AML Compliance
AML Compliance
A
Adverse Media (Negative News)
Adverse Media refers to the negative news stories, reports, social media posts and other online material about an individual or organization. Adverse media screening is an important component of due diligence checks and in the financial industry it is mainly used for Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance processes for an effective client onboarding. It is crucial for identifying potential or existing risks associated with a customer or business partner, such as involvement in illegal activities, financial improprieties, or unethical behavior.
Accounting and Corporate Regulatory Authority (ACRA)
The Accounting and Corporate Regulatory Authority (ACRA) is a regulatory body under the Ministry of Finance of the Government of Singapore and in charge of regulating businesses, financial reporting, public accountants and corporate service providers. ACRA’s primary roles include registering and overseeing companies, ensuring compliance with relevant laws and regulations, and maintaining public trust in the accounting profession by creating and keeping the standards for the firms, charities and communities in Singapore. ACRA plays a vital role in the enforcement of AML/CTF regulations, requiring businesses under its jurisdiction to maintain proper accounting records and implement adequate AML/CTF compliance measures. It helps Singapore to achieve a trustable financial environment for business investments by ensuring a vibrant and trusted business sector via constant innovation and growth.
Alternative Remittance System (ARS)
The informal financial system to transfer value or money from and to specific geographical locations operating outside the regular and formal financial industry. Also referred as underground or parallel banking system or Informal Value Transfer Systems (IVTS). Closely related to particular locations and ethnic groups which resulted in having different names in different cultures: hawala, hundi, fei-chien, black market peso exchange etc. The system does not require physical transfer or movement of money, instead the transfer is confirmed via informal methods of communication in the form of encrypted messages.
AML Name Screening
AML Name Screening is the process of checking and matching the names of the customers or potential customers of a financial institution against various sanctioned lists (PEPs, blacklists, etc.) to identify high-risk customers or transactions. It is an important step in customer onboarding processes and AML compliance programs in banks and other financial institutions to prevent doing business with individuals or entities involved in financial crime.
Anti-Money Laundering Act (AMLA)
Anti Money Laundering Act (AMLA) is one of the biggest amendment in the anti-money laundering (AML) laws of the USA since the Patriot Act of 2001. Anti-Money Laundering Act (AMLA) is to be implemented by the financial institutions and aims to regulate the fight against money laundering and combat terrorism financing crimes. The act ensures that in the processes of financial transactions the due diligence procedures are applied. The reformatory changes of AMLA are the generation of a national registry to track the beneficial ownership data, expansion of AML whistleblower rewards, penalty improvements to be applied in the case of Bank Secrecy Act (BSA) violations, an innovated language of law to encapsulate the cryptocurrency transactions and more.
Anti-Money Laundering Directive (AMLD)
A set of regulatory requirements to fight with money laundering and terrorist financing in Europe created by the European Union (EU). The aim of the AMLD is to protect the financial system by stipulating requirements to the EU member states for prevention, detection and investigation of money laundering and terrorist financing.
The EU adopted the first Anti-Money Laundering Directive (AMLD) in 1990 and has been revising and revolutionizing the directives since then to keep up with the demands of the ever-changing financial eco-system and prevent the risks that are related to money laundering and/or terrorist financing. The latest, 5th AMLD came to force in January 2020 and the AML compliance requirements have been intensified even more than its predecessor, putting an extra level of pressure on the financial institutions.
Asset Confiscation
Asset Confiscation is enforced when an individual or a corporation violates certain sanctions and their assets were taken from their ownership due to this violation.
Australian Transaction Reports and Analysis Centre (AUSTRAC)
The Australian Transaction Reports and Analysis Centre (AUSTRAC) is the Australian government’s financial intelligence agency responsible for: monitoring financial activity, detecting criminal activities such as money laundering, terrorism financing, tax evasion and fraud, and striving to fight criminal abuse of the financial system to protect the community from serious and organized crime. In order to form financial intelligence, AUSTRAC collects, analyses, and disseminates financial reports and information thanks to the powerful regulations and enhanced intelligence abilities which is then used to strengthen national security and support law enforcement investigations.
Automated Clearing House (ACH)
Automated Clearing House (ACH) is an electronic network processing financial transaction supporting both direct debits and credit transfers for consumers, businesses and governments. By nature, the ACH system processes large volumes of payments in batches. The credit transfers done by ACH involves direct deposits, retail payments, vendor payments and payrolls; while direct debits mainly involve payments of consumers like insurance premiums, mortgage loans and other kinds of bills. ACH system is the opposite of Real-Time Gross Settlement (RTGS) system as they are characterized by low-value and non-urgent transaction types.
Automated Screening Tool (AST)
Automated Screening Tool (AST) is a software system as an alternative to the manual screening used by financial institutions for the screening of sanction lists more quickly and effectively. ASTs enable FIs to achieve higher percentages of productive alerts, better compliance with regulatory requirements, increased operational efficiency and reduced costs. ASTs are able to create hits against sanction lists based on the record of a customer and they can classify multiple hits in of the same customer in a single alert.
Autonomous Sanctions
Autonomous sanctions are imposed by a single country, government, or an alliance of countries such as the European Union (EU) against a specific state or non-state entity.
B
BaFin Federal Financial Supervisory Authority
BaFin is the federal financial regulatory and supervisory authority of Germany. The main responsibilities of BaFin includes keeping the financial markets of Germany stable and coherent by supervising the banks, insurance companies and remaining financial institutions.
Bank Secrecy Act (BSA) Compliance Program
The BSA Compliance Program is a program that the financial institutions based in the U.S and specified by the Bank Secrecy Act are expected to adopt and put into effect for the sake of managing and dominating over money laundering and similar financial crimes. The program includes but is not limited to: the assignment of a compliance officer, processes and checks, improvement of internal policies; continuous training of the staff and a non-biased audit for testing the program.
Basel AML Index
The Basel AML Index is an independent and research-based annual ranking tool that evaluates the risk of money laundering and terrorist financing in countries worldwide. It is designed by the Basel Institute on Governance to bring together different indicators and achieve a comprehensive risk score, becoming a reference point for financial institutions, regulators, and policymakers.
Basel Committee on Banking Supervision (Basel Committee)
The Basel Committee was founded in 1974 by the central bank of governors of G-10 with the purpose of encouraging well-grounded global supervisory standards. The Bank for International Settlements in Basel, Switzerland is responsible for assigning the secretariat of the Basel Committee. The committee is entitled with issuing documents on customer due diligence (CDD) for banks, risk-based know your customer (KYC) check, payment message transparency, audit for transparency in international wire transfers in terms of covering payment messages, and distributing financial records among jurisdictions for combatting the financing of terrorism.
Batch Processing & Screening
Batch processing is the method of transaction processing in groups or in a batch based on their relation to one another. After the transactions are grouped, they are transmitted for processing. User interaction is not needed when they batch processing starts which is the main difference of batch processing from transaction processing.
Batch screening is a screening of customers and other related associations in the database of the financial institutions at periodic intervals via an AST (Automated Screening Tool) in most cases. The compliance teams receive the results for assessments, reviews, and matching.
Beneficial Owner
A natural person who holds the ownership or control of a legal entity (a company, a trust or a foundation) although the public title of the owner of the property is in another name. A beneficial owner also refers to a person who has directly or indirectly the right and power to vote or affect the investment decisions of a security.
It is essential to differentiate beneficial and legal ownerships from each other even though for the most part, the legal and beneficial owners are the same. However, there are cases where the beneficial owner prefers to stay anonymous.
Blacklist
Blacklist is made of names of locations, individuals and entities that are monitored to detect exposure of any sanctions as well with governmental, or any other public sanction lists. The blacklist of the FATF consists of the governments that act non-cooperatively in the global combat against financial crimes of money laundering and terrorist financing.
C
Caribbean Financial Action Task Force (CFATF)
Caribbean Financial Action Task Force (CFATF) is a regional regulatory body similar to FATF that contains states of Aruba, the Bahamas, the Cayman Islands, the British Virgin Islands and Jamaica.
Cartels, Gangs, Criminal Organizations
Cartels, gangs, and criminal organizations refer to groups of individuals who engage in illegal activities for financial gain. These groups are commonly associated with a wide range of criminal activities, including drug trafficking, human trafficking, arms trafficking, and money laundering.
Cheque/Check Fraud
Check fraud is a type of financial crime where a fraudster makes an illegal use of checks with the aim of gaining money unlawfully. There are three forms of check fraud which are counterfeit, forgery and altered. Counterfeit check fraud refers to the fake checks which are not actually authorized or written by real account holders. Forgery check fraud involves stolen checks that are not signed by the actual account owner but by someone else. Altered check fraud means the checks are written and signed by account holders; however, the beneficiary or amount details are changed later.
CICAD (Comisión Interamericana para el Control del Abuso de Drogas or Inter-American Drug Abuse Control Commission)
Inter-American Drug Abuse Control Commission (CICAD) was established in 1986 as a part of OAS (Organization of American States) and it has been providing guidance and consultation on drug-related challenges since then. The OAS member states refer to CICAD to negotiate drug problems and to discuss possible solutions and in return CICAD offers them its technical expertise so that the member states can enhance their way of fighting drug issues. The main task and purpose of CICAD is to help its member states improve their competences to prevent or minimize the manufacturing, distribution and use of illegal drugs as well as to highlight the outcomes of drug trafficking in the light of human health, society and criminal activities. As drug trade is closely related to the anti-money laundering activities, CICAD worked on and released recommendations on AML among which there are amendments to the Model Regulations of OAS in 1992.
Commission de Surveillance du Secteur Financier (CSSF)
The Commission de Surveillance du Secteur Financier (CSSF) is the supervisory commission of Luxembourg that monitors and governs the financial industry. Acting for the public good, the main purpose of the commission is to ensure that the financial authorities and issuers are compliant with the regulations and the financial environment is secure and robust. Against the financial crimes of money laundering and terrorist financing, CSSF applies strict supervision on the specific entities that are responsible for the safety of the consumers and preventing the financial crimes.
Correspondent Banking
Correspondent banking refers to the recruitment of specific banking services by one bank which is the correspondent bank on behalf of another financial institution or respondent bank. The financial services offered by the correspondent bank include but are not limited to cross-border fund transfers, clearing of checks, settlements, and wire transfers. In general, correspondent banks are the prominent global banks as they offer correspondent banking services to many other local banks.
Criminal Law
Criminal law is a branch of law that deals with crimes, their definitions, classifications and the corresponding penalties. It sets the legal framework for punishing individuals or entities that commit acts deemed harmful to society, such as money laundering, terrorist financing, fraud, and other criminal activities.
Criminal Proceeds
The term of criminal proceeds is used to define the assets or money achieved via the deed of criminal activity by the criminals. To make sure that criminal activity is not paying the criminals, the authorities are given the right to confiscate the proceeds of crime.
Currency Transaction Report (CTR)
Currency Transaction Report is a form to be filled out by bank representatives in the United States when a customer demands to deposit or withdraw a currency transaction higher than $10.000. It is an important element for the prevention of money laundering and plays a vital role in US banks’ contribution to and responsibility for the Anti-Money Laundering (AML) activities.
Customer Identification Program (CIP)
A customer identification program (CIP) is a procedure that supports financial institutions in ensuring their customers are genuine in their fight against money laundering and other financial crimes. One of the most important elements of a successfully working CIP is the risk assessment. The financial institutions must at least collect four types of data from their potential customers to open an account which are name, date of birth, address and ID number.
D
Dealers in Precious Metals or Stones (DPMS)
Dealers in Precious Metals or Stones are businesses or individuals who buy, sell, or trade in precious metals (such as gold, silver, and platinum) or precious stones (such as diamonds, rubies, and sapphires) for the purpose of business or trade. DPMS are subject to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations due to the high value of these commodities and the unique risk for money laundering and other illicit activities. They are required to implement AML/CTF compliance programs, conduct due diligence on customers, and report suspicious transactions to relevant authorities.
Denied Persons List (DPL)
Denied Persons List (DPL) is a list of people, firms or organizations of which exportation privileges have been rejected by the Bureau of Industry and Security (BIS) of the Department of Commerce. In many cases, the reason for the denial is closely related to the violation of the Export Administration Act. Any kind of an export business with an entity on the Denied Persons List (DPL) is prohibited to the companies or individuals based in the USA.
Designated Categories of Offence
Designated categories of offense are the list of crimes that are seen as the predicate offenses for money-laundering activities by FATF. While different states can determine their predicate offenses and identify their features individually based on their local regulations; the majority of them prefer to include all the serious crimes that might be the indicator of a money laundering crime.
Designated Non-Financial Businesses and Professions (DNFBP)
Designated Non-Financial Businesses and Professions (DNFBP) is a term signifying the standards that the Financial Action Task Force (FATF) applies to the businesses and professions in the non-financial sector which might have the risk of getting involved with the money laundering and/or terrorism financing activities.
Among the non-financial businesses and professions that are subjected to the DNFBP FATF recommendations, there are:
- Accountants, auditors and tax consultants,
- Casinos and online gambling service providers
- Dealers involved in precious stones and metals
- Real estate brokers
- Company service providers that perform specific tasks in the name of their customers
- Independent legal agents such as attorneys and notaries who are responsible for the preparation or performing specific legal tasks in the name of their customers
- Trusts
Dual-Use Goods
Dual-use goods refer to the technologies or products which are functionable for more than one purposes at the same time such as military and/or civilian. Generally, they are addressed in diplomatic or political platforms, therefore they are subjected to heavy regulations
Dubai International Financial Centre (DIFC)
The Dubai International Financial Centre (DIFC) is a financial hub for the Middle East, Africa, and South Asia (MEASA) areas that incorporates 72 countries with a population around 3 billion people and GDP of $8 trillion. It was founded to provide an environment for economic growth, progress, and enhancement in the UAE and the wider region. The ultimate aim of the DIFC is to offer a world-class platform for financial institutions, professional service providers, and other businesses in that area to conduct their operations. DIFC established its own independent, globally regulated legal system, common law framework, global financial exchange system, tax-friendly regime, and a large business community.
Due Diligence
Due diligence is the set of investigations, research or review of a potential customer (company, group or individuals) in order for the confirmation of the information needed for a financial or business transaction. A detailed examination of the financial records is essential for a successful due diligence before a transaction is carried out with another party. The ultimate purpose of due diligence is to minimize the risks that may threaten the financial institution.
E
Eastern and Southern African Anti-Money Laundering Group (ESAAMLG)
Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) is a group of states covering the area from the eastern down to southern Africa. The group was founded in 1999 as a regional body like FATF to fight against the money laundering activities in the region.
Economic Sanctions
Economic sanctions are the commercial or financial enforcements applied by a single or multiple countries in order to regulate the attitude of another party which can be a country, a person or an organization. The methods and applications used to impose the economic sanctions are including but not limited to limitations, restrictions and tariffs related to trade and exchange of money.
Electronic Funds Transfer (EFT)
The electronic transfer of money via a computer network. Electronic funds transfer (EFT) can be used to move funds from one account to another in the same bank or between different banks. To operate an EFT, an individual or a business only needs to have a bank account in good standing. Physical or online shopping via credit or debit cards is one form of an EFT. In order to use the electronic funds transfers (EFTs), the bank customers are required to enter their unique personal identification number (PIN) or the login information for security to access online banking services. EFT payments are processed by an automated clearing house (ACH) system.
eKYC (Electronic Know Your Customer)
eKYC (electronic Know Your Customer) is a preferred system for electronic ID verification that is implemented by many institutions as an effective digital solution for CDD procedures. Document verification, facial recognition or voice verification are some of the methods used within the scope of eKYC procedures for customer identity verification.
Embargo
Embargo is a term used to define a government officially forbidding the activity of trade or exchanging a certain good with another country.
Enhanced Due Diligence (EDD)
Enhanced Due Diligence (EDD) is a risk-sensitive form of customer due diligence (CDD) checks that is applied to the higher-risk customers and requires more detailed information about the customer. High-risk customer means that those who are associated with increased probability of getting involved in money laundering or terrorism financing crimes. Therefore, Enhanced Due Diligence (EDD) is one of the essential components of Know Your Customer (KYC), customer onboarding and Anti-Money Laundering (AML) processes.
EU AML Package
The EU AML Package refers to a set of legislative proposals prepared by the European Commission and adopted by the European Union to strengthen its Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) framework. The package often includes updates on the Anti-Money Laundering Directive (AMLD) and other related regulations, aiming to enhance transparency, improve the identification of suspicious financial activities, fill in the gaps that are prone to the exploitation of the criminals for the purposes of money laundering and terrorist activities and increase cooperation among EU member states.
Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG)
Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) is a group of 9 countries coming together with anti-money laundering (AML) and combatting the financing of terrorism (CFT). The group was established in 2004 as an associate member of the FATF. The countries forming the EAG are China, Russia, Belarus, Kazakhstan, Kyrgyzstan, India, Tajikistan, Turkmenistan and Uzbekistan.
F
False Positive
False-Positives occur when an ordinary transaction is labeled as suspicious during the screening process due to the matching error in public or private Sanctions Lists. False Positives require careful observation because they may result in blocking the payment or closing the account completely in the worst-case scenario. However, when checked, it is usually found that the account owner is flagged incorrectly and the transaction is clean to proceed.
FATF-Style Regional Bodies (FSRBs)
FATF-Style Regional Bodies (FSRBs) are organizations that have similar functions and forms of the Financial Action Task Force (FATF) but they operate on a regional level, promoting and implementing the FATF recommendations in their respective regions. In a strong collaboration with FATF, FSRBs create a connected global network to fight money laundering, terrorist financing, and other related threats to the integrity of the international financial system. They support their member countries to strengthen their AML/CFT frameworks, provide technical assistance, and conduct mutual evaluations.
Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is the inter-governmental, policy making regulatory body founded in 1989 that identifies global standards focusing on the prevention of illegal financial crimes related to money laundering and combating against terrorist financing. The FATF has more than 200 countries that devoted themselves to implement those FATF Standards or FATF Recommendations in order to achieve a united and coordinated global force to preclude organized financial crimes. The FATF Recommendations do not hold statutory power; however, they are recognized as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.
Financial Intelligence Center Act (FICA)
Financial Intelligence Center Act (FICA) of South Africa aims to protect financial institutions by identifying the regulatory framework for the country’s AML (anti-money laundering) and CFT (counter-financing of terrorism) procedures. FICA’s main responsibility is to ensure that the financial institutions in South Africa apply the necessary processes to know their customers. It authorizes the FIC (Financial Intelligence Center) to monitor and detect any crimes related to money laundering and terrorist financing by making sure that the FIs are compliant with FICA’s framework.
Financial Intelligence Unit (FIU)
Financial Intelligence Unit (FIU) is a national state authority that forms a connection between private sector and regulatory bodies enforcing criminal legislation for the successful application of the regulations about the financial crimes. FIUs are entitled with collecting and evaluating the reports on suspicious activity detected in the private sector and transferring them to the related authorities. They function as an intermediary agency between private institutions who are responsible for complying with AML/CFT regulations and law enforcement authorities.
Foreign Sanctions Evader (FSE)
Foreign Sanctions Evaders are individuals or entities that have been listed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) as the potential criminals that breached, tried or intended to violate or were involved in violation of the US Sanctions. These entities or individuals are prohibited from engaging in transactions with U.S. persons or involving the U.S. financial system.
Fraud and Money Laundering
Fraud is the act of criminal deceit carrying the intention of obtaining unlawful financial profit. Money laundering is a form of fraud where the main purpose of the act main purpose is to conceal the source and movement of the illegitimate fund gained via fraudulent activity and make it seem legitimate. Money laundering consists of 3 phases. The first step is to deposit the money in a financial system which is called placement. Secondly, to cover up the origin, owner, and place, of the funds, the criminals conduct complex transactions which are referred to as layering. Finally, integration takes place, merging the funds into society so they seem legitimate.
Fuzzy Logic
Fuzzy logic is a mathematical approach that processes multiple values through the same variable allowing for a more advanced decision-making process and greater integration with rule-based programming. Fuzzy logic is one of the main components of artificial intelligence (AI) solutions programming. In the area of financial services, fuzzy logic is especially used in the machine learning (ML) and technological enhancements that are used to support investment intelligence.
G
Gatekeepers
Gatekeepers act as the financial intermediaries operating between investors and issuers. Their role is to provide investors with the necessary information about the investment decisions in a timely manner. In the financial industry, gatekeepers have the capacity to ensure institutional stability, strength and direction needed for the improvement and seamless functioning of capital markets.
Glass-Steagall Act
The Glass-Steagall Act of 1933 aimed to divide investment and commercial banking as combining both was thought to be risky and caucuses for depositors due to the speculation in stocks. The act was a reformatory step taken to prevent the repetition of the 1929 stock market crash.
Grey List
Grey list refers to “Jurisdictions Under Increased Monitoring” by the FATF. Similar to blacklists, countries listed in the FATF grey list pose high risk of financial crimes such as money laundering and terrorist financing. The difference is that grey list countries officially cooperate with FATF acknowledging their AML/CFT deficiencies and work on the action plans to address them. FATF applies an increased level of monitoring to the countries on the grey list by either directly evaluating them or making use of FATF style regional bodies (FSRBs) to create reports demonstrating the development process.
Gulf Cooperation Council (GCC)
The Gulf Cooperation Council is a political, economic and industrial regional organization consisting of six Arab states in the Arabian Peninsula: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The GCC was established in 1981 to promote economic, industrial, safety, cultural, and social cooperation among its member states. Even though none of its member states is a part of FATF (Financial Action Task Force), the council is a member of FATF.
H
Hawala
Hawala is an unofficial way of moving money without actually any physical movement of money. The concept of trust is very crucial for this method as it is simply described as “money transfer without money movement”. As an alternative transaction method to the traditional banking system, hawala is still a valid remittance channel for many. Hawala gains a footing in the digital financial world because it offers access to money transfers for the unbanked or underbanked people.
HM Revenue & Customs
HM Revenue and Customs is the tax, payments, and customs authority of the United Kingdom. The ultimate aim of the non-ministerial department is to support families and people in need of financial help and pay for public services with the money collected. The objective and effective administrative power of the HMRC enables it to create a fair tax collection system by preventing dishonest people from abusing the system and ensuring the latest ones get the right taxes.
Human Trafficking
Human trafficking is the employment, movement, transfer or hold of individuals by using force on them or deceiving them for the purpose of exploitation in exchange for a profit. Anyone from any age (children, women or men) can be a victim of human trafficking. Human traffickers create a huge amount of illegal financial activity. Payments related to the exploitations of victims for labor, bribery, corruption travel expenses are all a part of human trafficking. Movements of funds that are related to the human trafficking is either money laundering or terrorist financing. Therefore, financial institutions are entitled with detecting human trafficking via suspicious transactions.
I
Identifier
Identifiers are the categories of data to be involved in the profile of a sanctions target that is registered in a sanction list. Identifiers are used for all the targets, whether individuals or organizations. The information collected by the identifiers includes but is not limited to name, birth date, national ID number, history of penalties imposed on the target, jurisdiction, registered address, connected entity, etc.
Inequalities List
Inequalities list is a list of names that have the potential to be mistaken by the automated screening tools and to create false matches with the names on the sanction lists. The names or words included in the inequalities list are checked by the compliance teams of the related institution and they are authorized that they are actually not equals, so they should not match. When a mismatch is defined within an inequalities list, it will be applied to all the upcoming screenings which eventually reduces the risk of a potential future match. That is why when making additions or during the regular reviews, it is essential that the checks and controls of the inequalities list should be adequate with at least double controls.
Inherent Risk
Inherent risk is closely connected to the risk assessment process of an institution that determines the institution’s level of effectiveness on the risk controls. Inherent risk takes the possibility and the result of noncompliance into consideration before actually considering the soothing effects of the risk management processes. There are four primary inherent risk categories which are customers, products and services, countries and delivery channels. The logic is that the degree of the sanctions risks which are actually present before the controls are acknowledged and applied for the purpose of mitigating them.
Insurtech
Insurtech refers to the use of technological innovations to disrupt and improve the efficiency of the usual insurance systems. Innovations provided by the insurtech include but are not limited to the use of machine learning algorithms for approvals, blockchain for claims processing, and telematics for auto insurance pricing. Insurtech supports the initiation, distribution and management of insurance business by making it more efficient, offering new types of coverage, and generally creating a more customer-centric experience.
Internal Evasion
Internal evasion is when an employee of an institution violates sanctions or assists in a violation. There are a couple of ways to conduct internal evasion. For instance, an employee misuses customer accounts for layering purposes to hide the source of the funds of a money laundering activity. Another example is the nullification of specific controls with or without intention which results in malfunction in the operations of the transaction monitoring tools.
International Monetary Fund (IMF)
The International Monetary Fund (IMF) is an international organization established in 1944, incorporating 180 countries with the purposes of promoting global financial stability and cooperation, boosting and alleviating international trade, ensuring sustainable economic growth by supporting employment and fighting poverty globally. While the main goals of the IMF are kept unaltered which include offering fiscal assistance, technical support, monitoring and policy counseling, depending on the requirements of its member states, the way they are delivered have been adopted according to the changes in the financial world.
Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) was founded in 1862 and has been acting as the administrative body of the United States federal government for the collection of the taxes and implementation of the Internal Revenue Code effectively within the country. The IRS strives for keeping the taxpayers of the U.S well informed about their responsibilities and rights as well as making sure that the tax collection process is carried on within the framework of the law ensuring a fair and righteous environment.
K
Know Your Business (KYB)
Know Your Business (KYB) is the process for identifying the businesses or the legal representative of a business and verifying that they are not involved in financial crimes such as money laundering and terrorist financing. The businesses are entitled to apply due diligence procedures to identify their business partners and combat money laundering. Similar to the KYC (Know Your Customer) process in the financial industry, businesses need to ensure that they are compliant with the KYB AML regulations.
Know Your Customer (KYC)
KYC (Know Your Customer) is the process that is designed to identify the customers of a business and to evaluate their profiles for the compatibility to prevent any illegal transactions. KYC is commonly used in bank regulations for financial crimes and especially in anti-money laundering (AML) regulations. So, the main objective of KYC guidelines can be summarized as preventing criminal financial activities such as money laundering to go unnoticed by banks. As the players of the financial industry are evolving, fintechs, virtual assets dealers, and non-profit organizations are also liable to comply with the KYC regulations.
Know Your Employee (KYE)
The actions done by management in order to establish a quality employee-business relationship are identified as Know Your Employee (KYE). KYE procedures are to be applied not only during the employee onboarding but also during the timeline of employment regularly. While it involves communicating with employees on a regular basis to provide them with a comfortable workspace, it also takes measures for corporate security. The financial institutions apply the anti-money laundering regulations, policies and procedures in order to get deeper knowledge and better understanding of their employees. The purpose of this is to identify any conflicts of interest, money laundering activities, previous criminal activity or any other suspicious activities.
Know Your Supplier (KYS)
Know Your Supplier (KYS) is a form of due diligence process similar to KYC that aims to verify the identity and background of the suppliers of a specific business. Within the framework of KYS, the businesses are able to check if their suppliers are compliant with AML, CFT or other regulatory standards and they are not involved in illegal activities.
Know Your Transaction (KYT)
Know Your Transaction (KYT) refers to the whole set of processes that are used to collect data on the transactions conducted by a financial business. The purpose is to evaluate the transactions and decide if they are legitimate, compliant with the regulations, and not related to any financial crimes. It is one of the elements of the AML (anti-money laundering) processes.
L
Layering
Layering refers to the second step of the money laundering process (placement – layering – integration) and the aim is to cover up the initial source of money by conducting complex transactions. The money launderers move money from one bank to another and from one account to the other in different amounts to create a series of multifaceted financial transactions so that tracing the transactions becomes harder and the origin of the illicit money is difficult to find.
Legal Risk
Legal risk is the risk of a potential financial or reputational loss that might be faced by a financial industry or company because of a legal problem. The legal risk can result from a misunderstanding or neglecting of a law and its application to the business, a claim made against the institution, an alteration in the law or a failure in taking the necessary measures for protection. It is possible for the companies to mitigate the legal risk by offering related training to its employees.
Lending and Anti-Money Laundering
The activity of lending is seen as prone to financial crime, especially money laundering, and before was identified as a risky financial activity in the AML (anti-money laundering) framework. Financial institutions are required to apply the KYC (Know Your Customer) and AML procedures to their customers who are taking loans to ensure that they are not involved in money laundering crimes.
M
Malta Financial Services Authority
The Malta Financial Services Authority (MFSA) is the regulator of financial services in Malta. MFSA is responsible for regulating and supervising the financial services industry in the country, including the banking, insurance, and securities sectors.
Mandatory Sanctions Lists
Mandatory sanctions lists are the lists that involve targets identified by the United Nations Security Council Resolutions (UNSCR) and that hold the definition of supranational sanction lists. Additionally, national sanction regimes might be compulsory and should be embraced by the sanction compliance program of the company based on the country where a business is operating and located.
Media Screening
Media screening or adverse media screening is an important component of Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance processes for an effective client onboarding. It is operated by a continuous scanning of public news stories, social media posts, and other online material to recognize if a potential customer is associated with negative news and is connected to potential risks and breaches of AML laws and regulations. The aim is to detect and stop unlawful financial activities such as terrorist financing, corruption, and fraud.
Middle East and North Africa Financial Action Task Force (MENAFATF)
The Middle East and North Africa Financial Action Task Force (MENAFATF) is a regional inter-governmental body that works to adopt the FATF recommendations and implement AML/CTF measures in the Middle East and North Africa regions. It aims to promote regional and international cooperation to detect, prevent and fight against money laundering and terrorist financing in the MENA area.
Money Laundering
Money laundering is the act of hiding or disguising the actual source, existence, flow or destination of illegally acquired funds or property so that they look legal. The definition of money laundering may vary in different countries based on the way it is perceived as a crime. In general, money laundering has 3 phases: the first step is to deposit the funds into a financial system; the second step is to disguise the source, possession and location of the funds via layering of transactions; the final step is to legitimize the funds by integrating them into society in the form of property.
Money Laundering Reporting Officer (MLRO)
The term of Money Laundering Reporting Officer (MLRO) is commonly used in many international rules to define the person who is in charge of managing the anti-money laundering activities and program of a company, as well as filling out the reports of suspicious activities and transactions and filing them with the national FIU. The MLRO plays a vital role in the effective and successful implementation of anti-money laundering strategies and remaining compliant with the related regulations.
Money Service Business
A Money Service Business (MSB) is defined as a non-bank financial institution that provides a number of financial services including money transfers and exchanges, currency exchange, check cashing, prepaid access, bill payments and mobile payments. Money transfer operators (Western Union), online payment platforms and currency exchange offices are among the entities that are called MSBs. MSBs are regulated by the regular financial compliance requirements including Anti-money laundering (AML) and Counter-terrorism financing (CTF) regulations. Therefore, they are entitled to apply effective customer due diligence measures, monitoring and reporting suspicious or risky financial activities.
Monetary Authority of Singapore (MAS)
The Monetary Authority of Singapore (MAS) is the central bank and integrated financial regulator of Singapore. MAS has a mission of promoting monetary stability, a reasonable and progressive financial center, supporting innovation, and maintaining high standards in the financial industry. All monetary, banking, finance and insurance aspects in Singapore are covered by MAS. It is also responsible for enforcing AML/CTF regulations within the Singapore financial sector.
Multi-Factor Authentication (MFA)
Multi-Factor Authentication (MFA) is a security system that requires a multi-stepped account login process that comprises more than just entering a password for the authentication of a user to access their accounts or make transactions. The purpose of this system is to fortify the security precautions by creating a layered defense so that an unauthorized person is unable to access unauthorized data such as personal data, a physical location, computing device, network or database etc.
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Name Screening
Name screening is checking if an internal record of a customer, counterparty or a related account party is matching against a sanction list record. This process can either be done manually or via an automated screening tool. The batch name screening which is the company’s screening the whole customer base of its own periodically with the help of an automatic screening tool is a subcategory of name screening as well. In the onboarding phase, before forming a new relationship with a potential customer, name screening against the sanction lists needs to be applied and it should be done in real-time. Name screening makes up the big part of admission controls so that the financial institutions can have more possibilities to collect SDD (SEPA Direct Debit) information.
National Crime Agency
The National Crime Agency (NCA) is a law enforcement agency in the United Kingdom that is dedicated to tackling serious and organized crime, including financial crime such as money laundering. The NCA works in collaboration with other national and international law enforcement agencies to investigate and prosecute cases related to money laundering and other financial crimes.
National Risk Assessment (NRA) of Money Laundering
The National Risk Assessment (NRA) of money laundering is a process conducted by the governments to fight risk-based money laundering and terrorist financing crimes by detecting, controlling, minimizing, and removing the risks. The fourth AML Directive of the EU demands the member states create and apply national risk assessments against money laundering depending on the country’s nation and requirements.
Non-Fungible Tokens (NFTs)
Non-fungible tokens (NFTs) are unique digital assets that represent ownership of a particular thing, like a piece of art, music, or collectibles which means that the NFTs cannot be exchanged with each other as they carry incomparable values. NFTs are stored on a distributed ledger technology (DLT) or more specifically on Ethereum blockchain. NFTs are safe and impenetrable since they are stored on a blockchain with identification codes and metadata.
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Office of Foreign Assets Control (OFAC)
The financial intelligence and enforcement agency of the United States Treasury Department. OFAC imposes sanctions related to economy and trade by taking US foreign policy and national security goals as the basis. The sanctions are applied to those who might pose a threat to the national security, foreign policy and economy of the United States that include targeted foreign states.
Office of the Superintendent of Financial Institutions (OSFI)
OSFI (Office of the Superintendent of Financial Institutions) was founded in 1987 to support the safety and wisdom of the Canadian financial system and acts as the main agency regulating financial institutions in Canada. OSFI directly reports to the Minister of Finance and is responsible for the supervision and regulation of the federally registered banks and insurers, trust and loan firms, and private pension plans that are subject to federal guidance.
Offshore
The dictionary definition of offshore is being away from the home country, for instance if the person lives in Italy, the U.S is “offshore” for him/her. In the money laundering community, offshore is defined as the jurisdictions that are advantageous for the foreign investments thanks to the very low or no taxing or rigid bank privacy regulations.
Ongoing Due Diligence
Ongoing Due Diligence is the continuous process of screening the financial activities and risk profile of a customer even after the initial due diligence phase has been completed. In the anti-money laundering (AML) framework, financial institutions are responsible for keeping updated records and profiles for their customers to guarantee that they are not involved in illegal activities with or without intention.
Ongoing Monitoring
Ongoing monitoring is the continuous process of reviewing and assessing a customer’s financial activity to ensure that it is consistent with the customer’s known legitimate business and personal activities, and to identify any suspicious activity that may indicate money laundering or terrorist financing. Ongoing monitoring is a crucial element of an effective AML program, as it helps to identify and mitigate potential risks on an ongoing basis. This may include reviewing transactions, conducting customer due diligence, and identifying and reporting suspicious activity.
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Payment Screening
Payment screening monitors payment messages and needs to be operated with current customers and prior to a message or payment is processes differing from name screening. Payment screening benefits from default templates, codes and acronyms to define certain data. As the information stored in these predefined templates is supplied by a third party, the companies have only limited power over the way the data is demonstrated.
Person with Significant Control (PSC)
A Person with Significant Control (PSC), who is also referred to as a beneficial owner, is an individual, a firm or an entity that has a critical amount of control or influence over the business and management of a company. In legal terms, a PSC means holding more than 25% of a company’s shares or voting rights, direct or indirect control over the company’s management or operations, or the power to appoint or remove a majority of the board of directors. The UK government aimed to increase corporate transparency by introducing the requirement to register PCSs in the Small Business, Enterprise and Employment Act 2015. With this registration, identifying individuals who benefit financially from a company has become easier which also supported economic growth and prevented the misuse of businesses.Understanding and documenting PSC is an important part of AML and KYC compliance processes, as it helps in identifying and mitigating risks associated with money laundering and financial crime.
Politically Exposed Person (PEP)
A politically exposed person (PEP) is an individual with a prominent public function posing high-risk in terms of vulnerability to corruption. PEPs hold important positions and influence in the society therefore, they are prone to be abused for the purposes of criminal activity such as money laundering, bribery, corruption or activities related to terrorist financing.
Ponzi Scheme
Ponzi scheme is a term used to define a specific money laundering system coined after Charles Ponzi. Charles Ponzi is an Italian immigrant living in the U.S who victimized 40,000 people from fraud with a total of $15,000,000 and who was imprisoned for 10 years in jail. The “Ponzi” term is used to define the use of money from new investors to compensate for the prior investors. A Ponzi scheme can contain a forged, non-existent investment scheme that promise absurdly attractive returns to the investors. The schemer continues to operate the scheme by paying off the primary investors with the money coming from the newer ones till the scheme breaks down or the operator disappears with the money.
Prepaid Cards
Prepaid cards, also known as prepaid debit cards or stored-value cards, are that can ought with money loaded on them so that you can use them to pay for things. The advantages of using a prepaid card are that you do not need to own a bank account or have a good credit history to use it. Also, since you are using the money topped up to the card, there is no bill to pay afterwards.
Proof of Address
Proof of address is a document requested by the final institutions from its customer to verify their place of residence as a measure of security.
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Qatar Financial Centre Regulatory Authority (QFCRA)
The Qatar Financial Centre Regulatory Authority (QFCRA) is an independent regulatory body of the Qatar Financial Centre (QFC) which authorizes and regulates individuals or companies that operate financial activities in or from the QFC. Among the primary aims of the QFCRA, maintaining efficiency, transparency, integrity and confidence in the QFC is the most distinctive one. The QFCRA is also responsible for ensuring compliance with international financial regulations, including anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations, among others.
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Ransomware
Ransomware is a type of malicious software (malware) that prevents totally or limits users from accessing their data, making it unusable until a ransom is paid, usually in the form of cryptocurrency. Ransomware attacks have become a significant concern for businesses, governments and individuals, as they can lead to financial losses and disrupted operations.
Refund Fraud
Refund Fraud is a type of financial fraud where an individual deceitfully applies for a refund from a business or institution. This could be through various means like falsifying proof of purchase, exploiting a return policy, or manipulating system vulnerabilities. Like Return Fraud, it results in financial loss for the entity from which the refund is being sought.
Regtech
RegTech (Regulatory Technology) is the incorporation of the necessary technologies to facilitate the fulfillment of regulatory requirements. It has emerged as a new means of streamlining the regulatory compliance in the financial services industry and supporting FinTech companies to remain thoroughly-informed about the regulatory requirements such as anti-money laundering (AML) and Know Your Customer (KYC) which may directly or indirectly affect their businesses.
RegTech provides financial institutions with both compliance-related and operational advantages such as scalability, cost-effectiveness, security and flexibility with its cloud-based structure. As for the compliance processes, the affordable and functional nature of RegTech enables a smoother and more successful functioning because it solves issues related to customer identification, real-time monitoring, affordability and stay updated on the new regulations.
Regulatory Agency
Regulatory agency is a governmental organization that supervises and operates a single or multiple divisions of a financial institution. In most cases, the regulatory agency holds the power to publish regulations, to lead examinations, to impose penalties, to restrict certain activities and to cancel certifications of institutions under its jurisdiction. One of the vital roles of most financial regulatory agencies is to prevent and detect financial crimes, especially money laundering.
Relatives and Close Associates (RCA)
The individuals or businesses which are somehow related to or have a close relationship with a Politically Exposed Person (PEP). Their close relation to the PEPs automatically makes them vulnerable to the financial crimes that serve to the money laundering activities such as corruption, bribery or misuse of power. Therefore, they are being monitored to comply with Anti-Money Laundering (AML) regulations.
Remittance
Remittance refers to a payment of money which is sent to another party. Basically, remittance is any type of payment of a bill or an invoice. Recently, the term is generally used to define transferring of an amount of money by an individual working abroad to his/her family living in the hometown.
Return Fraud
Return Fraud is the act of returning merchandise to a retailer that is not paid for in the first place in order to gain undue benefit and abuse the return policy of a business. It has different methods including returning stolen merchandise, returning items that have been used and repackaged, or utilizing counterfeit receipts. As the return fraud financially damages businesses, it might also signal a red flag for money laundering crimes.
Risk Assessment
Risk Assessment is a tool designed to detect and evaluate the risk and its extent that a business might be exposed to. The essential aim of a risk assessment is to operate the enhancements in the financial crime risk management field by specifying the sanction risks posed to a financial institution; to work on the methods that will help minimize these risks with the sanctions compliance program controls of the institution; and to cover any remaining risks that threaten the institution by conducting additional controls. In international banking, a successful risk assessment stands for a solid foundation of a well-grounded sanctions compliance program.
Risk-Based Approach
Risk-based approach represents the evaluation of the differing risks that can be related to various kinds of businesses, customers, accounts and transactions to make sure that the scope and effect of the anti-money laundering program are widened to maximum efficiency.
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Sanctions
Restrictive measures or penalties applied by an individual country, a group of countries or coalitions by targeting another country, regime, coalition or individuals (PEPs RCAs etc.) in order to change specific behavior or policy. A sanction can be imposed to punish a disobedience of a law, to restrict trade, to confine a financial transaction or to control diplomatic association.
Sanctions Compliance Officer (SCO)
Sanctions compliance officer (SCO) is the second most important link of the sanction compliance programs run by the governments. The main responsibilities of the SCO is to conduct a detailed and ongoing analysis and monitoring to ensure sanctions compliance. Additionally, assistance to ensure that an effective sanction control implementation against the risks and continuous assessment of exception reports are among the job requirements of a SCO. All matters related to sanctions, internal or external, are within the scope of the sanctions compliance officer and in case of suspicious transactions, the SCO is responsible for reporting them. In order to ensure an unbiased counseling and non-conflicting points of interests, it is essential that the SCO is independent enough, not tied to the business lines.
Sanctions Compliance Programme (SCP)
Sanctions compliance programme (SCP) is a program operated by a company with the purpose of meeting regulatory expectations related to the sanctions compliance and managing the sanction risks. Firms and organizations that are subject to US jurisdiction are advised by OFAC to employ a risk-based approach for sanctions compliance by constantly improving, implementing and updating their sanctions compliance programs. OFAC defines 5 main components of a successful SCP as follows: management commitment, risk assessment, internal controls, testing and auditing, and training. The procedures and methods used by SCPs are very much alike with the ones used by AML compliance programs.
Sanctions Due Diligence (SDD)
Similar to Know Your Customer (KYC) and Customer Due Diligence (CDD) processes, Sanction Due Diligence (SDD) is risk checks specifically for the sanctions. SDD is going beyond just operating software screening and checking the approved sanction lists of authorities as it requires knowledge about which questions to ask, when to ask and what to do when the responses are received. It is also important to collect and evaluate information effectively. Therefore, integration of sanctions due diligence process with the business operations and making sure that they work in harmony with the sanctions compliance policies and processes is the key to success.
Serious Fraud Office (SFO)
The Serious Fraud Office (SFO) is a non-ministerial, prosecuting authority of the UK criminal justice system that investigates and tackles top-level serious or complex fraud, bribery and corruption. The territory over which its authority is exercised covers England, Wales, and Northern Ireland, but not Scotland. It was founded in 1988 and still holds the unique power in England and Wales to inquire, charge and prosecute cases of serious fraud, bribery and corruption.
Shelf Company
Also referred as shelf corporation or aged corporation. A company that has no activity and put on the “shelf” for aging. There may be several reasons to create or purchase a shelf company:
• For having a clean business record
• For achieving corporate seniority to appeal to investors
• For gaining advantage on legal procedures like bidding on contracts which require a certain time of longevity in the industry.
• For getting access to business loan
Simplified Due Diligence (SDD)
Simplified Due Diligence (SDD) is a less comprehensive and the most basic form of Customer Due Diligence (CDD) applied by financial institutions when the risk of money laundering or terrorist financing is weak. In SDD, certain measures are simplified or are not applied, such as identification and verification of the customer’s identity or beneficial ownership. It is made of a short identity verification process that is applied to sectors or transactions where the likelihood of money laundering or terrorist financing is lower.
Source of Funds (SoF)
Source of Funds (SoF) refers to the origin of the money involved in a payment transaction or investment. As a crucial part of the anti-money laundering (AML) and know your customer (KYC) compliance programs, financial institutions are responsible for monitoring and documenting the S0F of their customers. The purpose is to determine the legitimacy of the customer’s funds.
Specially Designated Nationals (SDNs)
Specially Designated Nationals (SDNs) are individuals, groups, businesses or entities that are classified under non country-specific programs and sanctions such as the narcotics traffickers or terrorists. An individual performing on behalf of a sanctioned country and a firm operated or owned by a sanctioned country are also recorded as SDNs.
Specially Designated Nationals and Blocked Persons List (SDN List)
Specially Designated Nationals and Blocked Persons List (SDN List) is a list of SDNs kept and updated by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The related sanctions are implemented on the people or entities included in the list and any kind of transaction with them is banned by the U.S.
Suspicious Activity Report (SAR) – Suspicious Transaction Report
A reporting tool developed and provided by the Bank Secrecy Act (BSA) of 1970 in order to monitor, detect and report suspicious financial activities which may be overlooked by other forms of reports. It is also called as “criminal referral form” and it became the standard form for reporting suspicious financial activity in 1996. SAR supports financial institutions effectively in detecting and uncovering important financial criminal activities such as money laundering, fraud, and other criminal financial schemes.
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Targeted Sanctions
Targeted sanctions, which are also called smart sanctions, are designed to achieve a particular result by acting against a particular target. The aim is to restrict movement by applying restrictions in the fields of finance or trade. Targeted sanctions can either be employed by a single country as one-sided or by multiple countries as many-sided.
Terrorist Financing
Terrorist financing refers to the whole process that is used to finance all the activities related to terrorism by the terrorists. The main resources for funding terrorist activities are grouped into two. The first financial source is from countries, institutions or individuals. The second source includes different kinds of illegal activities that turn into revenue such as smuggling, fraud or bribery.
The Bureau of Industry and Security (BIS)
The Bureau of Industry and Security (BIS) is a U.S. government agency that is a part of the Department of Commerce and responsible for regulating the export and re-export of commodities, software, and technology. It aims to protect U.S. national security and foreign policy objectives by helping stop the proliferation of weapons of mass destruction, while also promoting the growth of the U.S. economy.
The Federal Bureau of Financial Intelligence (FBFI)
The Federal Bureau of Financial Intelligence (FBFI) is Germany’s new governmental body to combat money laundering and terrorist financing. The ultimate aim of the FBFI is to centralize screening and reporting of money laundering activities and sanctions enforcement. It also provides educational courses for those who want to develop specific expertise in combating money laundering.
The Financial Crimes Enforcement Network (FinCEN)
FinCEN is a governmental bureau of the U.S. Department of the Treasury responsible for keeping a network that aims to detect, prevent and act upon the criminals who engage in money laundering, terrorism financing and other financial crimes. FinCEN is made up of three main parts which work both locally and globally are: the regulatory community, the financial services community and the law enforcement agencies.
The Office of the Comptroller of the Currency (OCC)
The Office of the Comptroller of the Currency (OCC) is an independent bureau of the U.S. Department of the Treasury that has the authority to license, regulate and administer all the national banks, federal savings associations and branches, and foreign bank agencies in the United States. The OCC investigates the way the banks are operating and ensures that they remain compliant with the laws and regulations while providing an equal access for their customers to their financial services and treating them fairly.
Threshold Calibration
Threshold calibration is a specific technique of re-arranging the thresholds in the algorithms of a screening tool for creating a logical harmony with the biggest areas of the sanctions risks of the financial institutions. The thresholds are represented in percentages and they are in charge of creating alerts. The calibration of thresholds stands for readjustment and updating of the algorithms by taking new trends, internal and external developments for an institution, and changing means of financial crime activities into consideration.
Title Fraud
Title fraud is committed by a fraudster who illegally changes the title of a property as his own or someone else’s without the knowledge or approval of the actual owners. This kind of real estate fraud is generally exploited when the misused property is not the primary residence of the owner.
There are 5 main steps of title fraud. First, the fraudster begins by collecting all the information he could find about the property, its address and its actual owner. The second step is the forgery of the documents related to the property and the identity of the owner. Then, the fraudster submits the forged documents to the related governmental bodies. Upon approval of the documents, the title is officially changed and transferred to the fraudster. The final step is exploitation where the fraudster can sell, take loans or lease the property.
