Anti-Money Laundering Glossary

Glossary Affidavit A written statement given under oath before an officer of the court, notary public or other authorized person. It is commonly used as the factual basis for an application for a search, arrest or seizure warrant. Alternative remittance system (ARS) Underground banking or informal value transfer systems (IVTS). Often associated with ethnic groups from the Middle East, Africa or Asia, and commonly involves the transfer of values among countries outside of the formal banking system. The remittance entity can be an ordinary shop selling goods that has an arrangement with a correspondent business in another country. There is usually no physical movement of currency and a lack of formality with regard to verification and record keeping. The money transfer takes place by coded information that is passed through chits, couriers, letters, faxes, emails, text messages or online chat systems, followed by some form of telecommunications confirmations. Anti-money laundering and counter-financing of terrorism program See anti-money laundering program Anti-Money Laundering International Database (AMLID) A compendium of analyses of anti-money laundering laws and regulations, including two general classes of money laundering control measures—domestic laws and international cooperation—as well as information on national contacts and authorities. A secure, multilingual database, AMLID is an important reference tool for law enforcement officers involved in cross-jurisdictional work. Anti-money laundering program The system designed to assist institutions in their fight against money laundering and terrorist financing. In many jurisdictions, government regulations require financial institutions, including banks, securities dealers and money services businesses, to establish such programs. At a minimum, the anti-money laundering program should include: 1. written internal policies, procedures and controls; 2. a designated AML compliance officer; 3. ongoing employee training and 4. independent review to test the program Arrest warrant A court order directing a law enforcement officer to seize and detain a particular person and require him or her to provide an answer to a complaint or otherwise appear in court. Asia/Pacific Group on Money Laundering (APG) A Financial Action Task Force (FATF)-style regional body consisting of jurisdictions in the Asia/Pacific Region. Asset protection A process that includes reorganizing how assets are held in order to make them less vulnerable should a claim be made against a person. Asset protection is also a term used by tax planners for measures taken to protect assets from taxation in other jurisdictions. Asset protection trusts (APTs) A special form of irrevocable trust usually created (i.e., settled) offshore for the principal purposes of preserving and protecting part of one’s wealth from creditors. Title to the asset is transferred to a person named the trustee. APTs are generally used for asset protection and are usually tax neutral. Their ultimate function is to provide for the beneficiaries. Some proponents advertise APTs as allowing foreign trustees to ignore U.S. court orders and to simply transfer the trust to another jurisdiction in response to legal action threatening the trust’s assets. Automated Clearing House (ACH) An electronic banking network that processes large volumes of both credit and debit transactions that originate in batches. ACH credit transfers include direct deposit payroll payments and payments to contractors and vendors. ACH debit transfers include consumer payments on insurance premiums, mortgage loans and other kinds of expenses. Automated teller machine (ATM) An electronic banking outlet that allows customers to complete basic transactions without the assistance of a bank employee. ATMs generally dispense cash, allow check and cash deposits and transfers to be made, as well as balance inquiries. Bank draft Vulnerable to money laundering because it represents a reputable international monetary instrument drawn on a reputable institution, and is often made payable—in cash—upon presentation and at the issuing institution’s account in another country. Bank secrecy Refers to laws and regulations in countries that prohibit banks from disclosing information about an account—or even revealing its existence—without the consent of the account holder. Impedes the flow of information across national borders among financial institutions and their supervisors. One of FATF’s 40 Recommendations states that countries should ensure that secrecy laws do not inhibit the implementation of the FATF Recommendations. Bank Secrecy Act (BSA) The primary U.S. anti-money laundering regulatory statute (Title 31, U.S. Code Sections 53115355) enacted in 1970 and most notably amended by the USA PATRIOT Act in 2001. Among other measures, it imposes money laundering controls on financial institutions and many other businesses, including the requirement to report and to keep records of various financial transactions. Bank Secrecy Act (BSA) compliance program A program that U.S.-based financial institutions—as defined by the Bank Secrecy Act—are required to establish and implement in order to control money laundering and related financial crimes. The program’s components include at a minimum: the development of internal policies, procedures and controls; the designation of a compliance officer; ongoing employee training and an independent audit function to test the program. Basel Committee on Banking Supervision (Basel Committee) The Basel Committee was established by the G-10’s central bank of governors in 1974 to promote sound supervisory standards worldwide. Its Secretariat is appointed by the Bank for International Settlements in Basel, Switzerland. It has issued, among others, papers on customer due diligence for banks, consolidated KYC risk management, transparency in payment messages, due diligence and transparency regarding cover payment messages related to cross-border wire transfers and sharing of financial records among jurisdictions in connection with the fight against terrorist financing. See www.bis.org/bcbs. Batch processing A type of data processing and data communications transmission in which related transactions are grouped together and transmitted for processing, usually by the same computer and under the same application. Bearer form In relation to a certificate, share transfer or other document, a bearer form enables a designated investment or deposit to be sold, transferred, surrendered or addressed to a bearer without the need to obtain further written instructions. Bearer negotiable instruments Includes monetary instruments in bearer form such as: negotiable instruments (including checks, promissory notes and money orders) that are either in bearer form, are endorsed without restriction, are made out to a payee or are otherwise in such form that title thereto passes upon delivery. Bearer share Negotiable instruments that accord ownership in a corporation to the person who is in physical possession of the bearer share certificate, a certificate made out to Bearer and not in the name of an individual or organization. Benami account Also called a nominee account. Held by one person or entity on behalf of another or others, Benami accounts are associated with the hawala underground banking system of the Indian subcontinent. A person in one jurisdiction seeking to move funds through a hawaladar to another jurisdiction may use a Benami account or Benami transaction to disguise his or her true identity or the identity of the recipient of the funds. Beneficial owner The term beneficial owner has two different definitions depending on the context. • The natural person who ultimately owns or controls an account through which a transaction is being conducted. • The natural people who have significant ownership of, as well as those who exercise ultimate effective control over, a legal person or arrangement. Beneficiary The term beneficiary has two different definitions depending on the context. • The person (natural or legal) who benefits from a transaction, such as the party receiving the proceeds of a wire, a payout on an insurance policy. • In the trust context, all trusts (other than charitable or statutory-permitted noncharitable trusts) must have beneficiaries, which may include the settlor. Trusts must also include a maximum time frame, known as the perpetuity period, which normally extends up to 100 years. Although trusts must always have some ultimately ascertainable beneficiary, they may have no defined existing beneficiaries. Bill stuffing A casino customer goes to various slot machines putting cash in the bill acceptors and collects cash-out tickets with nominal gaming activity, then cashes out at the casino cage or asks for a check. Black Market Peso Exchange (BMPE) The Black Market Peso Exchange (BMPE) is an example of a complex method of trade-based money laundering. The BMPE originally was driven by Colombia’s restrictive policies on currency exchange. To circumvent those policies, Colombian businesses bypassed the government levies by dealing with peso brokers that dealt in the black market or parallel financial market. Colombian drug traffickers took advantage of this method to receive Colombian pesos in Colombia in exchange for U.S. drug dollars located in the U.S. Cardholder Person to whom a financial transaction card is issued, or an additional person authorized to use the card. Caribbean Financial Action Task Force (CFATF) An FATF-style regional body comprising Caribbean nations, including Aruba, the Bahamas, the British Virgin Islands, the Cayman Islands and Jamaica. Casa de cambio Also called a bureau de change or an exchange office, a casa de cambio offers a range of services that are attractive to money launderers: currency exchange and consolidation of small denomination bank notes into larger ones; exchange of financial instruments such as travelers checks, money orders and personal checks; and telegraphic transfer facilities. Cash collateralized loans A cash collateralized loan has cash deposits as the loan’s collateral. The cash deposits can sometimes reside in another jurisdiction. Cash deposits Sums of currency deposited in one or more accounts at a financial institution. Vulnerable to money laundering in the placement phase, as criminals move their cash into the noncash economy by making deposits into accounts at financial institutions. Cashier’s check Common monetary instrument often purchased with cash. Can be used for laundering purposes, cashier’s checks provide an instrument drawn on a financial institution. Cash-intensive business Any business in which customers usually pay with cash for the products or services provided, such as restaurants, pizza delivery services, taxi firms, coin-operated machines or car washes. Some money launderers run or use cash-based businesses to commingle illegally obtained funds with cash actually generated by the business. CICAD (Comisión Interamericana para el Control del Abuso de Drogas or Inter-American Drug Abuse Control Commission) CICAD has issued several sets of anti-money laundering recommendations, including amendments to the Organization of American States (OAS) Model Regulations issued in 1992. Collection accounts Immigrants from foreign countries deposit many small amounts of currency into one account where they reside, and the collected sum is transferred to an account in their home country without documentation of the sources of the funds. Certain ethnic groups from Asia or Africa may use collection accounts to launder money. Commission rogatoire Also known as letters rogatory, a commission rogatoire is a written request for legal or judicial assistance sent by the central authority of one country to the central authority of another when seeking evidence from the foreign jurisdiction. The letter typically specifies the nature of the request, the relevant criminal charges in the requesting country, the legal provision under which the request is made, and the information sought. Concentration account Also called an omnibus account. Held by a financial institution in its name, a concentration account is used primarily for internal administrative or bank-to-bank transactions in which funds are transmitted and commingled without personally identifying the originators. Concentration risk Concentration risk primarily applies to the asset side of the balance sheet. As a common practice, supervisory authorities not only require financial institutions to have information systems to identify credit concentrations, but also set limits to restrict bank exposure to single borrowers or groups of related borrowers. On the liability side, concentration risk is associated with funding risk, especially the risk of early and sudden withdrawal of funds by large depositors that could harm an institution’s liquidity. Confidentiality Keeping certain facts, data and information out of public or unauthorized view. In most jurisdictions, confidentiality is required when filing suspicious transaction or activity reports —the filing institution’s employees cannot notify a customer that a report has been filed. In another context, a breach of confidentiality can occur when an institution discloses client information to enforcement agencies or a financial intelligence unit in violation of the jurisdiction’s bank secrecy laws. Confiscation Includes forfeiture where applicable, and means the permanent deprivation of funds or other assets by order of a competent authority or a court. Confiscation or forfeiture takes place through a judicial or administrative procedure that transfers the ownership of specified funds or other assets to the state. Upon transfer, the individual(s) or entity(ies) that held an interest in the specified funds or other assets at the time of the confiscation or forfeiture lose all rights, in principle, to the confiscated or forfeited assets. Corporate vehicles Types of legal entities that may be subject to misuse such as private limited companies and public limited companies whose shares are not traded on a stock exchange, trusts, nonprofit organizations, limited partnerships and limited liability partnerships and private investment companies. Occasionally, it is difficult to identify the people who are the ultimate beneficial owners and controllers of corporate vehicles, which makes the vehicles vulnerable to money laundering. Correspondent banking The provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). Large international banks typically act as correspondents for hundreds of other banks around the world. Respondent banks may be provided with a wide range of services, including cash management (e.g., interest-bearing accounts in a variety of currencies), international wire transfers of funds, check clearing services, payable-through accounts and foreign exchange services. Credit cards A plastic card with a credit limit used to purchase goods and services and to obtain cash advances on credit. The cardholder is subsequently billed by the issuer for repayment of the credit extended. Credit cards may be used to launder money when payments of the amounts owed on the card are made with criminal money. Criminal proceeds Any property derived from or obtained, directly or indirectly, through the commission of a crime. Cross border Used in the context of activities that involve at least two countries, such as wiring money from one country to another or taking currency across a border. Currency Banknotes and coins that are in circulation as a medium of exchange. Currency smuggling The illicit movement of large quantities of cash across borders, often into countries without strict banking secrecy, poor exchange controls or poor anti-money laundering legislation. Currency transaction report (CTR) A report that documents a physical currency transaction that exceeds a certain monetary threshold. A CTR can also be filed on multiple currency transactions that occur in one day exceeding the required reporting amount. Some countries, including the U.S., have requirements addressing when CTRs should be filed with government authorities. Custodian A bank, financial institution or other entity that is responsible for managing, administering or safekeeping assets for other people or institutions. A custodian holds assets to minimize risk of theft or loss, and does not actively trade or handle the assets. Custody The act of or authority to safeguard and administer clients’ investments or assets. Customer due diligence (CDD) In terms of money laundering controls, CDD requires policies, practices and procedures that enable a financial institution to predict with relative certainty the types of transactions in which the customer is likely to engage. CDD includes not only establishing the identity of customers, but also establishing a baseline of account activity to identify those transactions that do not conform to normal or expected transactions. Debit card A card that permits an account holder to draw funds from an existing account. Debit cards are used to pay obligations or make purchases. Debit cards can be used in a variety of places, including on the Internet. Debit cards often allow for movement of cash via cash-back transactions or withdrawals at ATMs. Designated Categories of Offense Those crimes considered by FATF to be money-laundering predicate offenses. Each country can separately decide how it will define specific offenses and their elements under its own domestic laws. Many nations do not specify which crimes can serve as predicates for laundering prosecutions and merely state that all serious felonies may be predicates. Designated nonfinancial businesses and professions FATF recommends certain standards apply to nonfinancial businesses and professions, including specifically: • casinos (including Internet casinos); • real estate agents; • dealers in precious metals and precious stones; • lawyers, notaries, other independent legal professionals and accountants (Refers to those who prepare or carry out certain duties on behalf of clients); and • trust and company service providers who prepare or carry out certain duties on behalf of their clients. Domestic transfer Electronic funds transfer in which the originator and beneficiary institutions are located in the same jurisdiction. A domestic transfer therefore refers to any chain of wire transfers that takes place entirely within the borders of a single jurisdiction, even though the actual system used to send the wire transfer may be located in another jurisdiction or online. Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) An FATF-style regional body comprising countries from the Eastern region of Africa down to the Southern tip of Africa, established in 1999. Egmont Group of Financial Intelligence Units The Egmont Group consists of numerous national financial intelligence units (FIUs) that meet regularly to find ways to promote the development of FIUs and to cooperate, especially in the area of information exchange, training and the sharing of expertise. The goal of the group is to provide a forum for FIUs to improve cooperation in the fight against money laundering and the financing of terrorism, and to foster the implementation of domestic programs in this field. Electronic funds transfer (EFT) The movement of funds between financial institutions electronically. The two most common electronic funds transfer systems in the U.S. are FedWire and CHIPS. (SWIFT is often referred to as the third EFT system, but in reality it is an international messaging system that carries instructions for wire transfers between institutions, rather than the wire transfer system itself.) Electronic money (emoney) Electronic cash represents a series of monetary value units in some electronic format, such as being stored electronically online, on the hard drive of a device or on the microchip of a plastic card. Enhanced due diligence (EDD) In conjunction with customer due diligence, EDD calls for additional measures aimed at identifying and mitigating the risk posed by higher risk customers. It requires developing a more thorough knowledge of the nature of the customer, the customer’s business and understanding of the transactions in the account than a standard or lower risk customer. A financial institution should ensure account profiles are current and monitoring should be risk-based. Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) An FATF-style regional body formed in October 2004 in Moscow. European Union (EU) The modern EU was founded in the Treaty of Maastricht on European Union, signed in 1992 and effective in 1993. The EU is a politicoeconomic union of member states located primarily in Europe. Member states have set up three common institutions (the European Parliament, the European Commission and the Council of the European Union) to which they delegate part of their sovereignty so that decisions on specific matters of collective interest can be made democratically at the European level. As a result, people, goods, services and money flow freely through the EU. European Union Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing First adopted by the European Union in June 1991 and updated in 1997, 2005 and 2015, the Directive requires EU member states to ensure that money laundering and terrorist financing are prohibited. The Directive applies to a broad spectrum of entities, including financial institutions, accountants, notaries, trust companies, estate agents and some providers of gambling services. Member states are expected to identify and mitigate risks appropriately. They are to oversee financial institutions and other obliged entities, including establishing standards for customer due diligence, prohibition of shell banking relationships, establishing FIUs, developing standards for document retention and requiring consequences for failure to comply. Europol Europol is the EU’s law enforcement agency. Its main goal is to help achieve a safer Europe for the benefit of all EU citizens. In the area of anti-money laundering, Europol provides member states’ law enforcement authorities with operational and analytical support via the Europol liaison officers (ELOs) and its analysts, as well as state-of-theart databases and communication channels. Express trust A trust created expressly by the settlor, usually in the form of a document such as a written deed of trust. An express trust differs from trusts that do not result from the specific intent or decision of a settlor to create a trust (e.g., constructive trust established by a court of law to address undeclared property). Extradition The surrender by one jurisdiction to another of an accused or convicted person under an agreement that specifies the terms of such exchanges. Extraterritorial reach The extension of one country’s policies and laws to the citizens and institutions of another. Depending on jurisdiction, money laundering laws may extend prohibitions and sanctions into other jurisdictions. Financial Action Task Force (FATF) FATF was chartered in 1989 by the Group of Seven industrial nations to foster the establishment of national and global measures to combat money laundering. It is an international policy making body that sets anti-money laundering standards and counter-terrorist financing measures worldwide. Its Recommendations do not have the force of law. Thirty-five countries and two international organizations are members. In 2012, FATF substantially revised its 40 + 9 Recommendations and reduced them to 40. FATF develops annual typology reports showcasing current money laundering and terrorist financing trends and methods. See www.fatf-gafi.org. Financial Action Task Force on Money Laundering in Latin America (GAFILAT) An FATF-style regional body for Latin America, established in 2000. Financial Action Task Force-Style Regional Body (FSRB) FSRBs have forms and functions similar to those of FATF. However, their efforts are targeted to specific regions. In conjunction with FATF, FSRBs constitute an affiliated global network to combat money laundering and terrorist financing. Financial intelligence unit (FIU) A central national agency responsible for receiving, analyzing and transmitting disclosures on suspicious transactions to appropriate authorities. Forfeiture The involuntary loss of property or assets as a result of legal action. Generally, the owner of the property that has failed to comply with the law or the property is linked to some sort of criminal activity. Freeze To prevent or restrict the exchange, withdrawal, liquidation or use of assets or bank accounts. Unlike forfeiture, frozen property, equipment, funds or other assets remain the property of the natural or legal people that held an interest in them at the time of the freezing and may continue to be administered by third parties. The courts may decide to implement a freeze as a means to protect against flight. Front company Any business set up and controlled by another organization. Although not necessarily illicit, criminals use front companies to launder money by giving the funds the appearance of legitimate origin. Front companies may subsidize products and services at levels well below market rates or even below manufacturing costs. GAFISUD (Spanish: Grupo de Acción Financiera de Sudamérica) See Financial Action Task Force on Money Laundering in Latin America. Gatekeepers Professionals, such as lawyers, notaries, accountants, investment advisors and trust and company service providers, who assist in transactions involving the movement of money and are deemed to have a particular role in identifying, preventing and reporting money laundering. Some countries impose due diligence requirements on gatekeepers that are similar to those of financial institutions. Grantor The party who transfers title or ownership of property or assets. In a trust, typically the person who creates or funds the trust. Gulf Cooperation Council (GCC) Formed in 1981, the GCC promotes cooperation between its member states in the fields of economy and industry. Member states include Kuwait, Bahrain, Qatar, Saudi Arabia, Oman, and the United Arab Emirates. The GCC is a member of FATF, although some of its individual members are not. Hawala An informal value transfer system common in the Middle East, North Africa and the Indian subcontinent. The system operates outside traditional banking systems. In a basic form, a customer contacts a hawaladar and gives him or her money to be transferred to another person. The hawaladar contacts his or her counterpart where the second person lives, who remits the funds to that person. A running tally is kept between the hawaladars of which owes the other a net sum. See alternative remittance system. Hawaladar A hawala broker. Human smuggling Human smuggling refers to the transport or illegal entry of a person across international borders in contravention of one or more countries’ laws. Human smuggling differs from human trafficking in that it focuses on the entry or transport, rather than the exploitation, of the person involved. Human trafficking Also known as Trafficking in Persons. The trade of humans, most commonly for the purpose of sexual slavery, forced labor or commercial sexual exploitation. Trafficking occurs in almost every country in the world and is often cited as the second-largest criminal enterprise in the world. Informal value transfer system (IVTS) See alternative remittance system. Integration The integration phase, often referred to as the third and last stage of the classic money laundering process, places laundered funds back into the economy by re-entering the funds into the financial system and giving them the appearance of legitimacy. International business company (IBC) A variety of offshore corporate structures that are dedicated to business use outside the incorporating jurisdiction and feature rapid formation, secrecy, broad powers, low cost, low-to-zero taxation and minimal filing and reporting requirements. International Monetary Fund (IMF) An organization of more than 180 member countries, the IMF works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty around the world. The organization’s objectives have remained unchanged since it was established. Its operations, which involve surveillance, financial assistance and technical support, have adjusted to meet the changing needs of member countries. Know your customer (KYC) Anti-money laundering policies and procedures used to determine the true identity of a customer and the type of activity that is normal and expected, and to detect activity that is unusual for a particular customer. Know your employee (KYE) Anti-money laundering policies and procedures for acquiring a better knowledge and understanding of the employees of an institution for the purpose of detecting conflicts of interests, money laundering, past criminal activity and suspicious activity. Knowledge Mental state accompanying a prohibited act. The Interpretive Notes to Recommendation 3 of the FATF 40 Recommendations of 2012 say that countries should ensure that the intent and knowledge required to prove the offense of money laundering is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such a mental state may be inferred from objective factual circumstances. The exact definition of knowledge that accompanies an anti-money laundering act varies by country. Knowledge can be deemed, under certain circumstances, to include willful blindness; that is “the deliberate avoidance of knowledge of the facts,” as some courts have defined the term. Layering The second phase of the classic three-step money laundering process between placement and integration, layering involves distancing illegal proceeds from their source by creating complex levels of financial transactions designed to disguise the audit trail and to provide anonymity. Legal risk Defined by the 2001 Basel Customer Due Diligence for Banks paper as the possibility that lawsuits, adverse judgments or contracts that cannot be enforced may disrupt or harm a financial institution. In addition, banks can suffer administrative or criminal penalties imposed by the government. A court case involving a bank may have graver implications for the institution than just the legal costs. Banks will be unable to protect themselves effectively from such legal risks if they do not practice due diligence in identifying customers and understanding and managing their exposure to money laundering. Letter of credit A credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party when certain conditions are met. Letter rogatory See commission rogatoire. Memorandum of understanding (MOU) Agreement between two parties establishing a set of principles that govern their relationship on a particular matter. An MOU is often used by countries to govern their sharing of assets in international assetforfeiture cases or to set out their respective duties in anti-money laundering initiatives. Financial intelligence units (FIUs), with the task of receiving and analyzing suspicious transaction reports on an ongoing basis and maintaining close links with police and customs authorities, share information among themselves informally in the context of investigations, usually on the basis of an MOU. Middle East and North Africa Financial Action Task Force (MENAFATF) A FATF-style body established for the Middle Eastern and North African regions in 2004. Monetary instruments Traveler’s checks, negotiable instruments, including personal checks and business checks, official bank checks, cashier’s checks, promissory notes, money orders, securities or stocks in bearer form. Monetary instruments are normally included, along with currency, in the antimoney laundering regulations of most countries, and financial institutions must file reports and maintain records of customer activities involving them. Money laundering The process of concealing or disguising the existence, source, movement, destination or illegal application of illicitly derived property or funds to make them appear legitimate. It usually involves a three-part system: placement of funds into a financial system, layering of transactions to disguise the source, ownership and location of the funds and integration of the funds into society in the form of holdings that appear legitimate. The definition of money laundering varies in each country where it is recognized as a crime. Money laundering reporting officer (MLRO) A term used in various international rules to refer to the person responsible for overseeing a firm’s anti-money laundering activities and program and for filing reports of suspicious transactions with the national FIU. The MLRO is the key person in the implementation of antimoney laundering strategies and policies. Money order A monetary instrument usually purchased with cash in small (generally under 500 euros) denominations. It is commonly used by people without checking accounts to pay bills or to pay for purchases in which the vendor will not accept a personal check. Money orders may be used for laundering because they represent an instrument drawn on the issuing institution rather than on an individual’s account. Money services business (MSB) A person (whether a natural or legal person) engaged in any of the following activities where it exceeds the applicable regulatory threshold, at which point the person is generally deemed to be a financial institution subject to AML obligations. • Dealing in foreign exchange • Check cashing • Issuing or selling traveler’s checks or money orders • Providing or selling prepaid access • Money transmission Money transfer service or value transfer service Financial service that accepts cash, checks and other monetary instruments that can store value in one location and pay a corresponding sum in cash or other form to a beneficiary in another location by means of a communication, message, transfer or through a clearing network to which the money/value transfer service belongs. Transactions performed by such services can involve one or more intermediaries and a third-party final payment. A money or value transfer service may be provided by people (natural or legal) formally through the regulated financial system (e.g., bank accounts), informally through nonbank financial institutions and business entities or outside of the regulated system. In some jurisdictions, informal systems are referred to as alternative remittance services or underground (or parallel) banking systems. MONEYVAL Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures. Formerly PC-R-EV, the committee was established in 1997 by the Committee of Ministers of the Council of Europe to conduct self and mutual assessments of anti-money laundering measures in place in Council of Europe countries that are not FATF members. MONEYVAL is a sub-committee of the European Committee on Crime Problems of the Council of Europe (CDPC). Monitoring An element of an institution’s anti-money laundering program in which customer activity is reviewed for unusual or suspicious patterns, trends or outlying transactions that do not fit a normal pattern. Transactions are often monitored using software that weighs the activity against a threshold of what is deemed normal and expected for the customer. Mutual legal assistance treaty (MLAT) Agreement among countries allowing for mutual assistance in legal proceedings and access to documents and witnesses and other legal and judicial resources in the respective countries, in private and public sectors, for use in official investigations and prosecutions. Nesting The practice where a respondent bank provides downstream correspondent services to other financial institutions and processes these transactions through its own correspondent account. The correspondent bank is thus processing transactions for financial institutions on which it has not conducted due diligence. Although this is a normal part of correspondent banking, it requires the correspondent bank to conduct enhanced due diligence on its respondent’s AML program to adequately mitigate the risk of processing the customer’s customers’ transactions. Nongovernmental organization (NGO) Nonprofit organizations that are not directly linked to the governments of specific countries, and perform a variety of service and humanitarian functions, including bringing citizen concerns to governments, advocating for causes and encouraging political participation. Some countries’ antimoney laundering regulations for NGOs still have loopholes that some worry could be exploited by terrorists or terrorist sympathizers trying to secretly move money. Nonprofit organizations (NPO) These can take on a variety of forms, depending on the jurisdiction and legal system, including associations, foundations, fund-raising committees, community service organizations, corporations of public interest, limited companies and public benevolent institutions. FATF has suggested practices to help authorities protect organizations that raise or disburse funds for charitable, religious, cultural, educational, social or fraternal purposes from being misused or exploited by financiers of terrorism. Offshore Literally, away from one’s own home country—if one lives in Europe, the United States is offshore. In the money laundering lexicon, the term refers to jurisdictions deemed favorable to foreign investments because of low or no taxation or strict bank secrecy regulations. Offshore banking license A license that prohibits a bank from doing business with local citizens or in local currency as a condition of its license. Offshore financial center (OFC) Institutions that cater to or otherwise encourage banks, trading companies and other corporate or legal entities to physically or legally exist in a jurisdiction but limit their operations to offshore, meaning outside the jurisdiction (see offshore). OFCs have historically been located in the Caribbean or on Mediterranean islands to be in reasonable proximity to the major financial centers of the U.S. and Europe. Omnibus account See clearing account. Operational risk The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or systems, or as a result of external events. Public perception that a bank is not able to manage its operational risk effectively can disrupt or harm the business of the bank. Organization for Economic Cooperation and Development (OECD) International organization that assists governments on economic development issues in the global economy. OECD houses the FATF Secretariat in Paris. Originator The account holder or, where there is no account, the person (natural or legal) that places the order with the financial institution to perform the wire transfer. Payable through account Transaction account opened at a depository institution by a foreign financial institution through which the foreign institution’s customers engage, either directly or through subaccounts, in banking activities and transactions in such a manner that the financial institution’s customers have direct control over the funds in the account. These accounts pose risks to the depository institutions that hold them because it can be difficult to conduct due diligence on foreign institution customers who are ultimately using the PTA accounts. Physical presence Existence of an actual brick-and-mortar location with meaningful management of the institution physically located within a country, where it maintains business records and is subject to supervision. The mere existence of a local agent or low level staff does not constitute physical presence. Placement The first phase of the money laundering process: The physical disposal of proceeds derived from illegal activity. Politically exposed person (PEP) According to FATF’s revised 40 Recommendations of 2012, a PEP is an individual who has been entrusted with prominent public functions in a foreign country, such as a head of state, senior politician, senior government official, judicial or military official, senior executive of a state-owned corporation or important political party official, as well as their families and close associates. The term PEP does not extend to middle-ranking individuals in the specified categories. Various country regulations will define the term PEP, which may include domestic as well as foreign persons. Ponzi scheme A money laundering system named after Charles Ponzi, an Italian immigrant who spent 10 years in jail in the U.S. for a scheme that defrauded 40,000 people out of $15 million. Ponzi’s name became synonymous with the use of new investors’ money to pay off prior investors. Ponzi schemes involve fake, nonexistent investment schemes in which the investors are tricked into investing on the promise of unusually attractive returns. The operator of the scheme can keep the operation going by paying off early investors with the money from new investors until the scheme collapses under its own weight and/or the promoter vanishes with the remaining money. Predicate crimes Specified unlawful activities whose proceeds, if involved in the subject transaction, can give rise to prosecution for money laundering. Most anti-money laundering laws contain a wide definition or listing of such underlying crimes. Predicate crimes are sometimes defined as felonies or “all offenses in the criminal code.” Private banking A department in a financial institution that provides high-end services to wealthy individuals. Private banking transactions tend to be marked with confidentiality, complex beneficial ownership arrangements, offshore investment vehicles, tax shelters and credit extension services. Private investment company (PIC) Also known as a personal investment company, a PIC is a type of corporation that is often established in an offshore jurisdiction with tight secrecy laws to protect the privacy of its owners. In some jurisdictions, an international business company or exempt company is referred to as a private investment company. Pyramid scheme See Ponzi scheme. Red flag A warning signal that should bring attention to a potentially suspicious situation, transaction or activity. Regulatory agency A government entity responsible for supervising and overseeing one or more categories of financial institutions. The agency generally has authority to issue regulations, to conduct examinations, to impose fines and penalties, to curtail activities and, sometimes, to terminate charters of institutions under its jurisdiction. Most financial regulatory agencies play a major role in preventing and detecting money laundering and other financial crimes. Most regulators focus on domestic institutions, but some have the ability to regulate foreign branches and operations of institutions. Remittance services Also referred to as giro houses or casas de cambio, remittance services are businesses that receive cash or other funds that they transfer through the banking system to another account. The account is held by an associated company in a foreign jurisdiction where the money is made available to the ultimate recipient. Reputational risk The potential that adverse publicity regarding a financial institution’s business practices and associations, whether accurate or not, will cause a loss of confidence in the integrity of the institution. Banks and other financial institutions are especially vulnerable to reputational risk because they can become a vehicle for, or a victim of, illegal activities perpetrated by customers. Such institutions may protect themselves through know-your-customer and know-your-employee programs. Respondent bank A bank for which another financial institution establishes, maintains, administers or manages a correspondent account. Risk-based approach The assessment of the varying risks associated with different types of businesses, clients, accounts and transactions in order to maximize the effectiveness of an anti-money laundering program. Safe harbor Legal protection for financial institutions, their directors, officers and employees from criminal and civil liability for breach of any restriction on disclosing information imposed by contract or by any legislative, regulatory or administrative prohibition, if they report their suspicions in good faith to the financial investigation unit (FIU), even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred. Seize To prohibit the transfer, conversion, disposition or movement of funds or other assets on the basis of an action initiated by a competent authority or a court under a freezing mechanism. However, unlike a freeze, a seizure allows the competent authority to take control of specified funds or other assets. The seized assets remain the property of the individual(s) or entity(ies) that held an interest in them at the time of the seizure, although the competent authority will often take over possession, administration or management of the seized assets. Senior foreign political figure U.S. term for foreign politically exposed persons. See politically exposed persons. Settlors People or companies who transfer ownership of their assets to trustees by means of a trust deed. Where the trustees have some discretion as to the investment and distribution of the trust’s assets, the deed may be accompanied by a non-legally binding letter setting out what the settlor wishes done with the assets. Shell bank Bank that exists on paper only and that has no physical presence in the country where it is incorporated or licensed, and which is unaffiliated with a regulated financial services group that is subject to effective consolidated supervision. Smurfing A commonly used money laundering method, smurfing involves the use of multiple individuals and/or multiple transactions for making cash deposits, buying monetary instruments or bank drafts in amounts under the reporting threshold. The individuals hired to conduct the transactions are referred to as smurfs. See structuring. Sting operation Investigative tactic in which undercover officers pose as criminals, sometimes through a front business, to win the confidence of suspected or known criminals to gather information and to obtain evidence of criminal conduct. It is an effective means of identifying criminals, penetrating criminal organizations and identifying tainted property in money laundering and other cases. Structuring Illegal act of splitting cash deposits or withdrawals into smaller amounts, or purchasing monetary instruments, to stay under a currency reporting threshold. The practice might involve dividing a sum of money into lesser quantities and making two or more deposits or withdrawals that add up to the original amount. Money launderers use structuring to avoid triggering a filing by a financial institution. The technique is common in jurisdictions that have compulsory currency reporting requirements. See smurfing. Subpoena Compulsory legal process issued by a court to compel the appearance of a witness at a judicial proceeding, sometimes requiring the witness to bring specified documents. The term can refer to either the process or the actual document that compels the recipient to act. Suspicious activity Irregular or questionable customer behavior or activity that may be related to a money laundering or other criminal offense, or to the financing of a terrorist activity. May also refer to a transaction that is inconsistent with a customer’s known legitimate business, personal activities or the normal level of activity for that kind of business or account. Suspicious activity report (SAR) A government filing required by reporting entities that includes a financial institution’s account of a questionable transaction. Many jurisdictions require financial institutions to report suspicious transactions to relevant government authorities such as its FIU on a suspicious activity report (SAR). Suspicious transaction report (STR) See suspicious activity report. Tax haven Countries that offer special tax incentives or tax avoidance to foreign investors and depositors. Terrorist financing The process by which terrorists fund their operations in order to perform terrorist acts. There are two primary sources of financing for terrorist activities. The first involves financial support from countries, organizations or individuals. The other involves a wide variety of revenue-generating activities, some illicit, including smuggling and credit card fraud. Testimony Witness’ oral presentation, usually under oath, that describes facts known to the witness. Tipping off Improper or illegal act of notifying a suspect that he or she is the subject of a suspicious transaction report or is otherwise being investigated or pursued by the authorities. Trade finance See letter of credit. Transparency International (TI) Berlin-based, nongovernmental organization dedicated to increasing government accountability and curbing both international and national corruption. Established in 1993, TI is active in approximately 100 countries. It publishes corruption news on its website daily and offers an archive of corruption-related news articles and reports. Its Corruption Online Research and Information System, or CORIS, is perhaps the most comprehensive worldwide database on corruption. TI is best known for its annual Corruption Perceptions Index (CPI), which ranks countries by perceived levels of corruption among public officials; its Bribe Payers Index (BPI) ranks the leading exporting countries according to their propensity to bribe. TI’s annual Global Corruption Report combines the CPI and the BPI and ranks each country by its overall level of corruption. The lists help financial institutions determine the risk associated with a particular jurisdiction. Trust Arrangement among the property owner (the grantor), a beneficiary and a manager of the property (the trustee), whereby the trustee manages the property for the benefit of the beneficiary in accordance with terms set by the grantor. Trustee May be a paid professional or company or unpaid person that holds the assets in a trust fund separate from the trustee’s own assets. The trustee invests and disposes of the assets in accordance with the settlor’s trust deed, taking into consideration any letter of wishes. Typology Refers to a money laundering method and is a term used by FATF. U.N. Security Council Resolution 1373 (2001) Adopted in 2001, the resolution requires member nations to take a series of actions to combat terrorism through the adoption of laws and regulations and the establishment of administrative structures. The resolution also requires member nations to “afford one another the greatest measure of assistance for criminal investigations or criminal proceedings relating to the financing or support of terrorist acts.” Ultimate beneficial owner (UBO) See beneficial owner. Underground banking See alternative remittance system. United Nations (U.N.) An international organization that was established in 1945 by 51 countries committed to preserving peace through cooperation and collective security. Today, nearly every nation in the world belongs to the U.N. See also Vienna Convention. The United Nations contributes to the fight against organized crime with initiatives such as the Global Program against Money Laundering (GPML), the key instrument of the U.N. Office of Drug Control and Crime Prevention in this task. Through the GPML, the U.N. helps member states to introduce legislation against money laundering and to develop mechanisms to combat this crime. The program encourages anti-money laundering policy development, monitors and analyzes the problems and responses, raises public awareness about money laundering and acts as a coordinator of joint anti-money laundering initiatives with other international organizations. Unusual transaction Transaction that appears designed to circumvent reporting requirements, is inconsistent with the account’s transaction patterns or deviates from the activity expected for that type of account. USA PATRIOT Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). Enacted on October 26, 2001, the historic U.S. law brought about momentous changes in the anti-money laundering field, including more than 50 amendments to the Bank Secrecy Act. Title III of the Act, the International Money Laundering Abatement and AntiTerrorist Financing Act of 2001, contains most, but not all, of its antimoney laundering-related provisions. Value transfer service See money transfer service. Vienna Convention Convention in 1988 against the Illicit Trade in Narcotic Drugs and Psychotropic Substances. Countries that become parties to the Vienna Convention commit to criminalizing drug trafficking and associated money laundering, and enacting measures for the confiscation of the proceeds of drug trafficking. Article III of the Convention provides a comprehensive definition of money laundering, which has been the basis of much subsequent national legislation. Virtual currency A medium of exchange that operates in the digital space that can typically be converted into either a fiat (e.g., government-issued currency) or it can be a substitute for real currency. Willful blindness Legal principle that operates in money laundering cases in the U.S. and is defined by courts as the “deliberate avoidance of knowledge of the facts” or “purposeful indifference.” Courts have held that willful blindness is the equivalent of actual knowledge of the illegal source of funds or of the intentions of a customer in a money laundering transaction. Wire transfer Electronic transmission of funds among financial institutions on behalf of themselves or their customers. Wire transfers are financial vehicles covered by the regulatory requirements of many countries in the antimoney laundering effort. Wolfsberg Group Named after the castle in Switzerland where its first working session was held, the Wolfsberg Group is an association of global financial institutions, including Banco Santander, Bank of America, Bank of Tokyo-Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse Group, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan Chase, Société Générale, Standard Chartered Bank and UBS. In 2000, along with Transparency International and experts worldwide, the institutions developed global anti-money laundering guidelines for international private banks. Since then, it has issued several other guidelines on correspondent banking and terrorist financing, among others. World Bank The World Bank is a vital source of financial and technical assistance to developing countries. It is not a bank in the usual sense, but is made up of two unique development institutions owned by 184 member countries—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Both organizations provide low-interest loans, interest-free credit and grants to developing countries. In 2002, the IMF and the World Bank launched a 12-month pilot program to assess countries’ anti-money laundering and counter-terrorist financing measures. The World Bank and the IMF, in conjunction with FATF, developed a common methodology to conduct such assessments based on the FATF’s 40 Recommendations.