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The ABC’s of AML: Glossary of compliance terms

Compliance glossary

If you’re at an early-stage fintech company with a leadership team that doesn’t have a regulatory background, wrapping your head around requirements can be one of the biggest and most important challenges you first face. The financial services industry — and the tight regulations that come along with it — are new territory but, with the threat of fraud and significant fines for not complying with AML regulations, it’s something you’ll need to learn quickly.

You may not know your KYB from your KBA just yet, but don’t worry; we have your back. Here’s Alloy’s cheat sheet to common terms you’ll hear when focusing on AML compliance:

Adverse action notice
The notice you are obligated to provide to someone if you deny their application based on their credit information

Adverse media / Negative news
Information gleaned from public and private sources that may include information about the professional reputation of the applicant, allegations of criminal activity, and other types of negative press

Alerts
This refers to the results of boolean statements in the workflows that can be used to drive subsequent actions in the workflow or as containers of business logic that the evaluation triggered (commonly used to indicate which rules got triggered)

Anti-money laundering (AML)
The concept that refers to the laws or practices to prevent or identify individuals performing money-laundering activities

AML Compliance Officer
Individual responsible for the creation and maintenance of an AML compliance program

Anti-Money Laundering Act of 2020 (AMLA)
Legislation passed by Congress with sweeping legislative changes to the Bank Secrecy Act (BSA)

Alternative remittance system (ARS)
Services typically operating outside the regulated financial spaces responsible for moving money from one geographical location to another

Application Programming Interface (API)
Any mechanism that allows computer systems to talk to each other. Alloy, for example, has an "evaluation" API, which third-party engineers can make requests to

Audit
An investigation by a third party to ensure a financial institution is abiding by AML/compliance laws

Bank Secrecy Act (BSA)
The main U.S. anti-money laundering regulatory act (Title 31, U.S. Code Sections 5311- 5355) that was enacted in 1970 and set standards for money laundering reporting and record-keeping for financial institutions

Batch processing
The processing of account activity data in groups, rather than individually in real-time

Beneficiary
The party that is on the receiving end of a transaction, who is ultimately benefiting from the transaction

Beneficial ownership
The person or persons who ultimately own a legal entity or arrangement

Cash-intensive business
Any business which primarily deals in physical cash when performing transactions, such as coin-operated machines

Check kiting
A form of check fraud that takes advantage of the float to use the non-existing funds in a bank account

Controller
The Controller, also known as a Principal, is defined as an individual or individuals with significant responsibility to control, manage or direct a legal entity or account. Controllers may include a director, corporate officer, or trustee

Counterparty
The party that is on the sending side of a transaction, which could be the customer or a merchant depending on the flow of funds

Counter-terrorism financing (CTF)
Set of government laws and regulations seeking to prevent funding of activities that the government designates as terrorists

Currency transaction report (CTR)
A report that all FIs are required to file with FinCEN for any transaction that exceeds $10,000

Currency smuggling
The illegal movement of large quantities of cash across geographical borders

Customer Due Diligence (CDD)
The processes designed to perform the necessary checks on any customer to ensure the legitimacy and understand risks associated with retaining the customer

Customer Identification Document (CID)
Documentation confirming an applicant's identity (i.e., U.S. passport, driver’s license, U.S. government-issued I.D.)

Customer Identification Program (CIP)
A United States requirement where financial institutions need to verify the identity of individuals wishing to conduct financial transactions with them. CIP is more generally known as KYC. The CIP must be incorporated into the bank's AML compliance program

Delisting
The removal of a target from a sanctions list after the appropriate sanctions have been lifted

Denied persons list (DPL)
A list of individuals and organizations whose export privileges have been restricted by the Department of Commerce

Embezzlement
The misuse of funds placed in an individual’s trust or that belong to their employer

Enhanced Due Diligence (EDD)
A process that calls for additional measures above CDD aimed at identifying and mitigating the risk posed by higher risk customers

Financial Action Task Force-Style Regional Body (FRSB)
Chartered by a group of nations to form an affiliated global network in combating money laundering and terrorist financing

Foreign Bank and Financial Accounts Report (FBAR)
FinCEN form 114 that must be filed if the individual’s foreign financial accounts’ values exceed $10,000

Investigation
The process of performing due diligence in response to an alert raised for a customer by obtaining, evaluating, and storing any information, docs, or other research; this may also lead to escalation for enhanced due diligence (EDD)

Identity verification (IDV)
Mechanism to ensure that the customers a business is interacting with are who they say they are

Informal value transfer system (IVTS)
A network that receives money for the purpose of making those funds available to a third party in a different geographical location

Know Your Business (KYB)
An AML regulation that requires financial institutions to verify the identity of the ultimate business owner of a company

Know Your Customer (KYC)
An AML regulation that requires financial institutions to verify the identity of their customers

Knowledge-based authentication (KBA)
A method of authentication that asks the user to answer at least one question to verify their identity (e.g., “what street did you grow up on?)

Money laundering
Concealing the source, movement, or usage of funds that are derived from illicit sources in an effort to make them appear legitimate

Money mule
A person who moves money that was illegally acquired

Money services business (MSB)
Any person or business doing cash-related activities such as currency exchange, issuing traveler’s/cashier’s checks, money transmission

Office of Foreign Assets Control (OFAC)
The Office of Foreign Assets Control is a financial intelligence and enforcement agency of the U.S. Treasury Department. It administers and enforces economic and trade sanctions in support of U.S. national security and foreign policy objectives

Personally identifiable information (PII)
Any data that could potentially identify a specific individual. E.g., social security number, government-issued identification, birth date, birthplace, address, etc.

Politically Exposed Person (PEP)
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

Potential Suspicious Activity Report (PSAR)
A PSAR (which are primarily applicable for fintechs with a backing bank) is a filing the fintech company’s compliance manager provides to their backing banks to advise the bank to file a SAR (without doing it themselves)

Reporting entity
Any entity on which individuals rely on for financial services and which is obligated to report on a specific activity, such as MSBs, insurance companies, and securities dealers

Sanctions
Ways to restrict or control organizational behavior due to societal, economic, or political issues

Sanctions compliance officer (SCO)
Member of the organization who is responsible for overseeing the sanctions compliance program

Sanctions compliance program (SCP)
A mechanism to assist financial institutions in their sanctions screening and managing the associated risk

Smurfing
A money laundering technique by using multiple transactions or individuals to conceal the movement of funds that would exceed reporting thresholds

Source of Funds (SOF)
Describes the origin of a customer’s funds that are being transferred into a given account, i.e., the name of the institution from which funds are expected and the type ACH, wire transfer, etc.

Special interest entity (SIE)
Organizations that are deemed high-risk and either are or suspected of being involved in criminal activity

Special interest person (SPI)
Similar to PEP, sanctioned individuals that present a higher risk of money laundering

Specially Designated Nationals (SDNs)
The Specially Designated Nationals and Blocked Persons List, also known as the SDN List, is a United States government sanctions/embargo measure targeting U.S.-designated terrorists, officials and beneficiaries of specific authoritarian regimes, and international criminals (e.g., drug traffickers)

Structuring
Distribution of funds into smaller amounts to bypass reporting requirements (smurfing is a method to structure funds)

Suspicious Activity Report (SAR)
Government filing required by FIs whenever they identify suspicious activity, often done after performing an investigation into the transactions/activity that alerted

Trade-based money laundering (TBML)
Using trade activity to disguise proceeds originally obtained from crime or other illegal activity

Ultimate Beneficial Owner (UBO)
The UBO is the person or persons who have significant ownership of an account through which the transaction is happening

AML Associations and Regulatory Bodies

Several different governing organizations manage the detection and prevention of money-laundering activities:

ACAMS - Association of Certified Anti-Money Laundering Specialists
International membership organization comprising of public and private sectors dedicated to the identification and prevention of money-laundering activities.

Egmont Group of Financial Intelligence Units
International organization facilitating the secure exchange of financial intelligence

FATF - Financial Action Task Force
Intergovernmental association developed by the G7 countries to develop strategies to combat money laundering

FinCEN - Financial Crimes Enforcement Network
A part of the United States Department of Treasury focused on analyzing financial information to combat money laundering and terrorist financing.

OCC - Office of the Comptroller of the Currency
A part of the United States Department of Treasury ensuring the proper and safe access to financial services by banks and other financial institutions

OFAC - Office of Foreign Assets Control
Agency of the United States Department of Treasury that supports agency and trade sanctions based on US foreign policy and security goals

Wolfsberg Group
A group of 13 international banks to develop industry standards for global anti-money laundering activities


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