Anti-Money Laundering (AML) obligations exist to help businesses protect themselves from illegal activities. They’re critical in preventing the flow of illicit funds into the legitimate financial system. Without robust AML policies, businesses are at risk of facilitating criminal activities, unwittingly or not.
AML policies are integral to preserving the reputation and viability of any business operating within the financial sector. They help detect, prevent, and repel criminals attempting to disguise illegitimate funds as legal transactions. In fact, failing to have robust AML policies and procedures can result in severe legal and financial repercussions for businesses.
Every country has legal requirements regarding AML policies that businesses must comply with. These laws usually stipulate the need for a risk assessment, an AML policy, defined roles and responsibilities, continuous monitoring, and regular auditing.
The first step in establishing an effective AML policy is understanding the core risks your business is exposed to. This might involve evaluating the types of clients you work with, the transactions you process, and the jurisdictions you operate in.
Once you’ve identified your risks, create an AML policy that manages them effectively. It should cover the legal requirements relevant to your business, factoring in specific industry rules, and regular updates to stay current with evolving risks.
Defining clear roles and responsibilities for AML controls is crucial. It ensures that the policy is implemented effectively across all levels of the organization and sets accountability measures in place.
A comprehensive AML policy outlines the policies, procedures, internal controls, and audit functions that work towards preventing money laundering and terrorism financing. To write an effective policy, start by identifying the risks, design policies to counter these risks, establish accountability, detail ways to report suspicious activities, and outline a training program for employees.
A robust AML policy should include elements such as risk management procedures, client due diligence measures, record-keeping strategies, reporting protocols, employee training programs, and an outline of legal responsibilities.
Examples and templates of AML policies can provide valuable resources to help craft your own. They offer a glimpse of what proven, robust AML policies look like, and can be customized to fit a particular business’s requirements.
AML procedures translate policy into action. They outline practical steps that employees must take to identify, mitigate, and report money laundering risks.
Continuous monitoring and periodic reviews are crucial to ensure your procedures stay current and meet legal requirements. Regularly updating your procedures to match the evolving risk landscape is a must.
Training and communication are fundamental in an organization’s AML awareness. Employees should understand AML policies, procedures, and their role in preventing money laundering. Regular training, updates, and reinforcement are crucial to ensure compliance.
For AML policies and procedures to be effective, they need to be implemented across the organization. This involves putting your AML procedures into action, training your personnel, and establishing a culture of compliance.
Regular audits ensure the effectiveness of your AML program. They detect weaknesses, confirm personnel understand and follow procedures, and assess whether the measures in place are adequate for your risk level.
If audits or reviews find weaknesses, corrective action is necessary. This could mean revising faulty procedures or updating policies to meet new legal requirements.
Now more than ever, businesses need sound AML policies and procedures. These not only protect the financial system but also shield your business from legal repercussions, reputational damage, and potential loss of business.
AML policies and procedures should be dynamic, responding to evolving risks, regulatory standards, and business needs. As we look to the future, expect to see an increasing focus on technology, such as artificial intelligence and machine learning, to detect and mitigate money laundering risks.
Remember: Effective AML policies and procedures are foundational to the integrity of any financial system. They are not a one-time project but a continual process that needs dedication, effort, and consistent review. Let this comprehensive guide be your roadmap to establishing and maintaining a robust AML program.
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A provision of the USA PATRIOT Act that allows the Financial Crimes Enforcement Network (FinCEN) to request financial institutions to search their records for information on persons, entities, or accounts suspected of involvement in terrorist activity or money laundering, facilitating rapid information sharing with law enforcement.
A set of targeted measures issued by the Financial Action Task Force (FATF) to complement its 40 Recommendations, specifically addressing terrorist financing, including the identification, freezing, and reporting of funds, monitoring of non-profit organizations, and regulation of alternative remittance systems.
A classification assigned to a customer’s account based on the assessed risk of money laundering or terrorist financing, considering factors such as customer type, geographic location, products or services used, and transaction patterns.
A financial institution that processes card payment transactions on behalf of a merchant, receiving funds from the cardholder’s bank (issuing bank) and depositing them into the merchant’s account.
The process of identifying and evaluating negative news or public information about individuals, entities, or jurisdictions to assess financial crime risk. In the CAMS context, adverse media research supports customer due diligence and ongoing monitoring by helping detect potential involvement in money laundering, terrorist financing, sanctions evasion, fraud, or other illicit activity.
A written statement of facts voluntarily made under oath or affirmation before a person authorized to administer oaths, often used as evidence in legal or regulatory proceedings.
A non-traditional money transfer network, such as hawala or hundi, that facilitates the movement of funds outside formal banking channels, often relying on trust-based networks and informal recordkeeping.
A structured framework implemented by a financial institution or business to prevent, detect, and report money laundering and terrorist financing, typically including risk assessments, customer due diligence, transaction monitoring, reporting mechanisms, and staff training.
The full set of laws, regulations, guidelines, and institutional frameworks established by a country to prevent, detect, and combat money laundering and terrorist financing, including the roles of regulators, law enforcement, and reporting entities.
The comprehensive set of organizational rules, operational guidelines, and risk-mitigating mechanisms designed to prevent, detect, and report money laundering and terrorist financing, ensuring effective compliance with legal and regulatory obligations.
The formal framework of rules, guidelines, and internal controls that a financial institution or business implements to prevent, detect, and report money laundering and terrorist financing, ensuring compliance with applicable laws and regulatory requirements.
Policies, procedures, and controls implemented by organizations to prevent, detect, and address bribery and corrupt practices, ensuring compliance with laws and reducing the risk of financial crime and reputational damage.
Anti-money laundering (AML) refers to a set of laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income. Though AML laws cover a relatively limited range of transactions and criminal behaviors, their implications are far-reaching. For example, AML regulations require that financial institutions follow rules to ensure they are not aiding in money-laundering.
U.S. federal law that modernizes AML/CFT regulations, strengthens the Bank Secrecy Act, establishes beneficial ownership reporting, and aligns AML priorities with national security concerns.
The Bank Secrecy Act of 1970 (BSA) is a U.S. law requiring financial institutions in the United States to assist U.S. government agencies in detecting and preventing money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports if the daily aggregate exceeds $10,000, and report suspicious activity that may signify money laundering, tax evasion, or other criminal activities.
The Basel Committee’s membership composition consists of central bank governors and authorities in bank regulation from numerous jurisdictions around the world. The Committee’s aim is to provide international standards that define the roles and responsibilities of banking supervisors-- particularly as related to combating the threat of money laundering and terrorist financing.
A bearer share is an equity security wholly owned by whoever holds the physical stock certificate, thus the name "bearer" share. The issuing firm neither registers the owner of the stock nor tracks transfers of ownership. Because the share is not registered to any authority, transferring the ownership of the stock involves only delivering the physical document.
A requirement for identifying the individuals who ultimately own or control legal entities or trusts, aimed at preventing anonymous shell companies from being used for money laundering or other illicit activities.
The first and most widely known decentralized cryptocurrency, operating on a peer-to-peer blockchain network, used as a digital medium of exchange and store of value.
The Black Market Peso Exchange method as used primarily by Columbian cartels is designed to maneuver around the currency reporting requirements of the U.S. Bank Secrecy Act (BSA) which impedes anonymous large-scale currency transactions occurring in the U.S. financial system. The “system” functions in the following manner:
1. The Colombian drug cartels export drugs to the United States;
2. Drugs are sold for dollars in the U.S.;
3. A cartel in Colombia enters into a “contract” with the Colombian Black Market Peso Exchanger who is usually in Colombia;
4. The cartel sells its U.S. dollars to the Exchanger’s U.S. agent;
5. Once the U.S. dollars are delivered, the peso exchanger in Colombia deposits the agreed upon equivalent (of U.S. dollars) in Colombian pesos into the cartel’s account in Colombia; (At this point, the cartel representative is out of the picture because he has successfully converted his drug dollars into pesos.)
6. The Colombian Black Market Peso Exchanger now assumes the risk for introducing the laundered drug dollars into the U.S. banking system; this is done through a variety of structured transactions;
7. The Colombian Black Market Peso Exchanger now has a pool of laundered funds in U.S. dollars to sell to Colombian importers who use the dollars to purchase goods, either from the U.S. or from collateral markets; and
8. Finally, these goods are transported to Colombia.
A decentralized, digital ledger that records transactions securely and immutably, forming the underlying technology for cryptocurrencies and other virtual assets.
A broker-dealer is a person or firm in the business of buying and selling securities or other assets for its own account or on behalf of its customers. The term broker-dealer is used in U.S. securities regulation parlance to describe stock brokerages because most of them act as both agents and principals. A brokerage acts as a broker (or agent) when it executes orders on behalf of its clients, whereas it acts as a dealer, or principal when it trades for its own account.
Criminals set up physical businesses that typically transact a lot of cash, such as tattoo parlors' or restaurants, which are then used as fronts for drug dealing and to launder money from other criminal activities. The ‘earnings’ can then be deposited into legitimate accounts every day. The front business might also pay inflated prices for supplies and services, including rent, to hide kickbacks.
Combating the Financing of Terrorism (CFT) involves investigating, analyzing, deterring, and preventing sources of funding for activities intended to achieve political, religious, or ideological goals. CFT is achieved through violence and the threat of violence against civilians. By tracking down the source of the funds that support terrorist activities, law enforcement may be able to prevent some of those activities from occurring. CFT efforts may examine charities, underground banking entities, and registered money service businesses, among other entities.
Commodities are unprocessed, raw materials-- meaning they most often serve as inputs in the production of other more complicated goods. When they are traded on an exchange, commodities must meet specified minimum standards and will be categorized according to their quality. Known as a basis grade— this ranking system allows commodities of the same type and grade to be grouped together and sold as equal units, regardless of who produced them or where.
Examples of commodities include:
• Oil
• Copper
• Coffee
• Sugar
• Corn
• Timber
A compliance officer is an individual who ensures that a financial institution complies with its outside regulatory and legal requirements as well as internal policies and bylaws. The chief compliance officer is usually the head of a firm's compliance department.
Compliance officers have a duty to their employer to work with management and staff to identify and manage regulatory risk. Their objective is to ensure that an organization has internal controls that adequately measure and manage the risks it faces.
A concentration account is an internal account established by a financial institution to manage bank-related business. These accounts are used to aggregate funds from multiple sources for the purpose of facilitating large, bulk, bank-to-bank transfers.
Concentration Risk exists when a bank maintains multiple accounts for numerous individuals and businesses that are part of the same criminal network. A failure to understand these relationships could result in a dangerous concentration of accounts being held by members of the same criminal syndicate. For example, a firm may extend numerous, high-value credit loans to members of the same organization. If that organization were to get taken down either through law enforcement or competitive forces, the resulting default on loans could be enough to bankrupt the entire financial institution.
A correspondent bank is a bank that provides services on behalf of another financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits, and gather documents on behalf of another bank. Correspondent banks are most likely to be used by domestic banks to service transactions that either originate or are completed in foreign countries, acting as a domestic bank's agent abroad.
Correspondent banking is the practice of one domestic institution (the correspondent bank) providing financial services to the customers of another international institution (the respondent bank).
Correspondent banking relationships are particularly useful for foreign financial institutions that have accountholders with banking interests in the US or a need to have access to the US financial system.
Through correspondent banking relationships, customers place orders with their foreign bank to be executed within an account held at a domestic bank. Under this arrangement, the respondent bank acts as an international broker, taking orders in one country and carrying them out in another.
A credit card association is a corporation that acts as a governing body over transactions that pass between issuing- and acquiring-banks. While not a bank itself, the credit card association is comprised of a syndicate of member-financial institutions that work together to support credit card processing between one-another. The credit card association provides the messaging platform from which transfer-instructions are passed and ensures accounts are properly debited and credited under the terms outlined in the membership agreements. In this sense, the credit card association acts as an arbiter between the issuing- and acquiring-banks. Some of the more well-known credit card associations include Mastercard, Visa, Discover, and American Express.
A credit union is a non-profit financial institution owned by its members (account holders). In order to become a member of a credit union, individuals must meet certain qualifying standards defined by the co-operative’s charter. Members must also purchase a capital share (ownership) of the credit union in order to establish an account and gain access to products and services offered by the institution.
A type of decentralized virtual currency secured by cryptography, usually operating on a blockchain, used for peer-to-peer transactions without central bank or government control.
The 'Cuckoo smurf' hijacks bank accounts and completes their dirty-work in the account of an unsuspecting account holder. This laundering technique is extremely sophisticated because it requires the use of an 'inside man;' a bank employee who can gain access to accounts and redirect fund transfers.
A currency transaction report (CTR) is a bank form used in the United States to help prevent instances of money laundering. This form must be filled out by a bank representative who has a customer requesting to deposit or withdraw a currency transaction greater than $10,000. It is part of the banking industry's anti-money laundering (AML) responsibilities.
Customer due diligence (CDD) information comprises facts about a customer that enables financial institutions to:
• Establish expectations as to how the customer should transact
• Assess the extent to which the customer presents risk
The structure of a CDD program should be divided into several elements:
--Account Profile: Understand the purpose and nature of the account and establish transaction expectations.
--Risk Rating: Each account maintained by a firm needs to be evaluated for risk purposes. The matrix should calculate a single, composite risk score for each account.
--Customer Acceptance: Based on pre-established qualifications outlined in the firm's AML/CFT policies and procedures and results from the customer’s risk rating, determine if the firm has the risk-appetite needed to onboard the customer.
--Transaction Monitoring: Financial institutions must monitor account activity to ensure the patterns observed reflect expectations established in the account profile and do not display red flags.
--Investigations: If questionable patterns are observed through the monitoring process and an alert is generated, the firm should initiate an investigation to determine if suspicious activity is present.
--Documentation: Adequate documentation should be retained, evidencing each step of the CDD research process.
Financial institutions should perform CDD whenever:
• The firm establishes a new business relationship
• An account displays transactions out of sync with other similar accounts
• A suspicion of laundering or terrorist financing exists
• It is suspected that the customer provided false contact or identifying information
Economic and trade sanctions are defined as the withdrawal of customary trade and financial relations for foreign- and security-policy purposes. Sanctions may be:
• Targeted: Blocking transactions by and with a select business or individual
• Sectorial: Blocking transactions or trade with select industries within a nation
• Comprehensive: Prohibiting all commercial activity with an entire country
Governments and multinational bodies impose economic and trade sanctions to try to alter the strategic decisions of state and nonstate actors that threaten their interests or violate international norms of behavior.
Economic and trade sanctions are an important tool of governance that have significant impact on the global financial industry. Financial institutions are responsible for ensuring they do not do business with any sanctioned individual, entity, industry or country.
An international network of Financial Intelligence Units (FIUs) that facilitates the secure exchange of financial intelligence, promotes cooperation, and strengthens global efforts to combat money laundering and terrorist financing.
A digital representation of fiat currency stored electronically, used for payments or transfers, and typically issued by a licensed financial institution or e-money provider, subject to regulations to prevent money laundering and terrorist financing.
A stored-value digital payment instrument—such as a prepaid card or electronic wallet—that holds funds electronically and can be used for purchases or transfers, often subject to AML/CFT monitoring due to potential misuse for money laundering.
A heightened level of customer due diligence applied to higher-risk clients, transactions, or relationships, involving more detailed verification, ongoing monitoring, and documentation to mitigate the risk of money laundering or terrorist financing.
The intensified review and analysis of financial transactions that pose higher money laundering or terrorist financing risks, using additional scrutiny, automated alerts, or investigative procedures to detect suspicious activity more effectively.
A political and economic union of European member states that issues legally binding AML/CFT directives, which are implemented by national governments to standardize anti-money laundering and counter-terrorist financing measures across the EU.
A political and economic union of European countries that establishes common policies, regulations, and legal frameworks—including anti-money laundering (AML) and counter-terrorist financing (CFT) standards—to promote economic integration, security, and cooperation among member states.
The first EU directive to prevent the use of the financial system for laundering proceeds from drug trafficking, requiring member states to update national laws and set the foundation for AML regulation.
Expanded AML obligations to include all serious crimes (fraud, corruption, embezzlement), incorporated the willful blindness principle, and widened the range of regulated entities, including money service businesses and non-financial professionals.
Introduced separate crimes for money laundering and terrorist financing, strengthened customer due diligence (CDD) requirements, expanded SAR reporting obligations, and required identification of beneficial owners and PEPs.
Enhanced AML/CFT rules by lowering cash reporting thresholds, expanding the scope of obliged entities, introducing enterprise-wide compliance programs, broadening PEP definitions, and mandating beneficial ownership transparency with centralized registries.
Further strengthened EU AML rules by improving beneficial ownership transparency, increasing scrutiny of high-risk countries, lowering prepaid card thresholds, extending obligations to additional professions, and regulating virtual currency exchanges and custodians.
Introduced stronger criminal liability for money laundering, harmonized EU-wide AML enforcement, established the EU Anti-Money Laundering Authority (AMLA), expanded beneficial ownership and asset registries, and enhanced supervision, reporting, and cross-border cooperation.
The creation or use of fraudulent invoices that misrepresent the price, quantity, or nature of goods or services to move money, evade taxes, or disguise illicit funds, often used in trade-based money laundering schemes.
A comprehensive set of international standards issued by the Financial Action Task Force (FATF) that provide guidance for countries to establish effective measures for preventing and combating money laundering, terrorist financing, and the proliferation of weapons of mass destruction.
An intergovernmental body that develops and promotes global standards to combat money laundering, terrorist financing, and the proliferation of weapons of mass destruction, and monitors countries’ implementation of these standards.
A bureau of the U.S. Department of the Treasury that collects, analyzes, and shares financial intelligence to combat money laundering, terrorist financing, and other financial crimes, and enforces compliance with the Bank Secrecy Act (BSA).
A centralized national authority responsible for receiving, analyzing, and disseminating reports of suspicious or unusual financial activity to support the detection, investigation, and prosecution of money laundering, terrorist financing, and related crimes.
The business units and front-line staff responsible for owning and managing risk in day-to-day operations, including identifying, assessing, and mitigating money laundering and financial crime risks through effective controls and procedures.
A legal directive issued by a court or competent authority requiring the immediate restraint (freezing) and/or confiscation (seizure) of assets suspected to be connected to criminal activity, including money laundering or terrorist financing.
A bank account into which cash or deposits are made at multiple locations or branches—often far from the account’s home branch—and then rapidly consolidated or withdrawn, commonly associated with money laundering or other illicit activity.
A professional or institution—such as an attorney, accountant, trust service provider, or company formation agent—that can facilitate or prevent money laundering or terrorist financing by controlling access to the financial system and corporate structures.
An informal value transfer system that moves funds between parties through a network of brokers without the physical movement of money, relying on trust and net settlement, and often operating outside formal banking and regulatory oversight.
A geographic area designated by the U.S. government as a significant center of illegal drug production, manufacturing, importation, or distribution, where federal, state, local, and tribal agencies coordinate and receive enhanced resources to disrupt and dismantle drug trafficking and related financial crime.
A geographic area designated by U.S. authorities as having a high concentration of financial crime, where enhanced interagency coordination, law enforcement resources, and AML enforcement efforts are applied to combat money laundering and related offenses.
An objective, periodic evaluation of an institution’s AML/CFT program conducted by qualified personnel who are not involved in the program’s design or operation, to assess its adequacy, effectiveness, and compliance with applicable laws, regulations, and internal policies.
The detection, interruption, and prevention of illicit activities—such as money laundering, terrorist financing, or drug trafficking—by law enforcement or regulatory authorities before the activity is completed or its proceeds are fully realized.
A process conducted by a financial institution to review and assess suspicious or unusual activity involving its own customers. In the CAMS context, internal customer investigations support compliance with AML/CFT obligations by identifying potential money laundering, terrorist financing, or other illicit activity and determining whether further reporting, monitoring, or action is required.
Organizations that establish standards, guidance, and best practices for anti-money laundering (AML) and counter-terrorist financing (CFT) efforts worldwide. In the CAMS context, membership in these bodies—such as the Financial Action Task Force (FATF) or the Egmont Group—helps financial institutions align with international expectations, access intelligence, and strengthen compliance programs.
An international organization that promotes global monetary cooperation, financial stability, and economic growth. In the CAMS context, the IMF provides guidance and assessments on countries’ anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks, helping institutions evaluate jurisdictional risk.
A U.S. Internal Revenue Service form used to report cash payments over $10,000 received in a trade or business. In the CAMS context, filing Form 8300 helps detect and prevent money laundering by creating a record of large cash transactions that may indicate suspicious or illicit activity.
A process used by financial institutions to verify the identity, background, and risk profile of clients. In the CAMS context, KYC is fundamental for preventing money laundering, terrorist financing, and other financial crimes, involving customer identification, due diligence, and ongoing monitoring of transactions and relationships.
A compliance process in which financial institutions assess the background, integrity, and risk profile of their staff. In the CAMS context, KYE helps prevent internal fraud, collusion, and abuse of the institution’s systems for money laundering or terrorist financing, supporting a strong internal control environment.
Financial institutions known to do business with criminals are breaking the law by assisting in the facilitation of activity that puts their account holders at risk and harms the community at large. Not only will they be held criminally liable for these behaviors, but they will also likely face a tidal wave of regulatory fines and civil litigation that can lead to a loss of their license and insolvency.
A nation characterized by lower income levels, limited infrastructure, and underdeveloped financial and regulatory systems. In the CAMS context, transactions or relationships involving LEDCs may carry higher money laundering or terrorist financing risks due to weaker AML/CFT controls and regulatory oversight, necessitating enhanced due diligence and monitoring.
A business structure that combines elements of partnerships and corporations, providing owners (members) with limited personal liability for company debts and obligations. In the CAMS context, LLCs can pose money laundering risks if used to obscure beneficial ownership, requiring proper due diligence to identify the individuals who ultimately control or benefit from the entity.
The evaluation of money laundering and terrorist financing risk at a broad institutional, geographic, or sectoral level. In the CAMS context, macro-level assessments help financial institutions identify systemic or regional risks, inform overall AML/CFT strategies, and guide resource allocation for monitoring and compliance programs.
The evaluation of money laundering and terrorist financing risk at the individual customer, account, or transaction level. In the CAMS context, micro-level assessments help financial institutions identify higher-risk clients or activities, allowing for targeted due diligence, monitoring, and risk mitigation measures.
The process of concealing the origin, ownership, or control of illicitly obtained funds to make them appear legitimate. In the CAMS context, detecting and preventing money laundering is central to compliance, involving customer due diligence, transaction monitoring, suspicious activity reporting, and adherence to anti-money laundering regulations.
A financial entity that provides services such as money transmission, currency exchange, check cashing, or issuance of money orders. In the CAMS context, MSBs are considered higher-risk for money laundering and terrorist financing, requiring registration with regulatory authorities, implementation of AML programs, and ongoing monitoring of transactions and customer activity.
The systematic review of publicly available information—such as news articles, media reports, or online content—highlighting potentially harmful or suspicious behavior by individuals or entities. For CAMS purposes, negative news research is used in customer due diligence and ongoing monitoring to identify risks related to money laundering, terrorist financing, sanctions violations, or reputational exposure.
An arrangement in which a foreign financial institution gains indirect access to another bank’s correspondent account through an intermediary bank, rather than maintaining its own direct correspondent relationship. From a CAMS perspective, nested accounts pose heightened AML/CFT risk because they can obscure the identity of the underlying customers and transactions, requiring enhanced due diligence and monitoring.
An individual or entity listed as the registered owner of shares on behalf of the true beneficial owner. In the CAMS context, nominee shareholders present transparency and ownership risks because they can be used to conceal beneficial ownership, requiring enhanced due diligence to identify and verify the underlying controlling parties.
A jurisdiction identified—historically by the Financial Action Task Force (FATF)—as having significant deficiencies in its anti-money laundering and counter-terrorist financing framework and failing to adequately cooperate internationally. For CAMS purposes, NCCTs signal elevated jurisdictional risk and warrant enhanced due diligence, increased monitoring, and stronger controls for transactions or relationships involving those locations.
An entity established for charitable, religious, educational, or similar public-interest purposes that does not distribute profits to owners or shareholders. In the CAMS context, NPOs are considered higher-risk due to their potential misuse for terrorist financing or money laundering, requiring appropriate risk-based due diligence and monitoring.
A publicly issued list maintained by OFAC identifying individuals, entities, vessels, and aircraft subject to U.S. sanctions. From a CAMS perspective, financial institutions must screen against the SDN List and block or reject transactions involving listed parties, as dealings with SDNs are generally prohibited absent specific authorization.
A U.S. Treasury Department office responsible for administering and enforcing economic and trade sanctions against targeted foreign countries, regimes, individuals, and entities. For CAMS purposes, OFAC is central to sanctions compliance, requiring financial institutions to screen customers and transactions, block or reject prohibited activity, and report matches involving sanctioned parties.
When a bank loses confidence with its financial business partners and is unable to do business, or is charged exorbitant fees by these partners due to the heightened risks presented.
The Organization of American States (OAS) is an international AML/CFT membership body representing nations of the Western hemisphere. Founded just after the Second World War, the OAS is headquartered in Washington DC and serves to promote regional solidarity and cooperation among its members.
The Patriot Act, or USA PATRIOT Act, was passed shortly after the terrorist attacks in the United States that occurred on September 11, 2001, and gave law enforcement agencies broader powers to investigate, indict, and bring terrorists to justice.
A bank account held by a foreign correspondent bank that allows its customers—often other banks or entities—to conduct transactions directly through the account. PTAs pose higher AML/CFT risk because the respondent bank may have limited visibility into the underlying customers and their activities.
An individual who holds, or has held, a prominent public position—such as a senior government official, politician, or high-ranking military officer—and therefore may present a higher risk of involvement in bribery, corruption, or money laundering. Financial institutions apply enhanced due diligence when dealing with PEPs and their close associates or family members.
A criminal act that generates proceeds that may be laundered. In AML/CFT, predicate offenses include crimes such as fraud, drug trafficking, corruption, and tax evasion, which serve as the underlying source of illicit funds entering the financial system.
A payment card loaded with a specific amount of money in advance, which can be used for purchases or withdrawals up to the stored value. In AML/CFT, prepaid cards are considered higher risk because they can be used anonymously, facilitating potential money laundering or terrorist financing if not properly monitored.
A financial institution or division that provides personalized banking, investment, and wealth management services to high-net-worth individuals. In AML/CFT, private banks are considered higher risk due to their complex accounts, large transactions, and potential use of trusts or offshore structures, requiring enhanced due diligence and monitoring.
A process in AML/CFT programs used to evaluate the risk associated with specific financial products or services. It considers factors such as transaction complexity, customer type, delivery channels, and geographic exposure to determine the likelihood of misuse for money laundering or terrorist financing, guiding appropriate controls and monitoring.
A warning sign or indicator that a transaction, behavior, or customer relationship may be suspicious or high-risk for money laundering, terrorist financing, or other financial crimes. Identifying red flags is a key step in AML/CFT programs to trigger further review, investigation, or reporting.
A banking service that allows customers to digitally deposit checks by scanning or photographing them and transmitting the images to their financial institution. RDC offers convenience and speed but requires proper AML/CFT monitoring to detect potential fraudulent or suspicious transactions.
The process by which financial institutions or regulated entities identify and report transactions or behaviors that may indicate money laundering, terrorist financing, or other financial crimes. This typically involves filing a Suspicious Activity Report (SAR) or Suspicious Transaction Report (STR) with the relevant Financial Intelligence Unit (FIU) to enable investigation and enforcement.
The potential for negative public perception to harm an organization’s credibility, trust, or business relationships. In AML/CFT, reputational risk arises if a financial institution is associated with money laundering, terrorist financing, sanctions violations, or other illicit activities, even if no legal liability exists.
A financial institution that maintains an account with another bank, known as the correspondent bank, to facilitate services such as international wire transfers, foreign exchange, or payment clearing. In AML/CFT, respondent banks rely on the due diligence and controls of their correspondent banks while also managing their own risk exposure.
A notification issued by regulators, industry groups, or financial institutions to highlight emerging threats, suspicious activity patterns, or high-risk trends in money laundering, terrorist financing, or other financial crimes. Risk alerts help organizations adjust controls, enhance monitoring, and prevent potential exposure.
A tool used in AML/CFT programs to assess and quantify the level of risk associated with customers, transactions, or business relationships. By assigning scores based on factors like geography, product type, and customer profile, institutions can prioritize monitoring and due diligence efforts effectively.
A method in AML/CFT programs where resources and controls are prioritized according to the level of risk posed by customers, transactions, products, or geographic locations. This approach allows institutions to focus on higher-risk areas while maintaining proportional oversight and compliance.
Official restrictions or prohibitions imposed by governments or international bodies on individuals, entities, or countries to prevent financial transactions, trade, or other dealings with them. In AML/CFT, sanctions help block funds linked to terrorism, money laundering, or other illicit activities, and financial institutions must screen customers and transactions against sanction lists.
A legal authorization issued by a court that allows law enforcement to enter a premises, seize property, or access records as part of an investigation. In AML/CFT contexts, search warrants may be used to gather evidence of money laundering, fraud, or terrorist financing activities.
The risk management and compliance functions within an organization that monitor, oversee, and support the first line (business units) in managing risks. In AML/CFT programs, the second line ensures that policies, procedures, and controls are properly designed and followed, providing guidance and risk oversight.
A financial institution that does not have a physical presence in the country where it is licensed and typically lacks meaningful operations or management there. Shell banks are considered high-risk for money laundering and terrorist financing because they can be used to conceal the true origin or ownership of funds.
A legal entity that exists on paper only and typically has no significant assets, operations, or employees. Shell companies are often used in money laundering and terrorist financing schemes to obscure ownership, facilitate illicit transactions, or hide the source of funds.
The process of locating a person who is difficult to find, often for legal, financial, or investigative purposes. In AML/CFT, skip tracing can be used to identify and verify the whereabouts of individuals involved in suspicious transactions or who may be attempting to evade authorities.
Countries designated by the U.S. Department of State as having repeatedly provided support for acts of international terrorism. Financial transactions involving these states are heavily restricted under U.S. law, and institutions must apply enhanced due diligence to prevent money laundering or terrorist financing.
The practice of breaking up large financial transactions into smaller amounts to avoid triggering reporting requirements or regulatory scrutiny. Also known as smurfing, structuring is a common money laundering technique used to evade detection by banks and authorities.
A legal document issued by a court or authorized body requiring an individual or organization to provide testimony or produce documents. In AML/CFT, subpoenas may be used to obtain financial records or transaction information during investigations of money laundering, fraud, or terrorist financing.
A report submitted by a financial institution or other regulated entity to the Financial Crimes Enforcement Network (FinCEN) or relevant authority when it identifies potentially suspicious or illegal activity, such as money laundering, fraud, or terrorist financing. SARs help law enforcement detect, investigate, and prevent financial crimes.
A report filed by a financial institution or regulated entity to the relevant Financial Intelligence Unit (FIU) when it detects a transaction or activity that appears unusual, potentially illegal, or indicative of money laundering or terrorist financing. STRs are a key tool in AML/CFT efforts to identify and investigate financial crimes.
The act of providing, collecting, or facilitating funds or other resources intended to support terrorist activities or organizations, regardless of whether the funds are from legal or illegal sources. AML/CFT programs monitor and report suspicious transactions to prevent the flow of money to terrorism.
A secure communication platform developed by the Egmont Group that enables Financial Intelligence Units (FIUs) worldwide to exchange sensitive information safely and efficiently. ESW supports international cooperation in combating money laundering and terrorist financing.
A framework describing how illicit funds are disguised to appear legitimate: (1) Placement, where illegal proceeds enter the financial system; (2) Layering, where transactions are conducted to obscure the source and ownership of funds; and (3) Integration, where laundered funds are reintroduced into the economy as seemingly legitimate assets.
A U.S. federal law enacted in 2001 to strengthen national security by enhancing law enforcement and regulatory tools to detect, prevent, and disrupt terrorism and money laundering. The Act expanded customer identification requirements, information sharing, and AML obligations for financial institutions.
The internal audit function that provides independent and objective assurance to senior management and the board on the effectiveness of governance, risk management, and internal controls. In AML/CFT programs, the third line evaluates whether compliance frameworks are properly designed, implemented, and operating effectively.
An external entity that processes payment transactions on behalf of merchants or financial institutions, often handling card payments, ACH transfers, or online transactions. TPPPs pose elevated AML/CFT risk due to limited visibility into underlying customers and transactions, requiring enhanced due diligence and ongoing monitoring.
A risk management and governance model in which (1) business and operational units own and manage risk, (2) compliance and risk management functions oversee and monitor those risks, and (3) internal audit provides independent assurance that controls are effective. This framework is widely used in AML/CFT programs to ensure accountability and effective risk oversight.
Financial instruments and services—such as letters of credit, guarantees, and documentary collections—used to facilitate international trade by managing payment, credit, and performance risk between buyers and sellers. In AML/CFT, trade finance is considered higher risk due to its complexity and potential for misuse through trade-based money laundering.
The process of reviewing and analyzing customer transactions in real time or on a periodic basis to detect suspicious or unusual activity. In the CAMS context, transaction monitoring helps financial institutions identify potential money laundering, terrorist financing, fraud, or other financial crimes, triggering alerts for further investigation or reporting.
A legal arrangement in which one party (the trustee) holds and manages assets on behalf of another (the beneficiary) in accordance with the terms set by the settlor. In AML/CFT, trusts can pose higher risk because they may be used to obscure beneficial ownership if not properly identified and monitored.
A business or individual that provides services such as forming companies, acting as a nominee director or shareholder, creating or administering trusts, or providing registered office addresses. TCSPs present elevated AML/CFT risk due to their role in creating and managing legal structures that can obscure beneficial ownership.
Common methods, patterns, or techniques used to carry out financial crimes such as money laundering or terrorist financing. In AML/CFT, typologies are identified through analysis of cases and trends and are used to help institutions recognize red flags, assess risk, and strengthen controls.
A business or individual that conducts activities involving virtual assets on behalf of clients—such as exchanging, transferring, or safeguarding cryptocurrencies—and is subject to AML/CFT regulations.
A digital form of value used as a medium of exchange, unit of account, or store of value, typically unregulated and not issued by a government, often transacted via blockchain or other decentralized networks.
A category of weapons capable of causing large-scale loss of life, significant physical destruction, or severe societal disruption. This includes nuclear, chemical, biological, and radiological weapons. In AML/CFT contexts, WOMD refers to the proliferation financing risks associated with funding, materials, or services that support the development, acquisition, or use of such weapons.
The illegal trade, poaching, smuggling, or collection of protected or endangered species for products such as leather, food, medicines, jewelry, or exotic pets, often linked to organized crime and global illicit markets.
A legal concept where a person intentionally avoids acquiring knowledge of facts or illegal activities, often to escape liability. In AML/CFT, it refers to individuals or institutions deliberately ignoring suspicious transactions or red flags to avoid reporting obligations.
An electronic method of moving funds from one bank account to another, domestically or internationally. Wire transfers are typically fast, secure, and traceable, making them commonly used in financial transactions and monitored for anti-money laundering (AML) and counter-terrorist financing (CFT) compliance.
An international financial institution that provides loans, grants, and technical assistance to developing countries to reduce poverty, support economic development, and promote global financial stability. It also sets standards and guidelines for anti-money laundering (AML) and counter-terrorist financing (CFT) practices in member countries.
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