Quantexa Cloud AML Glossary

Term

Meaning

Adverse media 

Negative news coverage of an individual or entity that is relevant to Financial Crime Compliance 

AML / CFT  

Anti-Money Laundering / Countering the Financing of Terrorism (also used for Combating the financing of terrorism) 

AML/CFT Officer

An AML/CFT Officer is responsible for ensuring that a financial institution or organization complies with regulatory requirements and implements effective measures to prevent money laundering, terrorist financing, and other financial crimes. This role is critical in safeguarding the integrity of the financial system and protecting the organization from legal, financial, and reputational risks. This nomenclature is relatively new, and is not widely adopted yet. 

Alert  

A review based on the triggering of underlying red flags that regulatorily requires analyst attention. Within suspicious activity detection and know-your customer procedures, alerts are potential discrepancies that are flagged, either manually or through an automated system, based on defined red flags and underlying typologies. Within sanctions screening, an alert is a hit, or multiple hits, of an internal record checked against sanctions screening lists. If they cannot be resolved easily as false positives, alerts generally result in cases or investigations. 

Appropriate authorities  

Legally defined authorities that are designated as competent (or non-competent) for the AML/CTF supervision of financial institutions 

Asset  

Anything an individual or legal entity owns that has a monetary value. 

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. Frequently completed on an overnight or on a near-real-time basis and reflects the risks that the detection scenarios are trying to detect and respond to. i.e., Suspicious activity within transaction monitoring is traditionally detected post event (it has already happened) given the regulatory requirements and is a detective control, as opposed to the preventative controls such as those seen in sanctions or fraud which require a more real-time ‘stopping’ response.     

Batch transfer  

Is a transfer comprised of several individual wire transfers that are being sent to the same financial institutions, but may/may not be ultimately intended for different persons 

Beneficial owner / Ultimate Beneficial Ownership (UBO) 

A beneficial owner is defined in the Corporate Transparency Act as any individual who, directly or indirectly, meets at least one of two criteria: (1) exercising substantial control over the reporting company; or (2) owning or controlling at least 25% of the ownership interest of the reporting company. The rule further defines the terms “substantial control” and “ownership interest” and describes rules for determining whether an individual owns or controls 25% of the ownership interests of a reporting company.

Blacklist  

An internal list of names (including places, persons, entities, and individuals) that are screened to identify any sanctions exposure, in addition to government and vendor-maintained sanctions lists

BSA

The BSA, or Bank Secrecy Act, is a U.S. law enacted in 1970 to prevent and detect money laundering and other financial crimes. It requires financial institutions to keep detailed records and file reports of suspicious transactions that could indicate illegal activity. Key requirements include filing Currency Transaction Reports (CTRs) for cash transactions over $10,000 and Suspicious Activity Reports (SARs) for any activities that might indicate criminal behavior. The BSA is central to anti-money laundering (AML) efforts in the United States.

BSA Officer

A BSA Officer (Bank Secrecy Act Officer) is a compliance professional responsible for ensuring that a financial institution adheres to the requirements of the Bank Secrecy Act (BSA) and related anti-money laundering (AML) regulations. The role is central to safeguarding the institution from being used for money laundering, terrorist financing, and other financial crimes. BSA Officers oversee the design, implementation, and management of the organization's BSA/AML compliance program.

Capital Markets / Markets AML  

Market-based money laundering is like traditional money laundering. It entails the misuse of markets for financial benefit, and the trades involved might affect market transparency and performance, therefore fitting the broad concept of 'market exploitation. 

Community banks

A community bank is a financial institution that serves a local community, usually not in large cities, providing banking services and loans to local businesses and individuals. They focus on the needs of the local community and are often considered "relationship" bankers. They offer traditional banking services and may provide loans to small businesses and farms. Community banks are typically locally owned and operated, and prioritize personal relationships with their customers, even basing credit decisions on local knowledge and long-term relationships.

Compliance  

An action or state of adhering to a set of legislation, regulations, rules, policy, specifications, or understood norms. 

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. 

Corporate register  

Centralized storage of information concerning registered corporations – organizations that have been incorporated and have paid a fee to be registered in a governmentally-certified list of businesses. 

Counterparty  

The other side of a transaction—the seller where one's customer is the buyer, or vice versa. 

Criminal activity  

Any conduct that is prohibited by any criminal laws, whether federal, state or county, regardless of whether there has been an arrest or conviction and without satisfying the standard of proof for a criminal conviction.  

Currency Transaction Report (CTR)

A currency transaction report (CTR) is a bank form used in the U.S. to help prevent money laundering. This form must be filled out by a bank representative whenever a customer attempts a currency transaction of more than $10,000. It is part of the banking industry's anti-money laundering (AML) responsibilities.

Customer Due Diligence (CDD)  

A set of internal controls that enable a financial institution to establish a customer's identity, predict with relative certainty the types of transactions in which the customer is likely to engage, and assess the extent to which the customer exposes it to a range of risks (i.e., money laundering and sanctions). 

Customer relationship  

The primary defense against all forms of financial crime. A customer relationship encompasses any and all contact with a prospective customer to maintain an understanding of customer risk. 

Customer Risk Rating

A customer risk rating (CRR) is a scoring method used by financial institutions to assess the level of risk a customer may pose, especially in relation to money laundering, fraud, and regulatory compliance. It evaluates various factors, such as the customer's financial history, transaction patterns, geographic location, and the nature of their business. Based on this score, customers are categorized into low, medium, or high-risk groups, which helps institutions determine the level of scrutiny and monitoring needed to comply with regulatory standards and manage potential risks.

Database, Third-party 

A good source of both primary and secondary information sources. Examples of third-party databases include rating agencies, stock exchanges, and legal databases. The information provided by third-party databases can be helpful but should never stand on its own. 

Delisting 

The process of removing a sanctions target from a list after the restrictions imposed on them have been removed. 

De-risking 

When financial institutions terminate or restrict doing business with clients or categories of clients to avoid risk altogether. Seen frequently in areas such as Correspondent banking ad  

Due diligence  

The investigation and examination of a person, company or group, conducted in the process of preparing for a business transaction. Customer Due Diligence is the AML requirement to establish and verify a customer at the time of onboarding, and during ongoing maintenance of the relationship. The requirements within each step of the due diligence process, and the underlying risk factors and categories, i.e., when to apply simplified or enhanced due diligence is well defined within the AML/CFT regulations within each country/jurisdiction   

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. 

Event-triggered monitoring  

An internal control used to mitigate and more quickly respond to changes in a customer profile or customer behavior. Event-triggered monitoring occurs whenever relevant information about an existing customer (e.g., its jurisdiction of operation) changes, therefore requiring an interim review of information prior to a scheduled review. 

False positive  

An ‘hit’ generated by the institutions’ monitoring or screening process as a possible alert, but when reviewed or triaged by an analyst (Level 1 review), is found not to hold sufficient risk to escalate it for a deeper investigation (Level 2 or ‘ case’ review) or submission to the regulator as a suspicious activity/transaction report (Level 3 – disclosure report). A highly problematic area for institutions as traditional rules-based transaction monitoring systems produce high volumes of alerts, with an industry wide false positive rate of +95% 

Financial Action Taskforce (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. 35 countries and two international organizations are members. 

Financial Intelligence Unit (FIU)  

A central national agency responsible for receiving, analyzing, and transmitting disclosures on suspicious transactions to appropriate government authorities. The FIU acronym also appears in the private sector. Most banks name their anti-money laundering and counterterrorist financing departments using the term. A bank’s FIU includes teams of investigators tasked with uncovering and investigating customer transactions associated with money laundering or terrorist financing. 

FinCEN

The Financial Crimes Enforcement Network (FinCEN) is a bureau within the United States Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing, and other financial crimes.

First line of defense  

Within the governance and operational structure of an institution’s compliance program, the first line of defense (also referred to as the "front line") includes relationship managers and other customer-facing employees who are closest to the customers and counterparties during the onboarding and contracting phase of relationships. The first-line defense is responsible for ensuring that adequate information is obtained so that effective screening of customers and their owners and controllers can be performed, and adequate oversight of the customer relationship maintained. 

Funds 

The term funds refers to assets of every kind, whether corporeal or incorporeal, tangible or intangible, movable or immovable, however acquired, and legal documents or instruments in any form, including electronic or digital, evidencing title to, or interest in, such assets. 

Fuzzy logic  

A matching technique used by financial institutions to increase the effectiveness of the screening processes by overcoming problems such as flawed records and databases. 

Governance 

Governance is the allocation of power and decision-making authority among the board of directors and management to establish internal controls for the purposes of managing risk and compliance with laws, regulations, and internal policies. 

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 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. 

Identifier 

Type of information about a sanctions target that is recorded on a sanctions list, for example, name, date of birth, jurisdiction, national identification number, entity with which a target is linked, information about penalties imposed against a target, registered legal address, and website URL. Identifiers apply to both individuals and legal entities. 

Information Sharing 314(a)

FinCEN’s regulations under Section 314(a) enable U.S. federal, state, local, and foreign (European Union) law enforcement agencies, through FinCEN, and FinCEN on its own behalf and on behalf of appropriate components of the U.S. Department of the Treasury, to reach out to U.S. financial institutions to locate accounts for, and recent transactions with, subjects—which may include persons or entities—that may be involved in terrorism or money laundering.

Information Sharing 314(b)

Section 314(b) of the USA PATRIOT Act allows financial institutions to share information with each other about individuals or entities suspected of involvement in money laundering or terrorist financing. By participating in 314(b), banks, credit unions, and other eligible entities can collaborate to detect and prevent financial crimes, helping to improve compliance with anti-money laundering (AML) regulations. This provision includes safe harbor protections, meaning institutions sharing information under 314(b) in good faith are protected from liability.

Integration 

Integration is the final stage of money laundering, where illegally obtained funds are blended with legitimate funds to make it difficult to trace their origin. Criminals may use the money to buy luxury items like real estate, jewelry, vehicles, or artwork

Investigation 

The process of obtaining, evaluating, recording, and storing information about an individual or legal entity with whom one is conducting business, in response to an alert indicating a potential risk. 

Know Your Customer (KYC) 

Anti-money laundering policies and procedures used to determine the 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 Customer’s Customer (KYCC)  

Similar to KYC, however, it involves the identification and associated risk of the activities and nature of the customers of your customer. A common requirement within correspondent banking where the banks are exposed to risk as they have limited visibility.  

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. 

Licensed activity under sanction  

When a special permission has been granted to an individual or entity to proceed with business with a sanctioned individual or entity without breaching the sanctions. 

Look-back 

The process of looking back at a customer's transaction activity over a specific time period in the past. Look-back reviews of past transactions can help verify a customer's actual activity and provide "red flags" by identifying transactions that might indicate links to sanctions targets, jurisdictions, or restrictions. This may also include a KYC Lookback which seeks to reconcile customer records, gaps in customer data to improve a more holistic view of each customer 

MBCA

The Mid-Size Bank Coalition of America (MBCA) was formed in 2011. From its original 16 members, the MBCA has grown to represent more than 100 banks that are devoted to driving positive change and helping their clients, colleagues and communities flourish.

Mergers and acquisitions (M&A)

M&A activity among midsize U.S. banks is driven by the need to achieve scale, reduce regulatory and operational costs, expand markets, modernize technology, and respond to competitive pressures. As the banking landscape continues to evolve, this trend is likely to persist, reshaping the financial industry.

Mid-Size Bank

In the U.S., a mid-size bank typically refers to an institution with assets ranging between $10 billion and $100 billion. These banks are larger than community banks but smaller than the nation's major banks.

U.S. midsize banks fill a critical niche in the financial ecosystem by providing banking services that cater to regional communities, small to medium-sized businesses, and individuals who may not be fully served by larger Tier 1 banks or smaller community banks. These institutions play a pivotal role in supporting local economies while offering a broader range of services than smaller banks and more personalized service than national giants.

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. 

Money Laundering Reporting Officer (MLRO) 

A UK term defined by the Financial Conduct Authority as 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 anti-money laundering strategies and policies. In US banks, the person with the same responsibilities would usually be the Bank Secrecy Act (BSA) officer. 

Monitoring  

An element of an institution's anti-money laundering or anti-fraud program in which customer activity is reviewed for unusual or suspicious patterns, trends or outlying transactions that do not fit a normal pattern or constitute suspicious behavior. 

Name screening  

The process of matching an internal record (i.e., customer, counterparty, related account party) against a sanctioned list record, either manually or through an automated screening tool. 

Nesting  

The practice where a respondent bank provides downstream cross border services to other financial institutions and processes these transactions through its own foreign correspondent account. 

Net Interest Margin

Net interest margin (NIM) is the net interest income a lender earns from credit products like loans and mortgages, minus the interest it pays to holders of savings accounts and certificates of deposit (CDs). Expressed as a percentage, the NIM shows how likely a bank or investment firm is to thrive over the long haul. This metric helps prospective investors determine whether or not to invest in a financial services firm by showing its interest income versus their interest expenses. Simply put: a positive net interest margin suggests that an entity operates profitably, while a negative figure implies investment inefficiency.

Offshore company 

Incorporated in a jurisdiction that is other than where the beneficial owner(s) reside. 

Operational risk 

The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or systems, or because of external events. 

Placement

Placement is the first step in money laundering. It involves introducing illegal gains into the financial system. This happens through methods like depositing cash, purchasing financial instruments, or acquiring high-value assets

Politically Exposed Person (PEP) 

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. 

Predicate Offense / Predicate Crime 

A crime which is a component of a larger crime. In a financial context, the predicate crime would be any crime that generates monetary proceeds. The larger crime would be money laundering or financing of terrorism. 

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. 

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. 

Retail AML  

Money laundering specific to consumer banking channels. 

Risk 

All references to risk refer to the risk of money laundering, fraud and/or terrorist financing. 

Risk appetite 

The amount of risk that a firm is willing to accept in pursuit of value or opportunity. 

Risk assessment 

A tool that allows a business to identify and assess the extent to which it may be exposed to risks. 

Risk-based approach 

The assessment of the varying risks associated with different types of businesses, clients, accounts and transactions to maximize the effectiveness of an anti-money laundering program. 

SaaS

SaaS, or Software as a Service, is a cloud-based software distribution model where applications are hosted by a provider and accessed online by users. Instead of installing and managing software on individual devices, users access it via the internet, typically through a subscription. This model offers advantages like easy scalability, automatic updates, and reduced infrastructure costs.

Sanctions  

Punitive or restrictive actions taken by individual countries, regimes, or coalitions with the primary purpose of provoking a change in behavior or policy. Sanctions can restrict trade, financial transactions, diplomatic relations, and movement. They can be specific or general in their implementation and enforcement. Sanctions are also referred to as restrictive measures. 

Sanctions list  

A document or database listing individuals, legal entities, and countries with whom it is illegal to do business. 

Second line of defense  

The AML, Fraud, Sanctions compliance function, the larger compliance function, and the human resources and technology departments. The second-line defense reviews the effectiveness of controls used to mitigate risks; provides information to the first line; and investigates possible noncompliance with sanctions restrictions. 

Shelf company 

A company that has been created months or years ahead of time, often by a law firm or an accounting firm. Then the company goes "on the shelf" until needed. Some investors use these shelf companies, or "aged" companies, to gain a clean business record. 

Shell company 

A company without active business or significant assets. Shell companies are legal, but people sometimes use them illegitimately—for instance, to disguise business ownership. 

Smurfing  

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." 

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. 

Suspicious Activity Report (SAR)  

A government filing required by reporting entities that includes a financial institution's account of a questionable transaction. 

SWIFT message 

SWIFT (Society for Worldwide Interbank Financial Telecommunications) provides a messaging network that financial institutions use to securely transmit information and instructions. 

TCSP 

Trust and Company Service Provider 

Terrorist financing  

The process by which terrorists fund their operations to perform terrorist acts. 

Third line of defense  

The internal audit, which involves independent reviews of the controls applied by the first two lines of defense. It also evaluates the effectiveness of the staff's execution of the controls, the effectiveness of the compliance oversight and quality controls, and the effectiveness of the training. 

Trade Finance AML  

The process of disguising the proceeds of crime and moving value using trade transactions to legitimize their illicit origins. 

Transaction Monitoring and Filtering Programs (TMPs) 

Programs required of financial institutions to monitor transactions after their execution for compliance with the Bank Secrecy Act and AML laws and regulations. It includes requirements for suspicious activity reporting as well as for monitoring transactions prior to their execution.