AML Glossary

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Account Freezing:

Account freezing in the context of anti-money laundering (AML) refers to a legal and regulatory action that temporarily restricts access to or transactions from a bank account or other type of financial account. During the period of a freeze, no withdrawals, transfers, or outgoing payments can be made from the account—although deposits may still be permitted—until the underlying suspicions of money laundering, terrorist financing, or other criminal activities are resolved. The mechanism is designed to prevent the dissipation, concealment, or movement of potentially illicit funds while an investigation or legal process is ongoing.

Account Monitoring:

In the context of Anti-Money Laundering (AML), Account Monitoring refers to the continuous or periodic surveillance and analysis of customer accounts and their financial transactions by financial institutions and regulated entities. The aim is to identify, track, and report suspicious activities that may indicate money laundering, terrorist financing, fraud, or other financial crimes. Unlike transaction monitoring, which focuses on individual transactions, account monitoring encompasses a broader review of account behavior, patterns, and anomalies over time to detect illicit activities or risks associated with the account holder.

Back-to-Back Loan:

A back-to-back loan in the context of anti-money laundering (AML) refers to an arrangement where two parties, typically entities in different countries, simultaneously lend equivalent amounts to each other in their respective local currencies.

Backdating Transactions:

In the context of Anti-Money Laundering (AML), backdating transactions refers to the practice of recording a financial transaction with a date earlier than the actual date on which it occurred. Essentially, a transaction is assigned a “business date” or effective date that predates the real transaction date. This manipulation can misrepresent the timing, sequence, or nature of the transaction, which may conceal illegal activities or circumvent AML regulations.

CDD (Customer Due Diligence):

Customer Due Diligence (CDD) in Anti-Money Laundering (AML) is the process by which financial institutions and regulated entities collect, verify, and analyze information about their customers to confirm their identity, assess the risk they pose related to money laundering and terrorist financing, and monitor their activities on an ongoing basis. It is a critical component of AML frameworks designed to prevent and detect the use of financial systems for illicit purposes by ensuring that institutions know who they are dealing with and that the source of funds is legitimate.

DAC6 (EU Tax Directive):

DAC6 (Directive 2018/822/EU) is a European Union tax transparency regime requiring mandatory disclosure of certain cross-border arrangements that demonstrate hallmarks of aggressive tax planning, tax evasion, or tax avoidance.

Daily Transaction Limit:

The Daily Transaction Limit in Anti-Money Laundering (AML) refers to a predefined maximum monetary amount or number of transactions that a financial institution or regulated entity allows a customer to conduct within a single business day. This control mechanism is designed to monitor, restrict, and flag suspicious transaction activity that could indicate money laundering or other financial crimes. Daily transaction limits are embedded within AML frameworks to serve as a threshold beyond which transactions may trigger enhanced due diligence, scrutiny, or mandatory reporting to regulatory authorities.

Dark Money:

In the context of Anti-Money Laundering (AML), “Dark Money” refers to funds that are obtained through illegal or illicit activities and then moved or used without disclosure of their true origins, often avoiding regulatory scrutiny. These funds are typically concealed by layering financial transactions to mask their source, thereby evading detection by AML mechanisms. Unlike clearly identifiable criminal proceeds—such as those from drug trafficking or corruption—dark money often involves complex schemes that exploit opaque financial channels, shell companies, or unregulated entities to keep the money’s origins hidden from authorities and compliant financial institutions.

Early Warning System:

In the AML context, an Early Warning System is a proactive monitoring framework designed to identify potentially illicit financial activities at their earliest stages through real-time transaction surveillance, behavioral analytics, and risk indicators.

Facilitation of Money Laundering:

In the context of Anti-Money Laundering (AML), Facilitation of Money Laundering refers to the act of knowingly assisting, enabling, or otherwise making it easier for another person or entity to engage in money laundering. This involves providing means, services, or methods that conceal the illicit origin of criminal proceeds or help integrate illegally obtained funds into the legitimate financial system. Unlike direct money laundering, facilitation encompasses the indirect or ancillary actions that support or promote the laundering process.

Gambling Transactions:

In AML terms, a gambling transaction is any financial transaction involving funds used for or generated from gambling activities—such as placing bets, buying chips, or cashing out winnings—where those funds could potentially originate from illicit sources or be used to disguise criminal proceeds. These transactions include deposits, wagers, exchanges of gambling chips or tokens, winnings payouts, and transfers within gambling entities, subject to scrutiny under AML frameworks.

Hawala:

Hawala can be defined as an alternative remittance system involving the transfer of value or funds without the physical movement of money or the use of regulated financial institutions, primarily based on mutual trust between brokers and clients. This system functions largely unregulated, circumvents formal banking oversight, and lacks conventional record-keeping, creating vulnerabilities exploitable for money laundering, terrorist financing, and other illicit financial activities.

IllicitFunds:

Illicit funds are financial assets obtained directly or indirectly from illegal activities and subsequently introduced or attempted to be introduced into the financial system to conceal their criminal origins. The Financial Action Task Force (FATF), the international standard-setter for AML, defines money laundering as the processing of criminal proceeds to disguise their illegal origin in order to legitimize the ill-gotten gains.

Joint Account:

A joint account is an account where two or more account holders share legal ownership and control. For AML purposes, it involves the identification and due diligence of each party to the account to prevent money laundering and terrorist financing. Because funds can move freely via joint accounts, AML regulations require financial institutions to verify the identity of all account holders, understand the nature and purpose of the account, and monitor transactions on a consolidated basis to detect suspicious activities.

Know Your Customer:

Know Your Customer (KYC) is a critical component of Anti-Money Laundering (AML) that refers to the process by which financial institutions and regulated entities verify the identity of their customers. The primary aim is to ensure that the institution knows who its customers are, understands their financial activities, and assesses the potential risks of illegal conduct such as money laundering, terrorist financing, or fraud before establishing or continuing a business relationship.

Layering:

Layering in Anti-Money Laundering (AML) refers to the process of conducting a series of complex financial transactions designed to obscure the origin of illicit funds and separate them from their criminal source. It is the second stage in the classic three-stage model of money laundering—placement, layering, and integration. The objective of layering is to make tracing the illegal proceeds as difficult as possible by adding multiple layers of transactions, often involving transfers between various accounts, institutions, jurisdictions, or asset types.

Macroprudential Risk:

In the context of Anti-Money Laundering (AML), Macroprudential Risk refers to the risk of widespread disruption or instability in the financial system due to the collective behavior, vulnerabilities, and interconnectedness of financial institutions and markets that can facilitate or amplify money laundering activities. Unlike microprudential risk, which focuses on individual institutions, macroprudential risk addresses systemic risks that arise from aggregate exposures and the interactions within the entire financial ecosystem, potentially impacting the real economy through compromised financial integrity and increased illicit financial flows.

Name Check:

In the context of Anti-Money Laundering (AML), Name Check—also known as Name Screening—is the process of systematically verifying an individual’s or entity’s name against various regulatory, government, and private sector databases. These databases include sanctions lists, politically exposed persons (PEP) registers, watchlists, adverse media records, and blacklists to detect potential risks related to money laundering, terrorism financing, and other financial crimes. The primary goal is to identify persons or companies that are flagged as high-risk or involved in illicit activities before establishing or continuing any business relationship.

OFAC:

The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency within the U.S. Department of the Treasury. In the context of Anti-Money Laundering (AML), OFAC administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals who pose risks related to national security, foreign policy, terrorism, narcotics trafficking, proliferation of weapons of mass destruction, and other illicit activities. OFAC’s role in AML is crucial as it requires financial institutions and other regulated entities to screen and block transactions involving sanctioned parties to prevent money laundering and terrorist financing.

PEP:

In Anti-Money Laundering (AML) terminology, a Politically Exposed Person (PEP) is defined as an individual who is or has been entrusted with a prominent public function, either domestically or internationally. This includes senior politicians, government officials, high-ranking military officers, judges, executives of state-owned enterprises, and officials of international organizations. PEPs are considered higher risk for potential involvement in money laundering, corruption, bribery, or terrorist financing due to their influential public roles and access to public funds.

Qualitative Analysis:

In the context of Anti-Money Laundering (AML), Qualitative Analysis refers to the systematic evaluation of non-numerical, contextual, and behavioral information to detect, understand, and assess potential money laundering risks and suspicious activities. Unlike quantitative analysis, which relies on numerical data and statistics (such as transaction volumes or amounts), qualitative analysis focuses on understanding the underlying factors, relationships, patterns of behavior, and contextual indicators associated with money laundering. It incorporates expert judgment, customer profiling, transaction patterns, and compliance intelligence to provide a comprehensive view of AML risks.

RBA (Risk-Based Approach):

The Risk-Based Approach (RBA) in Anti-Money Laundering (AML) is a methodological framework that requires financial institutions and regulated entities to identify, assess, and understand the money laundering and terrorist financing risks to which they are exposed. Based on this risk assessment, they must implement AML controls and mitigation measures proportionate to the level of perceived risk. The RBA prioritizes resources and efforts to address higher risks more stringently, rather than applying uniform measures to all clients, transactions, or activities.

SAR (Suspicious Activity Report):

A Suspicious Activity Report (SAR) is a formal document that financial institutions and other regulated entities file with the relevant authorities when they detect transactions or activities that may indicate money laundering, terrorist financing, fraud, or other financial crimes. SARs serve as an essential component in the anti-money laundering (AML) framework by alerting government agencies and law enforcement about suspicious or potentially illicit financial activity requiring further investigation.

Tactics:

In the context of Anti-Money Laundering (AML), tactics refer to the specific methods, strategies, and operational actions employed by financial institutions, regulatory bodies, and law enforcement to prevent, detect, and disrupt money laundering activities. These tactics are designed to identify suspicious transactions, verify the legitimacy of funds, and ensure compliance with AML laws and regulations.

UBO:

The term Ultimate Beneficial Owner (UBO) refers to the natural person—or persons—who ultimately owns or controls a business or legal entity, even if that ownership or control is indirect or masked through layers of companies or trusts. In the context of anti-money laundering (AML), the UBO is the individual who benefits from a legal entity’s activities and transactions, either by holding a significant ownership stake (commonly 25% or more, though this may vary by jurisdiction) or exerting decisive control over its operations and finances. UBOs are not always listed on legal documentation, making identification a core compliance challenge.

Validation:

In Anti-Money Laundering (AML) compliance, Validation refers to the systematic process of verifying, assessing, and testing the effectiveness, accuracy, and reliability of AML controls, models, systems, and procedures. It ensures that these AML components operate as intended to identify, monitor, and prevent money laundering and terrorist financing activities effectively. Validation is a critical quality assurance step that confirms that risk mitigation technologies and processes yield accurate alerts and reports without excessive false positives or negatives.

W-8BEN:

In an Anti-Money Laundering (AML) context, Form W-8BEN is a tax document mandated by the U.S. Internal Revenue Service (IRS) used by non-U.S. individuals — specifically Nonresident Aliens (NRAs) — to certify their foreign status and beneficial ownership of income subject to U.S. tax withholding. The form helps financial institutions, withholding agents, and payers comply with AML and tax regulations by verifying that the income received by the non-U.S. individual is subject to the proper withholding tax treatment based on U.S. tax laws and applicable tax treaties. Essentially, it prevents the misuse of tax treaties and combats tax evasion, which can be linked to money laundering activities.

X-account:

In the context of Anti-Money Laundering (AML), an X-account refers to a type of bank or financial institution account used to temporarily hold funds suspected of being involved in money laundering or illicit activity, pending further investigation. It is typically a segregated or “blocked” account where transactions are frozen or restricted to prevent the movement or dissipation of suspicious funds until authorities or compliance officers complete their review and determine the legitimacy of the funds. The term “X-account” may not be uniformly defined in all jurisdictions but is recognized as a tool in AML controls to isolate and monitor suspect transactions in compliance with regulatory requirements.

Yakuza:

In the context of Anti-Money Laundering (AML), the term Yakuza refers to the large and organized Japanese criminal syndicates engaged in a broad spectrum of illegal activities, including money laundering. These groups use various methods to disguise the origins of illicit funds and integrate them into the legitimate financial system. The Yakuza operate globally and employ front companies in sectors such as construction, real estate, and finance to launder criminal proceeds, making them a critical focus area for AML compliance within financial institutions and regulatory frameworks. They are classified as significant transnational criminal organizations (TCOs) due to the extensive scope and sophistication of their criminal enterprises.

ZakatCompliance:

ZakatCompliance in the context of Anti-Money Laundering (AML) refers to the systematic integration of Zakat (an Islamic obligatory almsgiving tax) collection and disbursement processes within AML frameworks to ensure that funds collected as Zakat are sourced transparently, not derived from illicit activities, and properly accounted for to prevent misuse for money laundering or terrorist financing purposes. It represents a compliance approach specifically tailored for financial institutions, charities, and non-profit organizations handling Zakat, aligning religious obligations with AML regulatory requirements.