THE AML JARGON-BUSTER Your Guide to Anti-Money Laundering Definitions

THE AML JARGON-BUSTER Your guide to Anti-Money Laundering definitions

TERM DEFINITION TERM DEFINITION

AML See Anti-Money Laundering Enhanced Due An enhanced form of customer due Diligence (EDD) diligence (CDD) that must be adopted Anti-Money The systems and controls that regulated when the firm has ascertained that the Laundering (AML) firms are required to put in place in customer poses a higher risk of money order to prevent, detect and report laundering. It typically requires the money laundering. collection of additional documentation, or further verification checks. Anonymous An anonymous account is one for which Account the financial institution holds no records FATF See Financial Action Task Force concerning the identity of the account holder. Most jurisdictions now prohibit Financial Action An inter-governmental organisation the use of anonymous accounts Task Force (FATF) founded by the G7 in 1989 to develop although numerous ‘anonymous’ a global set of standards to combat accounts and facilities are still offered money laundering. FATF is based in via the Internet. Paris, France and the latest version of its 40 recommendations were published Beneficial Owner The person who ultimately owns in February 2012. They focus on the (BO) an asset and on whom AML checks importance of taking a risk-based need to be carried out. On occasions, approach to combatting money particularly with offshore entities, the laundering and terrorist financing. identity of the beneficial owner may not be disclosed in the public domain. Financial The Financial Action Task Force Sufficient KYC checks will not be Intelligence Unit recommends that each country should deemed to have been carried out if the (FIU) establish a financial intelligence unit identity of the beneficial owner(s) is not (FIU) – a national central authority to established, and then verified as per the receive, analyse and act upon suspicious risk-based approach. activity reports and deal with AML matters. CDD See Customer Due Diligence FIU See Financial Intelligence Unit CFT See Countering the Financing of Terrorism Front Company A shell company or subsidiary that is intended to shield the owners from CTF See Countering Terrorist Financing liability or scrutiny. Such a company may be used for organised crime or Customer Due Customer due diligence (CDD) is the other illegal activities. Diligence (CDD) process by which a firm gathers sufficient information regarding a customer Integration The final part of the money laundering to enable it to adequately assess the process. The funds that were the potential AML risks the client poses. It proceeds of crime are fully integrated is often referred to within the industry into the financial system and are now as know your customer/client (KYC), perceived as ‘clean’. Such funds can although CDD tends to relate specifically be used without suspicion, since it is to AML, whereas the term KYC may also difficult (if not impossible) to link them be used where the firm is required to back to the original criminal activity. gather information regarding a client prior to providing a service (such as Know Your The activities that financial institutions investment advice) to the client. Customer/Client must perform to ascertain relevant (KYC) information about their clients for the Countering the The systems and controls that regulated purpose of doing business with them. Financing of firms are required to put in place in In the context of AML, the term is often Terrorism (CFT) order to prevent, detect and report the used interchangeably with customer financing of terrorism. due diligence (CDD) but KYC also applies in the context of the provision Countering An alternative term for countering the of certain services. For example, firms Terrorist Financing financing of terrorism (CFT). are typically required to gather certain (CTF) information from a client prior to providing investment advice. EDD See Enhanced Due Diligence

Know Your The due diligence activities (such as RBA See Risk-Based Approach Employee (KYE) pre-employment checks) performed by a firm on its employees. Risk-Based A risk-based approach is considered by Approach (RBA) the Financial Action Task Force (FATF) to KYC See Know Your Customer/Client be the basis for effective implementation of AML controls. Under such an approach KYE See Know Your Employee countries, competent authorities and reporting entities (including financial Layering The second stage of the money institutions) are expected to identify, laundering process. The proceeds of assess and understand the money crime which have been introduced into laundering/terrorist financing risks they the financial system (via placement) are exposed to so that they can develop are disguised by the use of multiple the appropriate measures to mitigate transactions, or by other techniques, these risks. which are intended to make it increasingly difficult to link the funds to the original SAR See Suspicious Activity Report criminal activity. This may involve, for example, the transfer of funds between SDD See Simplified Due Diligence different accounts and currencies, the use of trade finance, or buying/selling assets Shell Bank Generally defined as ‘a foreign bank such as shares or bonds. without a physical presence in any country’. Correspondent banking Money Laundering The process by which criminals attempt relationships with such banks represent to hide and/or disguise the origins of a significant money laundering risk. the proceeds of crime. Simplified Due A simplified form of customer due Numbered Account A bank account which has a number, Diligence (SDD) diligence (CDD) that may be adopted rather than the name of the account when the firm has ascertained that the holder, as its title. As a result the customer poses a low risk of money account owner will not be identified in laundering. account documentation. However, the account is not strictly anonymous, since Smurfing A technique used in the placement banking regulations typically require of funds that are being laundered, the bank to know the identity of the whereby the funds are divided into client (in line with normal customer due smaller amounts so that such amounts diligence). will fall below the threshold at which the relevant financial institution Offshore Bank A bank that is domiciled in an offshore (or other body) is required to file a financial centre and conducts business suspicious transaction report. with non-residents of that jurisdiction. In some cases they have no physical STR See Suspicious Transaction Report presence in the jurisdiction and are subject to limited regulation. Such Suspicious Activity Suspicious activity report (SAR) is a banks are often perceived as a vehicle Report (SAR) generic term for the report(s) submitted for money laundering, although there by financial institutions and other are many legitimate offshore banks. bodies subject to AML regulations to the Financial Intelligence Unit (FIU) Onboarding The processes and procedures that when money laundering activity is need to be performed before a client suspected. Different terminology can trade or buy services from a may be used in different jurisdictions financial institution. For example, the for these reports. For example, in completion of CDD/KYC and agreement the United States there are SARs for on terms of businesses. financial institutions, SARC (Suspicious activity report for casinos) and SAR-S PEP See Politically Exposed Person (Suspicious activity report for securities brokers and dealers). Politically Exposed An individual who holds public office Person (PEP) or other prominent function, or who Suspicious The term given, in some jurisdictions, to has a close association with such a Transaction Report a suspicious activity report (SAR). Note person. By virtue of their position (STR) that in the UK a suspicious transaction PEPs are arguably more susceptible report (STR) relates to suspicions of to bribery, corruption and the misuse market abuse rather than money of state funds and therefore pose a laundering. higher risk of money laundering. As a result additional obligations (such as Transparency An international non-governmental enhanced due diligence) typically apply International (TI) organisation that monitors and when a firm has dealings with a PEP. publishes reports on corporate and public sector corruption. Its annual Placement The initial stage of the money Corruption Perception Index is a laundering process: the proceeds of common tool used by firms to assess crime are introduced into the financial the risks of doing business in foreign system. This is typically achieved by jurisdictions. disguising the funds as legitimate – for example, as the proceeds of business Ultimate Beneficial See Beneficial Owner activities. Owner (UBO)