Alert: A notification issued based on underlying red flags indicating that an issue requires analyst attention, e.g. discrepancies in Know-Your-Customer information, a positive match against a sanctions screening list, and other indicators that may trigger an investigation.
Anti-Money Laundering Program: A system designed to help institutions prevent money laundering or terrorist financing, usually including written internal policies and procedures, the appointment of an AML compliance officer, ongoing employee training and independent reviews of the program.
Automated Screening Tools: Software systems used to facilitate the screening process. These tools generate hits against sanctions and other lists, consolidated under a single alert.
Beneficial Owner: The natural person or persons who own or control an account through which a transaction is being conducted or the natural person or persons who have significant ownership or who exercise effective control over a legal person or arrangement.
Blacklist: An internal list of names (places, persons, entities and individuals) that are screened to identify any sanctions exposure, in addition to government or vendor-maintained sanctions list, e.g. OFAC advisories. The FATF blacklist is a list of countries deemed noncooperative in the fight against money laundering and terrorist financing.
Currency Transaction Report (CTR): A report that documents a currency transaction exceeding a set monetary threshold.
Customer Due Diligence (CDD): A set of internal controls that enable an institution to establish a customer’s identity and predict with reasonable certainty which types of transactions the customer is likely to engage in, as well as the extent to which the customer exposes the organization to risk. See Enhanced Due Diligence (EDD).
Customer Relationship: A customer relationship encompasses any and all contact with a prospective customer, including dialogue and conversations that occur as the customer uses the firm’s products and services.
Denied person List (DPL): A list published by the BIS of the individuals, entities, or companies denied export privileges, usually due to violations of the Export Administration Act.
Economic Sanctions: The imposition of trade or financial restrictions and/or penalties by one country against another country, individual or entity in order to change their behavior. This can include tariffs, financial limitations or trade restrictions.
Enhanced Due Diligence (EDD): Additional measures aimed at identifying and mitigating the risk posed by customers are usually implemented in conjunction with Customer Due Diligence procedures.
False Negative: A hit identified during the screening process as a possible alert but dismissed despite being matched to a target listed on a sanctions list or a screened activity that would have generated a hit if the screening process was calibrated to catch such an activity.
False Positive: A hit identified during the screening process but found not to be a match to a target named on the sanctions list.
Financial Action Task Force (FATF): An international policy-making body founded to establish national and global measures designed to combat money laundering and terrorist financing on a global scale. Thirty-five countries and two international organizations are members, although their recommendations do not have the force of law.
Fuzzy Logic: A matching technique used to overcome problems with flawed records and databases by using degrees of similarity to determine the probability that two names are the same, e.g. finding matches is misspelled or incomplete names.
Greylist: A list of entities that are considered suspicious or at higher risk of causing harm to the reputation or increasing the risk of penalties. Greylists may contain the names of countries with deficiencies in AML or CFT regimes.
Identifier: The information about a sanctions target recorded on a sanctions list, e.g. the name, date of birth, jurisdiction or identification number. This may apply to individuals as well as legal entities.
Integration: The final stage of the money laundering process whereby funds are placed back into the economy after being given the appearance of legitimacy. See Placement and Layering.
Know Your Customer (KYC): Anti-money laundering policies and procedures that establish the true identity of a customer and the type of normal and expected activities associated with that particular customer. (See Customer Due Diligence).
Know Your Employee (KYE): Anti-money laundering policies and procedures for acquiring a better knowledge or understanding of the employees hired by an institution in order to detect conflicts of interest, past criminal activity or suspicious activity.
Layering: One of the phases of the money laundering process. Layering distances illegal proceeds from the source by creating complex levels of transactions to disguise the audit trail. See also Placement and Integration.
Money Laundering: The process of concealing or disguising the source, movement or destination of illicitly-derived funds in order to make them appear legitimate.
Name screening: The process of matching an internal record, such as a customer or related account party against a sanctioned list.
Office of Foreign Assets Control (OFAC): The agency within the US Department of Treasury responsible for administering and enforcing economic sanctions.
Placement: The first phase of the money laundering process involves the physical disposal of proceeds derived from illegal activities. See Layering and Placement.
Politically Exposed Person (PEP): An individual who has been entrusted with prominent public functions, e.g. senior politicians or heads of state.
Sanctions: Punitive or restrictive actions taken by individual countries against other nations, individuals or entities to provoke a change in behavior or policy.
Sanctions Compliance: The act of adhering to sanctions-related legislation, regulations or norms that make up the sanctions landscape.
Suspicious Activity: Irregular customer behavior that may be related to money laundering or terrorist financing, or any behavior inconsistent with normal levels of activity for that individual or their account.
Suspicious Activity Report (SAR): A government filing required by reporting entities that include the entity’s account of a questionable transaction.
Whitelist: A list of individuals or entities who may trigger a hit or alert by an automated screening tool but who are found not to be a match to a sanctions list.
There are of course many more terms to know in the wide field of AML, KYC and Sanctions Compliance but those are some of the most common terms. For more content on Anti-Money Laundering / Sanctions compliance related topics feel free to check out our sanctions.io blog.