability for your business and 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.
CDD – Customer due diligence
Customer due diligence means verifying the identity of customers and evaluating the risk they pose to the business relationship.
EDD – Enhanced due diligence
A better form of CDD is called EDD, which is the process of ascertaining the risks of a customer or client to a company when the customer or client is highly suspicious. EDD is different from CDD since it requires additional checks and verifications on the customer.
SDD – Simplified due diligence
If a customer poses a lower risk of money laundering or criminal activity, companies conduct a simplified form of CDD, called SDD.
Identity theft is the process used by criminals to obtain an individual’s personal and financial information without their permission to carry out unauthorized transactions or criminal activities.
The outcomes of criminal activities in terms of property or legal documents proving the title or interest in such property are called criminal proceeds.
RBA – Risk-based approach
AN RBA is the methodology companies and countries use to ascertain, understand, and evaluate the money laundering risks that their company faces to devise the appropriate measures to reduce the impact of these risks or eliminate them.
Smurfing is a technique of layering step in the money laundering process, whereby large amounts of cash are segregated into several small cash transactions and spread over multiple accounts to avoid detection or suspicion by authorities.
It is the process of identifying a customer’s risk profile, meaning identifying their risk capacity, tolerance to risk, and expected returns.
AML/CTF compliance audit
It is the procedure to review the AML/CTF policies, test the compliance procedures, assess the KYC for clients, evaluate all financial transactions, and gauge the efficiency of the AML systems implemented in the company.
EFT – Electronic funds transfer
The electronic movement of funds between banks and other financial institutions is called EFT.
A front company is the face of a company used to protect the actual company or owners from liability or investigation in the case of criminal or illegal activities such as money laundering.
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 and therefore, are called gatekeepers. It is essential to identify the relevant gatekeepers of a transaction to prevent money laundering operations.
It is a set of all the processes of governing a company or government or institution, such as the accountability structure, control systems, decision-making processes, and other norms of keeping a company’s operations organized.
Illegal entry or transport of a human being from one country to another against the laws is called human smuggling.
It refers to the trade of human beings across international borders make them sexual slaves, exploit them, or make them forced labourers.
Financial penalties imposed by a country or multiple countries against an individual or country or any other entity are called economic sanctions.
Sanctions that are supported by multiple countries or entities are called multilateral sanctions.
The adherence to all the regulations and laws related to sanctions is called sanctions compliance.
SCO – Sanctions compliance officer
An SCO is a senior officer responsible for managing the sanction compliance activities in the company such as identifying suspicious transactions, reviewing exception reports, and checking for any non-compliant operations.
It is a list of all the individuals, countries, and companies, which have been considered illegal by countries to conduct business with.
SDD – Sanctions due diligence
The due diligence of sanctions-related risks is called SDD.
Some countries attract businesses to operate in their countries by offering tax incentives, or tax avoidance possibilities. These countries are called tax havens.
SAR – Suspicious activity report
In the case of suspicions of money laundering activities, financial institutions and other bodies subject to AML regulations submit reports to the FIU regarding the suspected activities; these reports are called SARs.
STR – Suspicious transaction report
STRs are the same as SARs; different terms are used in different countries.
BO – Beneficial owner
A beneficial owner is an individual who enjoys the benefit of or controls a legal entity or property, though the property or entity is in someone else’s name.
FATF – Financial Action Task Force
G7 nations found FATF, an inter-governmental organization, in 1989 to develop standards and policies for fighting money laundering in the world.
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.
DNFBPs – Designated Non-Financial Businesses and Professions
FATF recognizes some non-financial businesses and professions that have the same risk of money laundering and terrorism financing as the financial institutions and businesses. These DNFBPs include casinos, dealers in precious metals and stones, trusts and company service providers, real estate agents, and lawyers, notaries, and other independent legal professionals and accountants.
PEP – Political Exposed Person
PEPs are individuals holding prominent function and position in government or public sector undertaking or with a close association with such persons.
Add these words to your money laundering dictionary and understand the implications of the rules and regulations on your business to make strategic decisions.