AML Glossary

Anti-money-laundering work has a vocabulary of its own, and much of it is borrowed from statute, supervisory guidance and industry practice at the same time. The same term can carry a slightly different meaning in a FATF recommendation, an EU directive and a bank's internal policy. This glossary sets out the terms that recur most often across our watchdog databases, news coverage, regulatory summaries and reports, and explains them in the sense in which we use them.

Definitions here follow the mainstream international understanding, drawn from the FATF Recommendations and reflected in the EU anti-money-laundering directives and regulation, the US Bank Secrecy Act framework and the UK Money Laundering Regulations. Where national wording diverges in a way that matters — thresholds, list names, the label attached to a report — the entry says so rather than presenting one jurisdiction's terminology as universal.

A note on scope. These entries are descriptive, not legal advice, and they are not a substitute for the applicable rules in any given jurisdiction. Terms such as "politically exposed person" or "shell company" describe risk categories and corporate forms; they are not accusations of wrongdoing. If you believe an entry is inaccurate or out of date, write to support@amlreview.co.

The stages of laundering

Money laundering

The process of disguising the origin of proceeds of crime so that they appear to derive from lawful activity. It presupposes a predicate offence — fraud, corruption, trafficking, tax evasion and so on — and is generally treated as a distinct criminal offence in its own right, capable of being committed by professionals who handle the money as well as by those who generated it.

Placement

The first stage, in which criminal proceeds enter the financial system or are converted into a more portable form. Typical methods include cash deposits, the use of cash-intensive businesses, purchases of monetary instruments and payments through informal value-transfer channels. Because physical cash is involved, this is usually the stage at which detection is most feasible.

Layering

The second stage, in which funds are moved through successive transactions to break the audit trail between the money and its source. Transfers between accounts and jurisdictions, interposed corporate vehicles, loan-back arrangements and conversions between asset classes are all layering techniques. Complexity is the objective; economic purpose is usually absent.

Integration

The final stage, in which laundered funds re-enter the economy in an apparently legitimate form and can be spent or invested openly. Common vehicles include property purchases, investment in operating businesses, consultancy and salary payments, and high-value goods. By this point the money looks like ordinary wealth, and tracing depends on reconstructing the earlier stages.

Customer identification and due diligence

Know your customer (KYC)

The identification and verification of a customer's identity at onboarding and its maintenance thereafter, using identity documents, registry data and electronic verification. In most regimes KYC is a component of customer due diligence rather than a synonym for it, although the two are used interchangeably in everyday industry speech.

Customer due diligence (CDD)

The broader obligation to identify and verify the customer and any beneficial owner, understand the purpose and intended nature of the business relationship, and conduct ongoing monitoring of transactions against what is known about the customer. CDD is applied on a risk-sensitive basis, with the depth of measures calibrated to assessed risk.

Enhanced due diligence (EDD)

Additional measures applied where risk is higher: establishing source of wealth and source of funds, obtaining senior management approval for the relationship, and monitoring it more closely. EDD is typically mandatory for politically exposed persons, relationships connected to high-risk third countries, correspondent banking and unusually complex transactions without apparent purpose.

Politically exposed person (PEP)

An individual entrusted with a prominent public function — senior political, judicial, military, state-enterprise or international-organisation roles — together with immediate family members and known close associates. PEP status is a risk classification triggering enhanced due diligence, not a finding of misconduct, and regimes differ on how long it persists after the person leaves office.

Beneficial owner

The natural person who ultimately owns or controls a customer, or on whose behalf a transaction is conducted. Ownership is commonly tested against a percentage threshold, frequently 25 per cent in regimes derived from the EU directives, but control exercised by other means — voting rights, appointment powers, contractual influence — also brings a person within the definition.

Reporting, screening and their side effects

Suspicious activity report (SAR) / suspicious transaction report (STR)

A report filed with the national financial intelligence unit where a regulated firm knows or suspects, or has reasonable grounds to suspect, that funds are connected to criminal conduct. The United States and the United Kingdom use "SAR"; many other jurisdictions use "STR". Disclosing the existence of such a report to the subject — tipping off — is generally an offence.

Sanctions screening

The matching of customers, counterparties and payment messages against lists of designated persons and entities maintained by bodies such as the United Nations, the European Union, the UK Office of Financial Sanctions Implementation and the US Office of Foreign Assets Control. Sanctions compliance is legally distinct from AML but operationally adjacent, and breaches often attract liability regardless of intent.

De-risking

The wholesale termination or refusal of entire categories of customer, sector or jurisdiction rather than managing risk case by case. Money remitters, non-profit organisations and banks in smaller markets are most affected. FATF has repeatedly criticised the practice on the ground that it displaces activity into less transparent channels and reduces overall visibility.

International standards and country assessment

Financial Action Task Force (FATF)

The intergovernmental body that sets the global standard on money laundering, terrorist financing and proliferation financing through its Recommendations, and assesses countries against them in mutual evaluations. Those evaluations rate both technical compliance — whether the laws exist — and effectiveness — whether the system produces results in practice.

The FATF grey list

Informal shorthand for jurisdictions under increased monitoring: countries that have identified strategic deficiencies and committed to an action plan with agreed timeframes. Listing does not call for countermeasures, but it commonly prompts banks and correspondents to apply enhanced due diligence to exposures in the listed country.

The FATF blacklist

Informal shorthand for high-risk jurisdictions subject to a call for action, the most serious category. Depending on the wording adopted, members are called on to apply enhanced due diligence or, in the most severe cases, countermeasures. The list is short and changes infrequently.

Cross-border and trade channels

Correspondent banking

An arrangement in which one bank provides account and payment services to another, giving the respondent institution access to a currency or payment system it does not hold directly. The correspondent generally has no relationship with the respondent's underlying customers, which is why the relationship attracts enhanced due diligence and why nested relationships and payable-through accounts are treated as elevated risk.

Trade-based money laundering

The movement of value through the misuse of trade transactions rather than through payments alone: over- and under-invoicing, multiple invoicing of the same shipment, misdescription of goods, and shipments that never occur. It is difficult to detect because the payments themselves appear consistent with the documents, and the falsification lies in the documents.

Round tripping

A pattern in which funds leave a jurisdiction, pass through offshore vehicles and return as apparent foreign investment, shareholder loans or inbound capital. The motive is sometimes tax or regulatory arbitrage rather than laundering, but the effect is the same: the ultimate source and ownership of the money are obscured.

Concealment structures and techniques

Smurfing and structuring

The deliberate breaking-up of transactions into amounts below a reporting or identification threshold, often across multiple people, accounts or branches. "Smurfing" refers to the use of many individuals to conduct the deposits. Under the US Bank Secrecy Act framework, structuring to evade reporting is an offence in itself, whatever the source of the funds.

Shell company

A legal entity with no significant operations, employees or assets, existing chiefly to hold accounts, assets or other entities. Many uses are entirely legitimate, including holding structures and special-purpose vehicles. The AML concern is opacity of ownership, which is why beneficial ownership registers and nominee-director disclosure have become central to reform efforts.

Digital-asset terms

Mixer (tumbler)

A service that pools cryptocurrency from many users and redistributes it, so that the link between deposit and withdrawal addresses is broken on the public ledger. Some mixers have been sanctioned or prosecuted; for compliance purposes, mixer exposure in a transaction history is generally treated as a significant risk indicator requiring explanation.

Chain hopping

The rapid conversion of value between different crypto-assets or blockchains, using exchanges, swap services or cross-chain bridges, in order to break the continuity of on-chain tracing. It frequently exploits gaps between jurisdictions with differing supervision of virtual-asset service providers and uneven implementation of the travel rule.