Understand the key terms and definitions you need to know for compliance with financial crime legislation.
In the context of financial crime/AML, accountability relates to the fact that senior management must appoint an individual to implement an AML/CTF programme, but that the ultimate accountability for the effectiveness of the programme remains with senior management.
An order preventing the disposal of assets by the respondent.
An order issued by a government authority requiring a financial institution to provide transaction information on a suspect account for a specified time period.
A written statement that is given under oath before an officer of the court, notary public, or another authorized person. It is commonly used as the factual basis for an application for a search, arrest or seizure warrant.
Informal banking system often associated with ethnic groups from the Middle East, Africa or Asia, and commonly involves the transfer of values among countries outside of the formal banking system. Examples are Hawala, Hundi and Chiti banking.
This is a type of fraud whereby individuals are persuaded to give their money to the criminal on the premise that they will receive a larger sum of money in return for this. It’s typically characterised as paying a 'fee'. However, the bigger sum of money does not even exist.
A secure, multilingual database of anti-money laundering laws and regulations, also containing information on national contacts and authorities. AMLID is an important reference tool for law enforcement officers involved in cross-jurisdictional work and is published by IMOLIN (See International Money Laundering Network)
Anti-Money laundering refers to the policies, laws, and regulations to implement in order to prevent financial crimes.
A series of anti-money laundering measures that must be implemented by organisations within the scope of the money laundering regulations mitigating the risks of money laundering and terrorism financing.
An AML CTF programme must include as a minimum:
A Financial Action Task Force (FATF)-style regional body consisting of jurisdictions in the Asia/Pacific Region.
See Account Freezing Order
The efforts by law enforcement and CPS to recover the Proceeds of Crime as set out in the Asset Recovery Action Plan.
The primary U.S. anti-money laundering law, amended by the USA Patriot Act in 2001. Among other measures, it imposes money laundering controls on financial institutions and many other businesses, including the requirement to report and to keep records of various financial transactions.
Negotiable instruments that accord ownership in a corporation to the person who is in physical possession of the bearer share certificate, a certificate made out to "Bearer" and not in the name of an individual or organisation. This makes it a very high-risk instrument in relation to money laundering and is therefore outlawed in many jurisdictions.
This is the person who naturally controls or owns the customer. The percentage ownership for becoming a beneficial owner is often set at 25%, although this may vary for different jurisdictions. There may be more than one beneficial owner at an entity.
Biometrics are body measurements and calculations related to human characteristics. Biometrics authentication is used to identify individuals during the account opening process, making the process more efficient and much quicker for the customer.
Beneficial owner, officer or manager in the accounting sector. All of these must be approved by their regulatory body, including passing a basic DBS check.
This is the acceptance or offering of an advantage that is made in exchange for the improper performance of an activity or function. The Bribery Act 2010 sets out the statutory offences for this. Bribery is a predicate offence to money laundering.
The Bribery Act 2010 is a UK Act of Parliament that outlaws both receiving and offering bribes, whether in the UK or another country. It also created a corporate offence of failure when bribery has not been prevented.
Combatting the financing of terrorism (also known as CTF).
The fraud prevention service in the United Kingdom. At the moment, there are more than 250 members of CIFAS in the financial sector and other industries.
This refers to the abuse of the private or public office in order to get an unfair advantage. Bribery is one form of corruption, however, there are different types of improper behaviour or misconduct that can be deemed corruption. This behaviour could or could not be induced through the prospect of getting an advantage that is undue from another individual.
Under the Counter-Terrorism Act 2008, Schedule 7, the Treasury has the power to make financial businesses take certain actions in regards to a country of concern or counterparts that are located in the said country. This can only happen under certain circumstances, for example, if the government has identified that there are terrorist financing activities going on in the country.
This relates to a payment that is made between customers that have bank accounts at different banks, with different currencies, and in different countries, which means the inter-bank payments need to be matched for settlements. There has been concern expressed by international policymakers that these types of payments be abused so that the origins of the flow of funds are hidden.
The Criminal Finances Act 2017 makes provision for a number of important changes to the law governing money laundering, civil recovery and enforcement powers concerning terrorist's property. The Act also introduces a new corporate offence of failure to prevent the facilitation of tax evasion.
Counter-terrorist financing (also know as CFT)
Is the identification, verification as well as the subsequent KYC process to be able to adequately assess the risk a customer poses in respect of an organisation’s financial crime exposure.
Customer risk-rating models are one of three primary tools used by financial institutions to detect money laundering. The models deployed by most institutions today are based on an assessment of risk factors such as the customer's occupation, salary, and the banking products used.
The UK disclosure and barring service is a government body that helps to prevent unsuitable people from working with vulnerable groups, including children.
A firm can request a ‘Defence Against Money Laundering (DAML)’ from the NCA (National Crime Agency) when they suspect that property they intend to deal with has a criminal connection and that they risk committing a principal money laundering offence as per the Proceeds of Crime Act 2002 (POCA) if they deal with the property in question. If ‘appropriate consent’ is received from the NCA, an individual will not be deemed to have committed one of those offences.
Money laundering risks associated with the type of contact between for example a bank and a customer. A client that is not ever seen face to face represents a higher risk than a client who has been met face to face.
FATF recommends AML standards apply to non-financial businesses and professions, including specifically:
Disgorgement occurs when courts or regulatory bodies force companies to pay back funds obtained illegally. Sometimes with interest and an associated fine.
An order authorising a request for information with which the recipient is obliged to comply, which is usually backed up by penal sanctions for non-compliance.
Under the dual-criminality test introduced in 2009, the conduct giving rise to the proceeds would generally need to be:
Economic sanctions are the commercial and financial penalties applied by one or more countries against specific self-governing states, groups, or individuals.
The Egmont Group is constituted of a number of national Financial Intelligence Units (FIUs) that meet regularly to find ways to promote the development of FIUs and to cooperate, especially in the area of information exchange, training and the sharing of expertise.
E-money has been defined by the Electronic Money Regulations 2011 (SI 2011/99) as the monetary value that is electronically stored, including magnetically stored, represented by a claim on the issuer that is issued on receipt of funds for the aim of making payment transactions, and which a person accepts as opposed to an electronic funds issuer. Who is able to issue e-money is specified by the E-Money regulations. This includes e-money institutions and credit institutions.
Additional, ‘enhanced’ customer due diligence measures need to be applied by businesses and organisations in higher-risk situations, as per the Regulations 33-35 of the Money Laundering Regulations.
One of the pillars of the European Union's legislation to combat money laundering and terrorist financing are the ML Directives. According to these directives, banks and other gatekeepers are required to apply enhanced vigilance in business relationships and transactions involving high-risk third countries.
Sanction lists are the policy instrument used by the European Union to intervene when necessary to prevent conflict or respond to emerging or actual crises. In certain cases, EU intervention can take the form of restrictive measures or 'sanctions'.
This an intergovernmental body that is responsible for developing and promoting anti-money laundering and counter-terrorist financing standards across the world.
The Financial Conduct Authority has a number of statutory objectives. This includes enhancing and protecting the UK financial system’s integrity. The UK financial system’s integrity includes it not being utilised for a purpose that is associated with any sort of financial crime.
Describes a variety of white-collar crimes. The Financial Services and Markets Act 2000, defines financial crime as any offences that involve dishonest or fraud, misconduct with regards to the use of information relating to the financial market, or handling the proceeds of crime.
The FIU is a central national agency that is responsible for getting, evaluating, and transmitting disclosures regarding suspicious transactions to the relevant, competent authorities. In the UK, this is the NCA.
An EU directive responding to a series of terrorist attacks in Europe, large data leaks (including the Panama Papers), the rise in cryptocurrency usage and the ongoing intent by the EU to fully implement the FATF Recommendations by all its member states. The transposition deadline was 10th January 2020.
An EU directive that introduced more detailed provisions in relation to the risk-based approach, beneficial owners and Politically Exposed Persons,
The Foreign Corrupt Practices Act (1977) is a US statute prohibiting US citizens and organisations from paying bribes to foreign officials to further business deals. It is enforced by both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). In 1998 the act was amended to cover those outside the country facilitating corrupt payments in the US.
Fraud is a term that is used to describe a number of different scenarios. There are many different ways that businesses and their consumers can be impacted by fraud. Some examples are as follows:
Fraud Act 2006 is an Act of UK Parliament that sets out a number of different fraud offences, for example, fraud by abuse of position, fraud through failure to disclose information and fraud due to false representation.
Identifying geographic locations that may pose a higher risk is a core component of any risk assessment and the business division, unit or business line will seek to understand and evaluate the specific risks associated with doing business in, opening and servicing accounts, offering products and services and/or facilitating transactions involving certain geographic locations.
See Alternative Remittance Systems.
Her Majesty’s Revenue & Customs (HMRC) is the supervisory authority for money service businesses not supervised by the Financial Conduct Authority (FCA) high-value dealers, trust or company service providers not supervised by the FCA or a professional body.
Her Majesty's Treasury is the UK government's economic and finance ministry, maintaining control over public spending, setting the direction of the UK's economic policy and working to achieve strong and sustainable economic growth.
HMT sanctions list is a list of individuals and entities subjected to certain financial restrictions as part of the UK government domestic counter-terrorism regime policy. It also includes those individuals prohibited by the United Nations and/or European Union. A part of Her Majesty's Treasury is the Office of Financial Sanctions Implementation (OFSI) that enforces sanctions and ensures that they are carried out correctly.
See Alternative Remittance Systems.
Identification & Verification. The process to determine that a customer is who they say they are and live where they say they live.
IMoLIN is the International Money Laundering Information Network, an Internet-based network assisting governments, organizations and individuals in the fight against money laundering. It was developed with the cooperation of the world's leading anti-money laundering organisations
Also known as Insider Trading, it is the illegal practice of trading on the stock exchange to one's own advantage through having access to confidential information.
This is a term that is used to describe fraud that is committed against a business and the perpetrator is an employee or a group of workers. This could be anyone from a director to senior management to junior staff. Insiders that are looking to defraud the person that they work for may collude with people outside of the business or they may operate alone.
Investors in the United Kingdom lose money every year due to share sale frauds and other scams that include, but are not limited to, rogue carbon credit schemes, Ponzi schemes, and land-banking frauds.
The Joint Money Laundering Intelligence Taskforce (JMLIT) is a partnership between law enforcement and the financial sector to exchange and analyse information relating to money laundering and wider economic threats.
The Joint Money Laundering Steering Group (JMLSG) produces helpful guidance for the financial services industry on interpreting the MLR and setting out good practise in countering money laundering.
Know Your Customer. Have sufficient information as to the reasoning why a customer behaves in a certain way.
Know Your Customer’s Customers
Know Your Correspondent Bank
Know Your Employee
The Market Abuse Regulation (MAR) replaced the previous Market Abuse Directive and established a strengthened and expanded civil market abuse regime across the EU. MAR extended the market abuse regime so that it applies to more venues, more instruments, and more behaviours.
Market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a product, security, commodity or currency.
This is a type of fraud that occurs when you get an uninvited contact by adverts, phone, letter, or email, which makes false promises in order to con you out of your funds. One of the most common kinds of mass marketing fraud is share sale fraud.
Money laundering is the process by which criminals conceal the origin of their proceeds of crime and integrate them into the formal economy.
A designated officer responsible for making certain that measures for combating money laundering within the business are effective. Under the Proceeds of Crime Act (POCA), an MLRO is also typically the nominated officer.
The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism. A Council of Europe body that assesses compliance with AML/CFT standards.
The organisation that leads the United Kingdom in fighting against organised and serious crime. It replaced the Serious Organised Crime Agency in October 2013.
The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals.
The Office of Financial Sanctions Implementation (OFSI) helps to ensure that financial sanctions are properly understood, implemented and enforced in the United Kingdom. OFSI is part of HM Treasury.
The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is a regulator set up by the UK government to strengthen the UK's anti-money laundering (AML) supervisory regime and ensure the professional body AML supervisors provide consistently high standards of AML supervision.
In financial regulation, a politically exposed person is one who has been entrusted with a prominent public function. A PEP generally presents a higher risk for potential involvement in bribery and corruption by virtue of their position and the influence that they may hold.
Fraudulent schemes promising unrealistically high returns or dividends that are not typically available through conventional investments. When the unsustainable supply of new investors naturally dries up, these schemes will collapse.
The Proceeds of Crime Act 2002 created a single set of money laundering offences applicable throughout the UK to the proceeds of all crimes. This is often known as a predicate offence. No conviction for the predicate offence is necessary for a person to be prosecuted for a money laundering offence.
POCA sets out the legislative scheme for the recovery of criminal assets with criminal confiscation being the most commonly used power. Confiscation occurs after a conviction has taken place.
Financial investigators are allowed to use production orders under the Proceeds of Crime Act 2002. These are used for the purpose of gathering information from financial companies about a person’s financial affairs.
Money laundering risk associated with a product or service. Banks must assess the money laundering risks for various products, ensuring that the control measures for different products are appropriate and that existing risks are brought under control.
The EU Money Laundering Directive and the money laundering regulations require accountants in practice to retain records of specific information for a period of 5 years from the end of a business relationship or the completion of an occasional transaction.
A money laundering risk assessment is an analytical process applied to a business to measure the likelihood or probability that the business will unwittingly engage in money laundering or financing of terrorism.
The Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018) is enabling legislation to allow the UK to impose economic and other sanctions, and money laundering and terrorist financing regulations, after the departure from the EU.
See OFAC, EU Sanctions, HMT Sanctions
Share scams tend to be run from what is known as 'boiler rooms'. Here, fraud criminals will cold-call investors offering them shares that are overpriced, worthless, or do not even exist.
An EU directive that looks beyond the mechanics of compliance and instead focuses on tackling the heinous crimes enabled by money laundering (including trafficking, bribery, and so on). It empowers firms to implement AML systems that truly protect the innocent. Its transposition deadline was 3rd December 2020.
A report that is made to the NCA about suspicions of terrorist financing or money laundering. This is commonly known as SAR.
The Suspicious Transaction & Order Reports (STOR) regime requires that regulated entities detect and report any suspicious behaviour or activity which is in the scope of MAR, specifically market abuse and insider trading.
The Terrorism Act 2000 was designed as a consolidating provision, drawing together previous anti-terror laws into a single code that would not require renewal or re-enactment. The Act criminalises the financing of terrorism and requires organisations to actively prevent terrorist sponsors from using their operations for funnelling money to terrorist cells.
The provision of funds or other assets for supporting terrorist ideology, individual operations, or a terrorist infrastructure. This is applicable to both international and national terrorism.
An approach by the FCA to assess a current or emerging risk relating to an issue or product across a number of firms within a sector or market.
The Proceeds of Crime Act creates the offence of making a disclosure likely to prejudice a money-laundering investigation being undertaken by law enforcement authorities.
Trade surveillance encompasses process and technology that detect trading rule violations.
Transaction monitoring refers to the monitoring of customer transactions, including assessing historical/current customer information and interactions to provide a complete picture of customer activity.
Transparency International is a non-governmental organization whose non-profit purpose is to take action to combat global corruption with civil societal anti-corruption measures and to prevent criminal activities arising from corruption.
The person or entity that is the ultimate beneficiary of the company. Certain financial and other organisations, including banks, currency exchange offices and insurers, are subject to mandatory disclosure of the UBO if doing business with any party.
An unexplained wealth order (UWO) is a type of court order issued by a British court to compel the target to reveal the sources of their unexplained wealth.
A term used to describe the process of making certain that a beneficial owner or customer is whom they claim they are. The Money Laundering Regulations demand the verification of a person’s identity as per Regulation 28. This must be done with information or documents that are obtained from a reliable source that is independent of the individual whose identity is subject to verification. This includes documents that are made available or issued by an official body even if they are made available or provided by a company or on behalf of the consumer. This also refers to making certain that the beneficial owner is checked in a manner that the company is satisfied that they know exactly who the beneficial owner is.
Whistle-blowing is the act of telling the authorities or the public that the organization you are working for is doing something immoral or illegal. It is compulsory for companies in many sectors to have a whistleblowing policy and protective measures for a whistleblower.
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.
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