Certified Anti-Money Laundering Specialist Study Guide - Vocabulary Review

Comprehensive vocabulary flashcards covering the methods, risks, regulations, and compliance framework components detailed in the Certified Anti-Money Laundering Specialist Study Guide Version $$7.04$$.

Financial Crime

A variety of illegal activities, such as money laundering, fraud, and tax evasion, that exploit financial systems for gain and undermine economic integrity.

Money Laundering

The process of concealing the existence, source, or application of criminally derived funds to make them appear legitimate.

Placement

The first stage of money laundering, where illicit proceeds are introduced into a financial system, such as a bank account.

Layering

The second stage of money laundering, involving complex financial transactions to distance illegal funds from their source and provide anonymity.

Integration

The final stage of money laundering, where laundered funds are reintroduced into the legitimate economy through purchases or investments.

Predicate Crimes

Specified unlawful activities that generate proceeds which can then be subject to money laundering charges; FATF identifies $21$ categories.

Structuring

Breaking up large illicit fund amounts into smaller transactions to avoid hitting AML reporting thresholds, such as $US\$10,000$.

Smurfing

A money laundering technique using multiple individuals to make small cash deposits or purchase monetary instruments below reporting limits.

Trade-Based Money Laundering (TBML)

The process of disguising criminal proceeds by using trade transactions, such as over-invoicing, under-invoicing, or phantom shipments.

Shell Company

A company that has no significant assets or operations at the time of incorporation, often used to mask beneficial ownership.

Shelf Company

A pre-registered corporation that has remained dormant and is sold to individuals who prefer an established entity over a new one.

Front Business

A legitimate-appearing establishment used to mix illegal proceeds with legal revenue, making illicit income difficult to trace.

Sanctions Evasion

Tactics used to circumvent economic restrictions, such as asset freezes, through methods like stripping identifying info from payments or using neutral jurisdictions.

Bribery

The act of giving or receiving assets in exchange for the improper use of a person's delegated power.

Corruption

The misuse of delegated power for personal benefit, encompassing crimes like embezzlement, extortion, and graft.

Tax Avoidance

The legitimate activity of reducing tax obligations through lawful means and financial planning.

Tax Evasion

The illegal practice of avoiding tax liabilities by hiding assets or not declaring taxable income.

Fraud Triangle

A model explaining why people commit fraud based on three factors: pressure, opportunity, and rationalization.

Cyber-enabled Crime

Illegal activities carried out through electronic systems, including phishing, malware, and account takeovers, often linked to laundering.

Human Smuggling

The illegal transportation of individuals across national borders, usually involving voluntary cooperation from the transported party.

Human Trafficking

A form of exploitation involving coercion or force for purposes like labor or sexual services.

Environmental Crime

Illegal activities that damage nature and natural resources, such as illegal logging, mining, or hazardous waste disposal.

Terrorism Financing

The provision of funds to support terrorist acts or organizations; pathways are typically linear and funds can come from legitimate or illegitimate sources.

Alternative Remittance System (ARS)

A method of transferring value outside formal banking systems based on trust, such as hawala brokers.

Regulated Entity

A business under direct supervision of financial regulators, such as a bank or MSB, required to follow detailed AML/CFT rules.

Obliged Entity

A broader category including financial and nonfinancial organizations (like real estate or logistics) subject to certain financial crime laws.

Institutional Accountability

The obligation of organizations to invest in effective compliance strategies and monitoring technologies to prevent financial crime.

Operational Risk

The risk of loss resulting from inadequate or failed internal processes, people, systems, or external events.

Legal Risk

The possibility that an organization will be harmed by criminal penalties, civil lawsuits, or unenforceable contracts.

Concentration Risk

The risk resulting from over-exposure to a single customer or a group of related customers.

Reputational Risk

The risk that public perception or stakeholder confidence in an institution will be damaged due to weak controls or association with criminals.

Customer Due Diligence (CDD)

A fundamental AML pillar requiring institutions to verify customer identities and understand the nature of their business.

Politically Exposed Person (PEP)

An individual entrusted with a prominent public function, their family, and close associates, who may be at higher risk for bribery and corruption.

Beneficial Owner (BO)

An individual or entity that possesses ownership of a legal entity, though they may not necessarily control it.

Ultimate Beneficial Owner (UBO)

The natural person who ultimately owns or exerts effective control over a legal entity, usually identified at a threshold of $25\%$ or less.

Concentration Account

A central account used to aggregate funds from various sources; it is vulnerable to misuse because pooling can obscure the origin of funds.

Synthetic Identity

An identity created using a mix of real and fake information used to open accounts under false pretenses.

Trust

A legal arrangement where a settlor transfers assets to trustees who hold them for the benefit of beneficiaries; often used to obscure connection to illicit funds.

Offshore Financial Center (OFC)

A jurisdiction, often called a booking center, providing financial services mainly to non-residents, sometimes associated with tax evasion or secrecy.

Special Purpose Vehicle (SPV)

A legal entity created for a limited, specific purpose that can be misused to layer transactions and hide UBOs.

Correspondent Banking

An arrangement where one bank acts as an agent for another in a foreign country; viewed as high risk because the correspondent bank doesn't know the end customers.

Money Services Business (MSB)

A nonbank entity providing services like currency exchange and money transfer, often serving unbanked populations.

E-commerce

Internet platforms facilitating the trade of goods; risks include consumer fraud, trade-based laundering, and being used as a front for dark market sales.

Blockchain

A decentralized, distributed public ledger using encryption to store transaction blocks chronologically in an immutable manner.

Stablecoin

A digital asset pegged to traditional assets like the $US$ Dollar to reduce prices volatility.

Central Bank Digital Currency (CBDC)

A digital version of a country's fiat currency issued and regulated by the central bank as legal tender.

Mixers and Tumblers

Protocols that mix cryptoasset funds from multiple users to hide the trail between the source and destination.

Designated Nonfinancial Businesses and Professions (DNFBP)

Sectors like real estate, law, and gaming that act as gatekeepers to the financial system.

Financial Action Task Force (FATF)

An international body established in $1989$ to coordinate global efforts against money laundering and terrorism financing.

FATF 40 Recommendations

A comprehensive action plan setting international AML/CFT standards that member countries are expected to implement legally.

Grey List

The FATF list for Jurisdictions Under Increased Monitoring that are actively working to address strategic AML/CFT deficiencies.

Black List

The FATF list for High-Risk Jurisdictions Subject to a Call for Action due to significant AML/CFT deficiencies.

Bank Secrecy Act (BSA)

The primary US AML regulation, enacted in $1970$, introducing reporting and recordkeeping requirements for financial institutions.

USA PATRIOT Act

A US law enacted in $2001$ that strengthened AML/CFT measures, introduced Section $311$ designations, and mandated EDD for correspondent accounts.

Financial Crimes Enforcement Network (FinCEN)

A bureau of the US Treasury that acts as the national FIU and enforces the Bank Secrecy Act.

Office of Foreign Assets Control (OFAC)

The US agency responsible for administering and enforcing economic sanctions based on foreign policy and national security.

6AMLD

The Sixth EU Anti-Money Laundering Directive, focusing on uniform definitions of predicate offenses and criminal liability.

Markets in Cryptoassets Regulation (MiCA)

The EU framework governing the authorization and supervision of virtual asset service providers and issuers.

Three Lines of Defense

A risk governance model consisting of front-line units (Line $1$), compliance oversight (Line $2$), and independent internal audit (Line $3$).

Money Laundering Reporting Officer (MLRO)

The individual accountable for the AML program who makes the final decision on whether to file a SAR.

Quality Control (QC)

A process focused on inspecting the quality of specific outputs, such as checking KYC file accuracy.

Quality Assurance (QA)

A process evaluating the effectiveness of procedures and checking if they are implemented as intended start-to-finish.

Risk-Based Approach (RBA)

A strategy where countries and institutions prioritize resources to address the areas of highest financial crime risk.

Enterprise-Wide Risk Assessment (EWRA)

A periodic assessment evaluating an institution's total exposure to financial crimes across all products, customers, and locations.

Inherent Risk

The level of risk present before an organization applies any mitigation controls or measures.

Residual Risk

The remaining level of risk after accounting for the effectiveness of mitigation controls (Inherent Risk – Control Effectiveness).

Enhanced Due Diligence (EDD)

Additional scrutiny for high-risk customers, including in-depth verification of source of wealth and source of funds.

Transaction Monitoring (TM)

The continuous observation of customer behavior after onboarding to detect patterns indicating illegal activity.

Batch Screening

The scheduled checking of an entire customer database against updated sanctions, PEP, and adverse media lists.

Tipping Off

The prohibited act of notifying a customer that they are being investigated or that a SAR has been filed.

Suspicious Activity Report (SAR)

A formal document filed with an FIU when an institution detected potential illicit activity; it must be appropriate, complete, and factual.

Defensive SAR

A report filed 'just in case' to avoid regulatory scrutiny, often without a full investigation; it is considered a sign of a weak program.

De-risking

The act of a financial institution terminating relationships with entire client categories to avoid risk instead of managing it.

Financial Inclusion

The effort to ensure that disadvantaged individuals and businesses have access to affordable financial services.

Perpetual KYC (pKYC)

A data-led practice where customer profiles are updated in near-real-time based on behavioral triggers rather than fixed cycles.

Liveness Check

Biometric technology used to verify that a sample, such as a selfie, is from a living individual to prevent spoofing.

Fuzzy Logic

A screening technique using algorithms to find matches in names that are similar but not identical due to spelling or translation variations.

Whitelisting

Maintaining a list of customer data points not to be flagged to avoid repetitive false positive alerts.

Robotic Process Automation (RPA)

The use of automated 'bots' to perform repetitive tasks, such as extracting data from ID documents during KYC.

Data Lineage

The process of tracking and mapping data flows from the source system to the end user to ensure integrity and compliance.

Entity Resolution

The process of confirming whether multiple records from different datasets refer to the same individual or organization.