Kleptocrat A corrupt leader who exploits the people and resources of a state for personal gain.

Knowledge Mental state accompanying a prohibited act. The Interpretive Notes to Recommendation 3 of the FATF 40 Recommendations of 2012 says that countries should ensure that the intent and knowledge required to prove the offense of money laundering is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such a mental state may be inferred from objective factual circumstances. The exact definition of knowledge that accompanies an anti-money laundering act varies by country. Knowledge can be deemed, under certain circumstances, to include willful blindness; that is "the deliberate avoidance of knowledge of the facts," as some courts have defined the term.

Know Your Customer (KYC) Anti-money laundering policies and procedures used to determine the true 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 Employee (KYE) Anti-money laundering policies and procedures for acquiring a better knowledge and understanding of the employees of an institution for the purpose of detecting conflicts of interests, money laundering, past criminal activity and suspicious activity.

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. A court case involving a bank may have graver implications for the institution than just the legal costs. Banks will be unable to protect themselves effectively from such legal risks if they do not practice due diligence in identifying customers and understanding and managing their exposure to money laundering.

Letter of Credit A credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party when certain conditions are met.

Letter Rogatory See Commission Rogatoire

License A written authorization issued by a sanctions regulator that permits an activity that otherwise might be prohibited or restricted under a particular sanction. The laws or regulations passed to implement financial sanctions generally include language that allows otherwise prohibited transactions to take place under specific circumstances, whether via a general or specific license. A general license is an exemption that all persons may transact under—an example would be transacting for purposes of humanitarian aid. A specific license is an exception for the applicant of the license and establishes the circumstances in which the applicant may transact if the license is granted.

Limited Liability Company (LLC) A specifically defined type of business in the United States, in which personal liability is separated from corporate liability. LLCs are especially popular in high-risk businesses, as the individuals (owners, directors, etc.) associated with such ventures seek to avoid personal accountability for corporate debts or lawsuits.

Look-Back (or Look-Back Review) 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.

Mandatory Sanctions Lists Supranational sanctions lists, such as those including targets designated by the United Nations Security Council Resolutions (UNSCR), which must be screened against. Depending on the country in which a business is located and operates, local sanctions regimes may be required (i.e., mandatory) and would need to be included within a firm's sanctions compliance program.

Memorandum of Understanding (MOU) Agreement between two parties establishing a set of principles that govern their relationship on a particular matter. An MOU is often used by countries to govern their sharing of assets in international asset-forfeiture cases or to set out their respective duties in anti-money laundering initiatives. Financial Intelligence Units (FIUs), with the task of receiving and analyzing suspicious transaction reports on an ongoing basis and maintaining close links with police and customs authorities, share information among themselves informally in the context of investigations, usually on the basis of an MOU.

Middle East and North Africa Financial Action Task Force (MENAFATF)  FATF-style body established for the Middle Eastern and North African regions in 2004.

Mirror Trades A type of trade that involves buying securities in one currency and then selling identical ones in another currency.

Monetary Instruments Travelers checks, negotiable instruments, including personal checks and business checks, official bank checks, cashier's checks, promissory notes, money orders, securities or stocks in bearer form. Monetary instruments are normally included, along with currency, in the anti-money laundering regulations of most countries, and financial institutions must file reports and maintain records of customer activities involving them.

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. It usually involves a three part system: placement of funds into a financial system, layering of transactions to disguise the source, ownership and location of the funds, and integration of the funds into society in the form of holdings that appear legitimate. The definition of money laundering varies in each country where it is recognized as a crime.

Money Laundering Reporting Officer (MLRO) A term used in various international rules to refer to 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.

Money Order A monetary instrument usually purchased with cash in small (generally under Euro/$500) denominations. It is commonly used by people without checking accounts to pay bills or to pay for purchases in which the vendor will not accept a personal check. Money orders may be used for laundering because they represent an instrument drawn on the issuing institution rather than on an individual's account.

Money Services Business (MSB) A person (whether a natural or legal person) engaged in any of the following activities where it exceeds the applicable regulatory threshold, at which point the person is generally deemed to be a financial institution subject to AML obligations:

· Dealing in foreign exchange
· Check cashing
· Issuing or selling traveler’s checks or money orders
· Providing or selling prepaid access
· Money transmission

Money Transfer Service or Value Transfer Service Financial service that accepts cash, checks and other monetary instruments that can store value in one location and pay a corresponding sum in cash or other form to a beneficiary in another location by means of a communication, message, transfer or through a clearing network to which the money/ value transfer service belongs. Transactions performed by such services can involve one or more intermediaries and a third-party final payment. A money or value transfer service may be provided by persons (natural or legal) formally through the regulated financial system (for example, bank accounts), informally through non-bank financial institutions and business entities or outside of the regulated system. In some jurisdictions, informal systems are referred to as alternative remittance services or underground (or parallel) banking systems.

MONEYVAL Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures. Formerly PC- R-EV, the committee was established in 1997 by the Committee of Ministers of the Council of Europe to conduct self and mutual assessments of anti-money laundering measures in place in Council of Europe countries that are not FATF members. MONEYVAL is a sub-committee of the European Committee on Crime Problems of the Council of Europe (CDPC).

Monitoring An element of an institution's anti-money laundering program in which customer activity is reviewed for unusual or suspicious patterns, trends or outlying transactions that do not fit a normal pattern. Transactions are often monitored using software that weighs the activity against a threshold of what is deemed "normal and expected" for the customer.

Multilateral Sanctions Multilateral sanctions are restrictions supported by more than one country or entity. These can be imposed by allies against a common enemy or for the purpose of realizing a greater economic and punitive impact.

Mutual Evaluation Report (MER) Reports giving an in-depth description and analysis of a country's systems for limiting financial crimes based on FATF recommendations. While the reports are not sanctions, they have the potential to influence the risk a financial institution will take when dealing with a particular country or region.

Mutual Legal Assistance Treaty (MLAT) Agreement among countries allowing for mutual assistance in legal proceedings and access to documents and witnesses and other legal and judicial resources in the respective countries, in private and public sectors, for use in official investigations and prosecutions.

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. Name screening may also include batch name screening, which allows a firm to screen its entire customer base using automatic screening tools on a periodic basis. When onboarding new customers, name screening against sanctions lists is undertaken prior to accepting a new customer relationship, and it is done in real time. Name screening forms a part of entry controls, which give the financial institution more opportunities to collect SDD information.

Naming Conventions The ways in which an individual's name is given to or used by him or her. Names can be presented in many ways, largely dependent upon the country or cultural norms of the country where the individual was born or raised.

Nested Account The use of a bank's correspondent relationship by a number of underlying banks or financial institutions through their relationships with the correspondent bank's direct customer. The underlying respondent banks or financial institutions conduct transactions and obtain access to other financial services without being direct customers of the correspondent bank.

Nesting The practice where a respondent bank provides downstream correspondent services to other financial institutions and processes these transactions through its own correspondent account. The correspondent bank is thus processing transactions for financial institutions on which it has not conducted due diligence. While this is a normal part of correspondent banking, it requires the correspondent bank to conduct enhanced due diligence on its respondent's AML program to adequately mitigate the risk of processing the customer's customers' transactions.

Nominee Director or Shareholder Person who is not the actual director or shareholder of a company but who is appointed to act on behalf of its directors or shareholders. Although the use of nominee shareholders is also in rapid decline, the use of nominee directors is still common.

Non-Governmental Organization (NGO) Not for profit organizations that are not directly linked to the governments of specific countries, and perform a variety of service and humanitarian functions, including bringing citizen concerns to governments, advocating for causes and encouraging political participation. Some countries' anti- money laundering regulations for NGOs still have loopholes that some worry could be exploited by terrorists or terrorist sympathizers trying to secretly move money.

Non-Profit Organizations (NPO) These can take on a variety of forms, depending on the jurisdiction and legal system, including associations, foundations, fund-raising committees, community service organizations, corporations of public interest, limited companies and public benevolent institutions. FATF has suggested practices to help authorities protect organizations that raise or disburse funds for charitable, religious, cultural, educational, social or fraternal purposes from being misused or exploited by financiers of terrorism.

Non-Proliferation Treaty (NPT) The UN Treaty on the Non-Proliferation of Nuclear Weapons was signed in 1968 and went into effect in March 1970. The NPT solidified the commitment of signing countries to prevent the spread of nuclear weapons. Its goal was to minimize the risk of the use of nuclear weapons in conflict, which could result in significant destruction. Likewise, the NPT sought to keep the weapons out of the hands of rogue nations and terrorists.

Office of Foreign Assets Control (OFAC) The agency within the US Department of the Treasury responsible for administering and enforcing economic sanctions issued as part of US foreign policy and by international organizations like the United Nations against targeted foreign countries. It often works in consultation with other agencies, such as the Department of State, to oversee national security goals. A core component of the agency's responsibilities is the creation and maintenance of the Specially Designated Nationals (SDN) list.

Office of the Superintendent of Financial Institutions (OSFI)
The primary agency regulating financial institutions in Canada.

Offshore Literally, away from one's own home country—if one lives in Europe, the U.S. is "offshore." In the money laundering lexicon, the term refers to jurisdictions deemed favorable to foreign investments because of low or no taxation or strict bank secrecy regulations.

Offshore Banking License A license that prohibits a bank from doing business with local citizens or in local currency as a condition of its license.

Offshore Financial Center (OFC) Institutions that cater to or otherwise encourage banks, trading companies, and other corporate or legal entities to physically or legally exist in a jurisdiction but limit their operations to "offshore," meaning outside the jurisdiction (see Offshore). OFCs have historically been located in the Caribbean or on Mediterranean islands to be in reasonable proximity to the major financial centers of the U.S. and Europe.

Omnibus Account See Clearing Account

Operational Risk The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or systems, or as a result of external events. Public perception that a bank is not able to manage its operational risk effectively can disrupt or harm the business of the bank.

Organization for Economic Cooperation and Development (OECD) International organization that assists governments on economic development issues in the global economy. OECD houses the FATF secretariat in Paris.

Originator The account holder or, where there is no account, the person (natural or legal) which places the order with the financial institution to perform the wire transfer.

Partial Match A result generated by an AST. A partial match means the entity being screened is similar enough to the sanctioned entity based on fuzzy logic and potentially other identifying factors, such as date of birth. Partial matches require further human intervention to determine whether the match is a target match (or true match), i.e., whether the name being screened is the same entity as the sanctioned target.

Pass-Through Sanctions Risk The incorrect assumption that the sanctions risks associated with a customer's affiliates or subsidiaries is simply a problem for the customer to assess and manage. Regulators in the United Kingdom and United States require all parties within a transaction chain to check for possible sanctions risks. It is important for financial institutions to ask for and review information about a customer's affiliates and subsidiaries.

Payable Through Account Transaction account opened at a depository institution by a foreign financial institution through which the foreign institution's customers engage, either directly or through subaccounts, in banking activities and transactions in such a manner that the financial institution's customers have direct control over the funds in the account. These accounts pose risks to the depository institutions that hold them because it can be difficult to conduct due diligence on foreign institution customers who are ultimately using the PTA accounts.

Payment Screening A method of screening that focuses on screening payment messages. Unlike name screening, payment screening takes place with current customers and is performed before a payment or message is processed. Payment screening relies on payment messages using predefined templates, codes, and acronyms to describe certain information. The information provided in these predefined templates is typically provided by a third party; therefore, the firm has little, if any, control over how the data is presented.

Payments, Cross Border Payments that involve more than one country, whether by physically transporting cash across an international border, or by transferring money electronically from one country to another.

Physical Presence Existence of an actual brick and mortar location with meaningful management of the institution physically located within a country, where it maintains business records and is subject to supervision. The mere existence of a local agent or low level staff does not constitute physical presence.

Placement The first phase of the money laundering process: The physical disposal of proceeds derived from illegal activity.

Politically Exposed Person (PEP) According to FATF's revised 40 Recommendations of 2012, 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. The term PEP does not extend to middle- ranking individuals in the specified categories. Various country regulations will define the term PEP, which may include domestic as well as foreign persons.

Ponzi Scheme A money laundering system named after Charles Ponzi, an Italian immigrant who spent 10 years in jail in the U.S. for a scheme that defrauded 40,000 people out of $15,000,000. Ponzi's name became synonymous with the use of new investors' money to pay off prior investors. Ponzi schemes involve fake, non-existent investment schemes in which the investors are tricked into investing on the promise of unusually attractive returns. The operator of the scheme can keep the operation going by paying off early investors with the money from new investors until the scheme collapses under its own weight and/or the promoter vanishes with the remaining money.

Predicate Crimes "Specified unlawful activities" whose proceeds, if involved in the subject transaction, can give rise to prosecution for money laundering. Most anti-money laundering laws contain a wide definition or listing of such underlying crimes. Predicate crimes are sometimes defined as felonies or "all offenses in the criminal code."

Private Banking A department in a financial institution that provides high-end services to wealthy individuals. Private banking transactions tend to be marked with confidentiality, complex beneficial ownership arrangements, offshore investment vehicles, tax shelters and credit extension services.

Private Investment Company (PIC) Also known as a Personal Investment Company, a PIC is a type of corporation that is often established in an offshore jurisdiction with tight secrecy laws to protect the privacy of its owners. In some jurisdictions, an international business company or exempt company is referred to as a private investment company.

Pyramid scheme See Ponzi scheme

Real Time Gross Settlement Systems (RTGS) International wire transfers use RTGS within a given jurisdiction. In RTGS, money or securities are transferred between banks on a "real time" and "gross" basis, meaning that payment transactions are not subject to a waiting period, and each transaction is settled on a one-on-one basis.

Reasonable Cause (to Suspect) In the United Kingdom, in the absence of definite knowledge of wrongdoing, a firm must have reasonable cause to suspect that it is in possession of, or controlling the economic assets of, a designated person. Reasonable cause to suspect is defined as a set of circumstances from which an honest and reasonable person should have inferred knowledge or formed the suspicion of wrongdoing.

Red Flag A warning signal that should bring attention to a potentially suspicious situation, transaction or activity.

Register, Corporate A corporate register is a listing of key information about the company, such as when a corporation was formed and who its owners and directors are. Corporate (or company) registers are often publicly available on the company's website or websites maintained by professional associations or entities, such as chambers of commerce or legal databases. In the United States, the secretary of state for each state and the District of Columbia maintains an online register for corporations doing business in that state.

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. Most financial regulatory agencies play a major role in preventing and detecting money laundering and other financial crimes. Most regulators focus on domestic institutions, but some have the ability to regulate foreign branches and operations of institutions.

Remittance Services Also referred to as giro houses or casas de cambio, remittance services are businesses that receive cash or other funds that they transfer through the banking system to another account. The account is held by an associated company in a foreign jurisdiction where the money is made available to the ultimate recipient.

Reporting Requirements, Initial and Periodic Initial reporting and periodic reporting often exist side by side. Initial reporting occurs immediately when funds are identified and a freeze or reject is activated; this report usually includes providing the regulatory body with a detailed breakdown of the financial institution's exposure to the sanctions target. In addition, many jurisdictions require annual (as is the case for OFAC) or quarterly reports from the financial institution about blocked assets. These reports provide a summary of the assets the firm is holding in compliance with specific sanctions restrictions and how the assets have been segregated.

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. Banks and other financial institutions are especially vulnerable to reputational risk because they can become a vehicle for, or a victim of, illegal activities perpetrated by customers. Such institutions may protect themselves through Know Your Customer and Know Your Employee programs.

Respondent Bank A bank for which another financial institution establishes, maintains, administers or manages a correspondent account.

Restrictive Measures See Sanctions

Risk Appetite The amount of risk that a firm is willing to accept in pursuit of value or opportunity. A firm's risk appetite reflects its risk management philosophy and comfort level for undertaking business in situations in which there could be an elevated sanctions risk. In turn, risk appetite influences the firm's culture and operating style and guides resource allocation. An organization's risk appetite is determined through the risk-assessment process and formalized in a Risk Appetite Statement or Framework. A business should determine its risk appetite based on the resources it has to invest in controls, staffing, and measures to protect its reputation. Firms can have an overarching risk appetite (i.e., enterprise-wide) and/or have risk appetites defined on a more granular level (e.g., by department).

Risk Assessment A tool that allows a business to identify and assess the extent to which it may be exposed to risks. In global banking, risk assessments form the foundation of a sound sanctions compliance program. The key purpose of a risk assessment is to drive improvements in financial crime risk management by identifying the general and specific sanctions risks a financial institution is facing; the ways in which these risks are mitigated by a firm's sanctions compliance program controls; and any additional controls to mitigate the residual risk that remains for the institution. A well-planned and well-formulated risk assessment allows a business to understand its risk profile and then determine its risk appetite for undertaking business in situations in which there could be an elevated sanctions risk.

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

Romanization The process of taking a different writing system (i.e., one that often does not use the Latin A-Z alphabet) and converting it into Latin script—that is, converting writing into the script that languages, such as English, are written in today. Some scripts do not have equivalent letters or symbols; as a result, there can be variations in the spelling of names and words, even when they're written in the standard alphabet

Safe Harbor Legal protection for financial institutions, their directors, officers and employees from criminal and civil liability for breach of any restriction on disclosing information imposed by contract or by any legislative, regulatory or administrative prohibition, if they report their suspicions in good faith to the Financial Investigation Unit (FIU), even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.

Sanctions Sanctions are 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 Compliance The act of adhering to the sanctions-related legislation, regulations, rules, and norms that make up the complex sanctions landscape.

Sanctions Compliance Officer (SCO) Within the second line of defense in the governance structure of a sanctions compliance program, the SCO is responsible for ongoing monitoring for sanctions compliance, including sample testing and a review of exception reports, to enable the escalation of identified noncompliance or other issues to senior management and, where appropriate, the board. The SCO is the contact point for all sanctions-related issues for internal and external authorities and is responsible for reporting suspicious transactions. To enable the successful oversight of the sanctions compliance program, the SCO must have sufficient independence from the business lines to prevent conflicts of interest and unbiased advice and counsel.

Sanctions Compliance Program (SCP) A program run by a firm to comply with regulator expectations concerning sanctions compliance and to manage the firm's sanctions risk. OFAC encourages organizations subject to US jurisdiction to use a risk-based approach to sanctions compliance by developing, implementing, and regularly updating SCPs. SCPs follow a similar methodology to that adopted by anti-money laundering compliance programs. According to OFAC, the five essential components of an SCP are (1) management commitment; (2) risk assessment; (3) internal controls; (4) testing and auditing; and (5) training.

Sanctions Evasion The deliberate attempt to remove or conceal the involvement of sanctioned places, entities, or individuals in a transaction or series of transactions. When sanctions evasion is successful, a business that would have been flagged, taxed, restricted, or prohibited is allowed to proceed unhindered.

Sanctions Due Diligence (SDD) A similar process to Know Your Customer (KYC) / Customer Due Diligence (CDD) that focuses on the risks specific to sanctions, taking into account governance and risk assessment. SDD builds upon the KYC/CDD information an organization collects as part of its existing AML program. SDD is applied throughout the life cycle of a relationship at the start of a relationship (i.e., onboarding); when new products are introduced, in response to trigger events during a relationship, such as a "match" generated by a screening tool; during periodic reviews; and when a relationship ends.

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

Sanctions Regime A set of sanctions that have a common nexus or theme. These are either referred to by the issuer of the set of sanctions or by the intended purpose of the set of sanctions. For example, the "OFAC sanctions regime" or the "North Korea sanctions regime." Depending on the context, a sanctions regime may be limited to unilateral sanctions or may include multilateral sanctions.

Scope of Licensing Details on which activities are permitted with the license in question. For example, if a firm is managing frozen assets for a customer and it needs to transfer some of the customer's assets to a business (for example, a creditor with a legitimate claim), the firm needs to determine whether, and under what circumstances, the license allows this activity.

Scope of Permitted Activities Details on exactly which activities are permitted without a license under a sanction, and which are only permitted with a license. A license may stipulate that certain activities are only permitted during a certain period of time or during specified seasons.

Screening Tools See Automated Screening Tools (ASTs)

Second Line of Defense The sanctions compliance function, the larger compliance function, and the human resources and technology departments comprise the second line of defense within the governance structure of a sanctions compliance program. The sanctions compliance officer ensures ongoing monitoring for sanctions compliance to enable the escalation of identified issues. In general, the second line exists to ensure that SDD procedures and processes applied by the first line are designed properly, firmly established, and applied as intended. The second-line defense reviews the effectiveness of controls used to mitigate sanctions risks; provides information to the first line; and investigates possible noncompliance with sanctions restrictions.

Sectoral Sanction A newer form of restriction focused on targeting key entities and sectors of a country's economy. They prohibit certain types of transactions with certain people or entities in the targeted country within a targeted sector of the economy. Sectoral sanctions are very dependent on facts and context when applied.

Sectoral Sanctions Identification List (SSI List) A list of those targeted by sectoral sanctions. The SSI list is not part of the Specially Designated Nationals (SDN) list. However, individuals and companies on the SSI list may also appear on the SDN list. Note that the SDN list is very broad, and the SSI list against Russia is very narrow.

SeizeTo prohibit the transfer, conversion, disposition or movement of funds or other assets on the basis of an action initiated by a competent authority or a court under a freezing mechanism. However, unlike a freeze, a seizure allows the competent authority to take control of specified funds or other assets. The seized assets remain the property of the person(s) or entity(ies) that held an interest in them at the time of the seizure, although the competent authority will often take over possession, administration or management of the seized assets.

Selective Sanctions See Targeted Sanctions

Senior Foreign Political Figure U.S. term for foreign politically exposed persons. See Politically Exposed Persons

Settlors Persons or companies who transfer ownership of their assets to trustees by means of a trust deed. Where the trustees have some discretion as to the investment and distribution of the trust's assets, the deed may be accompanied by a non-legally binding letter setting out what the settlor wishes done with the assets.

Sham Divestment A transaction in which a sanctions target sells assets or equity to close associates or other affiliated persons. These can include friends, colleagues, subordinates, business partners, and family members. Similar to using an isolation company, the idea is that the sanctions target no longer appears to "own" the assets or shares in a company. However, the target continues to influence or control the asset or the company's operations.

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 Bank Bank that exists on paper only and that has no physical presence in the country where it is incorporated or licensed, and which is unaffiliated with a regulated financial services group that is subject to effective consolidated supervision.

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.

Simple Checks One of the first steps in an investigation, simple checks are those initial actions taken to discount or confirm a sanctions link; an example of a simple check includes comparing data about a sanctions target with a firm's Know Your Customer (KYC) data.

Smart Sanctions See Targeted Sanctions

Smurfing A commonly used money laundering method, smurfing involves 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." See Structuring

Sources, Primary Sources of information that provide direct evidence about a sanction or a sanctions target. Examples of primary sources include sanctions instruments, sanctions lists, trade activity lists, and transaction activity.

Sources, Secondary Sources created "after the fact" that report on, analyze, or collect information that has already appeared in primary source documents. If there is a discrepancy between primary sources and secondary sources, it is a red flag that deserves, at minimum, further investigation in order to clarify the discrepancy. Examples of secondary sources include corporate registers, third-party databases, and media publications.

Specially Designated Nationals and Blocked Persons List (SDN List) A list of individuals and companies, published by OFAC, that are owned, controlled by, or acting on behalf of a targeted country. The list also includes groups and people, such as terrorists or drug traffickers, who are associated with a specific crime as opposed to a country. The US Department of the Treasury maintains the list and may name a person or company as an SDN. When the government identifies a person or company as an SDN, it blocks their assets and forbids US persons to do business with them. The government may also impose fines and imprison lawbreakers. Also, individuals may lose their export privileges. The US government may put the person or business on a list of blocked, denied, or debarred individuals and institutions.

Sting Operation Investigative tactic in which undercover officers pose as criminals, sometimes through a "front" business, to win the confidence of suspected or known criminals to gather information and to obtain evidence of criminal conduct. It is an effective means of identifying criminals, penetrating criminal organizations and identifying tainted property in money laundering and other cases.

Straw Man A non-sanctioned person with a low public profile who acts for or stands in the place of a sanctions target, also called a "front man." The straw man does not act in any real sense as an owner or controller. Instead, he or she carries out activities at the direction of the sanctions target, who is active in the background.

Strict Liability The principle that an organization is liable even if it did not intend to violate or knowingly violate a sanction. Organizations are also liable even if they have robust sanctions compliance programs in place.

String Matching An algorithm for efficient searching that involves finding occurrence(s) of a pattern string within another string or body of text. Also referred to as pattern matching, this method can be used to recognize social security numbers, telephone numbers, zip codes, and any other information that follows a specific pattern. It is also useful for looking for information that follows leading text and then extracting the text that comes after it, as well as reprocessing documents. This algorithm works by reading through text strings to match patterns.

Stripping Stripping involves omitting or removing key information, such as the sender's name or the business name, from a payment message to avoid detection. It may happen with or without the knowledge of other participants in the transaction. When a wire transfer travels through multiple parties before reaching the intended final destination, there are multiple opportunities for information to be abbreviated, omitted, or altered. For this reason, most jurisdictions have enacted laws that require payments to contain certain "basic" information, including the sender's and the recipient's name and address. When a wire originates from a sanctioned entity or location, and the intent is to deliver it within the United States or European Union, where restrictions would ordinarily flag the payment and block it, sanctions evaders have an incentive to remove the information that would trip the system.

Structuring Illegal act of splitting cash deposits or withdrawals into smaller amounts, or purchasing monetary instruments, to stay under a currency reporting threshold. The practice might involve dividing a sum of money into lesser quantities and making two or more deposits or withdrawals that add up to the original amount. Money launderers use structuring to avoid triggering a filing by a financial institution. The technique is common in jurisdictions that have compulsory currency reporting requirements. See Smurfing

Subpoena Compulsory legal process issued by a court to compel the appearance of a witness at a judicial proceeding, sometimes requiring the witness to bring specified documents. The term can refer to either the process or the actual document that compels the recipient to act.

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. May also refer to a transaction that is inconsistent with a customer's known legitimate business, personal activities, or the normal level of activity for that kind of business or account.

Suspicious Activity Report (SAR) See Suspicious Transaction Report

Suspicious Transaction Report (STR) A government filing required by reporting entities that includes a financial institution's account of a questionable transaction. Many jurisdictions require financial institutions to report suspicious transactions to relevant government authorities such as its FIU on a suspicious transaction report (STR), also known as a suspicious activity report or SAR.

SWIFT Message SWIFT (Society for Worldwide Interbank Financial Telecommunications) provides a messaging network that financial institutions use to securely transmit information and instructions. The network works through a standardized system of codes in which each member organization is assigned a unique code that has either 8 or 11 characters. The SWIFT messaging system sends payment orders that must be settled by correspondent accounts that the member institutions have with one another.

Target Match Identification of a party as matching one named on a sanctions list. It is also referred to as a true match and results from sanctions screening.

Targeted Sanctions
Sanctions against a specific target, generally with a goal of a specific outcome. Targeted sanctions can be in the form of financial or trade restrictions focused on restricting movement, and they can be applied unilaterally by one country or multilaterally by many countries. Targeted sanctions are also referred to as smart sanctions.

Tax Haven Countries that offer special tax incentives or tax avoidance to foreign investors and depositors.

Terrorist Financing The process by which terrorists fund their operations in order to perform terrorist acts. There are two primary sources of financing for terrorist activities. The first involves financial support from countries, organizations or individuals. The other involves a wide variety of revenue-generating activities, some illicit, including smuggling and credit card fraud.

Testimony Witness' oral presentation, usually under oath, that describes facts known to the witness.

Third Line of Defense The third-line defense within the governance structure of a sanctions compliance program is the internal audit, which involves independent reviews of the controls applied by the first two lines of defense. It independently evaluates the risk management and controls of the bank through periodic assessments, including the adequacy of the bank's controls to mitigate the identified risks. 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.

Threshold Calibration A method of adjusting the thresholds within the algorithms in an automated screening tool to match a financial institution's greatest areas of sanctions risk. A threshold is typically described as a percentage, and it controls the generation of alerts. Threshold calibration reflects the updating and reconfiguration of algorithms based on emerging trends, an institution's internal investigations, external information, and channels of financial crime activity developing and changing over time. (See false negative and false positive.)

Tipping Off Improper or illegal act of notifying a suspect that he or she is the subject of a Suspicious Transaction Report or is otherwise being investigated or pursued by the authorities.

Toll Gates The various parties that form the payment chain. Payment messages pass through toll gates and can change in the process.

Trade Finance See Letter of Credit

Transaction Monitoring and Filtering Programs (TMPs) Programs required of financial institutions under the New York State Department of Financial Services (DFS) Final Rule Part 504 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

Transliteration The conversion of text from one script into another, for example, a document written in Arabic characters that is converted into Cyrillic script. This phenomenon can present a name screening challenge.

Transparency International (TI) Berlin-based, non-governmental organization dedicated to increasing government accountability and curbing both international and national corruption. Established in 1993, TI is active in approximately 100 countries. It publishes "corruption news" on its website daily and offers an archive of corruption- related news articles and reports. Its Corruption Online Research and Information System, or CORIS, is perhaps the most comprehensive worldwide database on corruption. TI is best known for its annual Corruption Perceptions Index (CPI), which ranks countries by perceived levels of corruption among public officials; its Bribe Payers Index (BPI) ranks the leading exporting countries according to their propensity to bribe. TI's annual Global Corruption Report combines the CPI and the BPI and ranks each country by its overall level of corruption. The lists help financial institutions determine the risk associated with a particular jurisdiction.

Transshipment The shipment of goods through intermediate countries, sometimes involving transfer from one vessel to another, before reaching an intended destination. Transshipment sometimes happens to avoid blockades at the ports of entry for sanctioned regimes or to hide the identity of the country of origin at the destination location. Transshipment is prohibited by some governments and entities.

Trust Arrangement among the property owner (the grantor), a beneficiary and a manager of the property (the trustee), whereby the trustee manages the property for the benefit of the beneficiary in accordance with terms set by the grantor.

Trustee May be a paid professional or company or unpaid person that holds the assets in a trust fund separate from the trustee's own assets. The trustee invests and disposes of the assets in accordance with the settlor's trust deed, taking into consideration any letter of wishes.

Typology Refers to a money laundering method and is a term used by FATF.

Ultimate Beneficial Owner (UBO) See Beneficial Owner

Underground Banking See Alternative Remittance System

Unilateral Sanctions These are sanctions imposed by a single country against a targeted entity. These are generally considered less effective than multilateral sanctions. Still, they serve to target specific offensive practices on behalf of imposing nations. As an example, the Magnitsky Act allows for unilateral, global sanctions to be imposed on human rights offenders. Assets can be frozen, and offenders may be barred from entering the US. Another example occurred in the 1980s when Australia autonomously banned shipments of uranium to France. With few exceptions (for example, the European Union), these are often referred to as autonomous sanctions.

United Nations (UN) An international organization that was established in 1945 by 51 countries committed to preserving peace through cooperation and collective security. Today, nearly every nation in the world belongs to the UN. See also Vienna Convention. The United Nations contributes to the fight against organized crime with initiatives such as the Global Program against Money Laundering (GPML), the key instrument of the UN Office of Drug Control and Crime Prevention in this task. Through the GPML, the UN helps member states to introduce legislation against money laundering and to develop mechanisms to combat this crime. The program encourages anti-money laundering policy development, monitors and analyzes the problems and responses, raises public awareness about money laundering and acts as a coordinator of joint anti-money laundering initiatives with other international organizations.

UN Security Council Resolution 1373 (2001) Adopted in 2001, the resolution requires member nations to take a series of actions to combat terrorism through the adoption of laws and regulations and the establishment of administrative structures. The resolution also requires member nations to "afford one another the greatest measure of assistance for criminal investigations or criminal proceedings relating to the financing or support of terrorist acts."

Unusual Transaction Transaction that appears designed to circumvent reporting requirements, is inconsistent with the account's transaction patterns or deviates from the activity expected for that type of account.

USA PATRIOT Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). Enacted on October 26, 2001, the historic U.S. law brought about momentous changes in the anti-money laundering field, including more than 50 amendments to the Bank Secrecy Act. Title III of the Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, contains most, but not all, of its anti- money laundering-related provisions.

U-Turn Payment A payment in which a bank or other institution from country A sends a transaction through a bank in country B using an offshore bank. In the financial world, U-turn payments are most commonly known in relation to US sanctions—particularly to those imposed on Iran.

Value Transfer Service See Money Transfer Service

Vienna Convention Convention in 1988 against the Illicit Trade in Narcotic Drugs and Psychotropic Substances. Countries that become parties to the Vienna Convention commit to criminalizing drug trafficking and associated money laundering, and enacting measures for the confiscation of the proceeds of drug trafficking. Article III of the Convention provides a comprehensive definition of money laundering, which has been the basis of much subsequent national legislation.

Virtual Currency A medium of exchange that operates in the digital space that can typically be converted into either a fiat (e.g., government issued currency) or it can be a substitute for real currency.

Weak Alias OFAC defines a weak alias, or "weak AKA", as a broad alias that could generate a number of false hits.

Whitelist A list of individuals and entities whose characteristics trigger a hit or alert by an AST (automated screening tool), but who are found not to be a match to a sanctions list. Some ASTs allow users to attach supplementary information that supports the conclusion that this person or entity is not a sanctions target and warrants inclusion on the whitelist.

Willful Blindness Legal principle that operates in money laundering cases in the U.S. and is defined by courts as the "deliberate avoidance of knowledge of the facts" or "purposeful indifference". Courts have held that willful blindness is the equivalent of actual knowledge of the illegal source of funds or of the intentions of a customer in a money laundering transaction.

Wire Transfer Electronic transmission of funds among financial institutions on behalf of themselves or their customers. Wire transfers are financial vehicles covered by the regulatory requirements of many countries in the anti-money laundering effort.

Wolfsberg Group Named after the castle in Switzerland where its first working session was held, the Wolfsberg Group is an association of global financial institutions, including Banco Santander, Bank of America, Bank of Tokyo-Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse Group, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan Chase, Société Générale, Standard Chartered Bank and UBS. In 2000, along with Transparency International and experts worldwide, the institutions developed global anti-money laundering guidelines for international private banks. Since then, it has issued several other guidelines on correspondent banking and terrorist financing, among others.

World Bank The World Bank is a vital source of financial and technical assistance to developing countries. It is not a bank in the usual sense, but is made up of two unique development institutions owned by 184 member countries-the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Both organizations provide low-interest loans, interest-free credit, and grants to developing countries. In 2002, the IMF and the World Bank launched a 12-month pilot program to assess countries' anti-money laundering and counter-terrorist financing measures. The World Bank and the IMF, in conjunction with FATF, developed a common methodology to conduct such assessments based on the FATF's 40 Recommendations.

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