GLOSSARY/GUIDE TO TERMS


Term or Acronym

Definition
3 Stages of Money Laundering: Placement: Requires physically moving and placing the illicit funds into financial institutions or the retail economy. Depositing structured amounts of cash into the banking sector and smuggling currency across international borders for further deposit are common methods for placement. The challenge for criminals at this stage is to place large amounts of hard cash into the financial system without attracting undue attention.

Layering: The layering stage involves distancing the illicit proceeds from their illicit source. Once the funds have entered the financial system (placement), multiple and sometimes complex financial transactions are conducted to further conceal their illegal nature, and to make it difficult to identify the source of the funds or eliminate an audit trail. Purchasing monetary instruments (traveler's checks, bank drafts, money orders, letters of credit, securities, bonds, etc.) with other monetary instruments, transferring funds between accounts, and using wire transfers facilitate layering.

Integration: Involves placing the laundered proceeds back into the economy in such a way that they reenter the financial system as apparently legitimately earned funds.
Alternative Remittance System: Underground banking or informal value transfer systems 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. The remittance entity can be an ordinary shop selling goods that has an arrangement with a correspondent business in another country. There is usually no physical movement of currency and a lack of formality with regard to verification and recordkeeping. The money transfer takes place by coded information that is passed through chits, couriers, letters or faxes, followed by telephone confirmations. Almost any document that carries an identifiable number can be used by the receiver to pick up the values in the other country. The systems are referred to by different names depending upon the country: Hawala (an Arabic word meaning "change" or "transform"), Hundi (a Hindi word meaning "collect"), Chili banking (referring to the way the system operates), Chop Shop banking (China), and Poey Kuan (Thailand).
AMLCO: Anti-Money Laundering Compliance Officer- AMLCOS are specially designated by management to provide oversight, assistance and advice regarding AML and Sanctions requirements for specific business, functional and/or geographical coverage areas.
Bearer Shares: Negotiable instruments that accord ownership of a company to the person who possesses the share certificate. These shares have a high level of anonymity and are easily negotiable.
Beneficial Owner: The natural person who ultimately owns or controls an account through which a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement.
BMPE: Black Market Peso Exchange: illegal, unregulated currency exchange which derives its name from a complex money laundering scheme used by Columbian drug cartels. The BMPE begins with the drug Cartel in Columbia contracting with an illegal Columbian Peso Broker to exchange US dollars for Pesos, at a percentage fee. The peso broker then finds ways to place the US money back into the US financial system.
Branch Office: An office that is registered with the NYSE and NASD as a branch office and where securities activity is conducted.
BSA: The Bank Security Act of 1970.
Casas de Cambio: Currency exchange brokers; can be unlicensed and/or unregulated.
Cease and Desist Order: Order by a court or administrative agency prohibiting a person or business from continuing an activity.
CIP: Section 326 of the USA Patriot Act requires that each financial institution develop and implement a Customer Identification Program (CIP) that establishes procedures for verifying the identity of each customer that opens a new account, to the extent reasonable and practicable, so that the institution can " form a reasonable belief that it knows the true identity of each customer."
CTR: A Currency Transaction Report must be filed in the U.S. for each transaction in currency (deposit, withdrawal, exchange, or other payment or transfer) of more than $10,000. While CTRs are required in the US other countries have similar cash reporting requirements.
EDD: Enhanced Due Diligence
FATF: Financial Action Task Force - an intergovernmental body that develops and promotes policies to combat money laundering and terrorist financing. The FATF is the leading catalyst for implementation of money laundering controls throughout the world, has 34 members and produces an annual report on AML efforts of its member countries.
FCB: Foreign Correspondent Banking - a potentially high-risk product that is vulnerable to money laundering due to the presence of third parties as well as large, quick funds flow to high-risk locations.
Federal Reserve System: A federal government institution created by Congress to administer the nation's credit and monetary policies. Among other things, the Board of Governors of the Federal Reserve System sets the initial amount of credit that broker/dealers (as well as other lenders) may extend to customers to purchase securities.
FinCEN: Financial Crimes Enforcement Network of the US Treasury Department, which receives suspicious activities reports.
FINRA: The Financial Industry Regulatory Authority, known as FINRA, is the largest non-governmental regulator for all securities firms doing business with the United States public-more than 5,000 firms employing more than 660,000 registered representatives. FINRA was created in 2007 through the consolidation of NASD and NYSE Member Regulation.
Hawala: A funds exchange system used primarily in India and China used to facilitate the secure and convenient cross border movement of funds. Hawala was born centuries before Western financial systems. Merchant traders wishing to send funds to their homelands would deposit them with a hawala broker or hawaladar who normally owned a trading business. For a small fee, the banker would arrange for the funds to be available for withdrawal from another banker, normally also a trader, in another country. The two bankers would settle accounts through the normal process of trade. Today, the technique works much the same, with business persons in various parts of the world using their corporate accounts to move money internationally for third parties. Deposits and withdrawals are made through hawaladars, rather than traditional financial institutions. The practice is vulnerable to terrorist financing and money laundering-funds do not actually cross borders, and transactions tend to be confidential, as records are not stringently kept In Pakistan, the system is called hundi.
HRJ: High Risk Jurisdiction
KYC: Know Your Customer- a term that describes the due diligence performed to help identify and obtain information about customers.
Money Laundering: Money laundering involves any transaction or series of transactions that seeks to conceal or disguise the nature or source or proceeds derived from illegal activities, including drug trafficking, terrorism, organized crime, embezzlement, fraud and many other crimes. Whereas funds destined for money laundering are typically derived from criminal activity, terrorist funding is often derived via legitimate means and then used to fund terrorist (illegal) activity.
Money Laundering Control Act: 1986 law to combat money laundering.
NASD: National Association of Security Dealers: An industry organization representing persons and companies involved in the securities industry in the United States. It is also the primary Self-Regulatory Organization (SRO) responsible for the regulation of its industry, with oversight from the Securities and Exchange Commission.
NBFI: Non-Bank Financial Institutions- common examples of NBFIs include casinos, securities and commodities firms; money services businesses (MSB), insurance companies and other financial institutions (e. g. dealers in precious metals, stones or jewels; pawn brokers; loan or finance companies).
Net Worth: The amount by which total assets exceed total liabilities. This term can be applied to companies and individuals.
NGO: Non-Government Organization - often used to obtain funds for charities.
NIS: Nominee Incorporated Services
Nominee Account: An account in which the named holder holds the assets in it on behalf of another (the beneficiary). In the stock market, the most common use of nominee accounts is where execution-only brokers act as nominees for their clients. The shares are registered in the name of the broker, but the client has beneficial ownership of them.
NRA: Non-Resident Alien
OCC: Office of the Comptroller of the Currency - U.S Federal regulatory agency responsible for the supervision of all nationally chartered banks.
OFAC: The Office of Foreign Assets Control (OFAC)- U.S. governmental body responsible for enforcement of U.S. sanctions and trade embargoes that prevent economic support of certain foreign governments, terrorist organizations, and narcotics traffickers as well as protect national security interests. OFAC publishes a list of sanctions.
Offshore Secrecy Havens: Considered as high risk jurisdiction.
OWS: Offshore Wealth Services
PB: Private Banking - personalized financial services provided to wealthy clients.
Personal Holding Companies (PHC): Legitimate vehicles that afford clients beneficial tax structures helping them address security concerns, and provide asset protection against uncertain political conditions. However, they are sometimes used to evade local taxes and obscure true beneficial ownership of assets.
Private Investment Company (PIC)/IBC: Corporations, often established offshore, usually in tax or secrecy havens, formed typically to hold a customer's assets confidentially. The legitimate use of these corporate structures is for tax estate planning and asset protection. The primary risks include the lack of transparency of ownership.
PUPID: Payable Upon Proper Identification- transactions that typically involve wire transfers and non-customers (a high risk person and a high-risk product). The incoming funds are often placed into a suspense account, since the beneficiary does not maintain a Citi account, and released when the beneficiary provides proof of identity.
Safe Harbor: A provision of the BSA, which provides financial institution employees with complete protection for civil liability for all reports of suspicious activity, made to appropriate authorities that are made in good faith.
SAR: Suspicious Activity Reports are reports filed with governments (FinCEN in the US) following discovery of transactions that are suspicious. SAR information is highly confidential.
SDGT: Specially Designated Global Terrorist
SDN: Specially Designated National
SDNT: Specially Designated Narcotics Trafficker
SDNTK: Specially Designated Narcotics Trafficker Kingpin
SDT: Specially Designated Terrorist
Securities and Exchange Commission (SEC): The federal agency created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against fraudulent and manipulative practices in the securities markets. Generally, most issues of securities offered in interstate commerce or through the mails must be registered with the SEC.
Securities: An instrument representing ownership (stocks), a debt agreement (bonds) or the rights to ownership (derivatives).
Shell Company: Refers to non-publicly traded corporations, limited liability companies (LLCs), and trusts that typically have no physical presence (other than a mailing address) and generate little to no independent economic value.
Smurf: A term that describes a person who carries out cash transactions in a money laundering scheme. Also known as a runner, a smurf attempts to deposit cash in small amounts (under $10,000) to disguise the owners of the cash, evade CTR requirements, or to conceal the ultimate use of the funds.
SRO: Self-Regulatory Organization
Source of Funds: Source of funds describes the origin of the monies that are accepted for the account opening or account transactions (for example, occupation, business activities, proceeds of sale, corporate dividends).
Source of Wealth: Source of wealth describes the origins of the customer's overall funds, property and other assets.
Street Name: Term given to securities held in the name of a broker on behalf of a customer. This arrangement allows shares to be transferred easily. If the stock were registered in the customer's name rather than the broker's name, physical certificates would need to be transferred.
Structuring: The breaking down of a single currency transaction that exceeds $10, 000 into small amounts to avoid reporting requirements.
Terrorist Funding: Terrorist financing includes the financing of terrorist acts, and of terrorists and terrorist organizations. The motivation behind terrorist financing is generally ideological as opposed to profit-seeking, which is generally the motivation for most crimes associated with money laundering. Terrorism may be financed through illegal activity or the use of legitimately-derived and owned funds. Terrorist financing may be conducted through currency smuggling; structured deposits or withdrawals from bank accounts; purchases of various types of monetary instruments; debit or stored value cards; and fund transfers. Given the close connection between terrorist financing and money laundering, AML tools such as customer due diligence processes have been used by financial institutions to safeguard against the potential risk of terrorist financing.
USA PATRIOT Act: Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001)
2001 US law to combat money laundering and terrorist financing.
USA PATRIOT Act Key Provisions: Sec. 312: Special due diligence for correspondent accounts and private banking accounts;
Sec. 313 Prohibits United States correspondent accounts with foreign shell banks;
Sec. 314 Cooperative efforts to deter money laundering; allows information sharing;
Sec. 319: Forfeits funds in U.S. interbank accounts;
Sec. 326: Requires customer identification programs;
Sec. 352: Requires formal anti-money laundering programs.
Willful Blindness: Also known as deliberate ignorance or conscious avoidance, willful blindness involves the conscious avoidance of the truth when circumstances indicate a high probability that a certain fact exists- including that the proceeds of a transaction are the result of criminal activity.