Comprehensive definitions of key terms in sanctions screening, AML/KYC compliance, and risk management.
The natural person who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. Also known as the Ultimate Beneficial Owner (UBO).
The process by which financial institutions terminate or restrict business relationships with clients or categories of clients to avoid, rather than manage, perceived risk in the context of money laundering or terrorist financing.
A foundational principle in AML/CTF where firms allocate resources and implement controls proportional to the level of money laundering and terrorist financing risks they face.
Provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). This is a high-risk area for money laundering due to the lack of direct customer relationships.
The financial support, in any form, of terrorism or those who encourage, plan, or engage in terrorism.
A term used to describe patterns or methods used by criminals to launder money or finance terrorism. Identifying these helps compliance professionals train their monitoring systems.
The structured process and system used to investigate, review, document, and resolve alerts and matches generated by screening systems.
The level of fuzzy matching or scoring used by a screening system to determine when a potential match (alert) is generated. A lower threshold generates more matches, but also more False Positives.
A set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.
The process of gathering and verifying information about a customer to assess their risk profile and ensure they are who they claim to be. It forms the foundation of a robust AML program.
The mandatory part of a financial institution's KYC process that requires verifying the identity of a customer, usually involving collecting and documenting identification documents.
An elevated level of scrutiny and investigation applied to high-risk customers, such as PEPs, or to transactions involving high-risk jurisdictions or products.
An intergovernmental organization established to set standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats.
A bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing, and other financial crimes.
The territory or area over which a government or regulatory body has legal authority. AML/Sanctions compliance must adhere to the laws of relevant jurisdictions.
The mandatory process of identifying and verifying the identity of a client before or during the time they conduct financial transactions. It is a key part of CDD.
A report filed by a financial institution with a national financial intelligence unit (e.g., FinCEN in the U.S.) when a transaction or activity is suspected to be related to money laundering, fraud, or other illegal activities.
Publicly available negative information regarding an entity (person or business) that could indicate financial crime, corruption, fraud, or other unlawful activity.
Individuals who are, or have been, entrusted with prominent public functions (e.g., heads of state, senior politicians, senior military officials) and their family members and close associates. They pose a higher risk of corruption.
Items, materials, software, or technology that can be used for both commercial (civilian) purposes and military, chemical, biological, or nuclear weapons purposes.
The regulatory body within the U.S. Department of the Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.
The Specially Designated Nationals and Blocked Persons List maintained by OFAC. This is the primary U.S. sanctions list, and any individual or entity on it is blocked from transacting with U.S. persons.
The act of deliberately concealing or misrepresenting information to bypass trade or financial sanctions, often involving complex financial structures, trade misinvoicing, or using non-sanctioned intermediaries.
A public registry of individuals, entities, and countries subject to economic or financial restrictions imposed by governments (e.g., OFAC, UN, EU).
Restrictions placed on commercial activity, such as imports, exports, and technology transfers, typically targeting specific countries or sectors.
A screening alert generated by the system when a potential match is found, but upon analyst review, the subject is confirmed to be not the sanctioned individual or entity.
A computer science technique used in screening to identify potential matches between names or addresses even when there are minor variations, misspellings, or phonetic differences. This is critical for catching sanctions evaders.
The phenomenon where analysts become desensitized or overwhelmed by the volume of alerts, particularly False Positives (FPs), leading to reduced scrutiny, burnout, and increased operational risk.
A confirmed match where the subject being screened is definitively identified as the individual or entity listed on a sanctions list.
The technological process of comparing customer or transaction data against official sanctions lists and other prohibited party databases (watchlists) to identify potential matches.