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Understanding AML

Essential Glossary for Industry Terminology

For financial crime professionals, AML officers, or anyone seeking clarity on fraud and AML terms, Edifice offers a glossary of common acronyms and definitions.

We’ll continuously update this resource to reflect industry developments.

Choose the exact letter to find your word:

  • Category L

Legal Risk

Definition:

The risk of loss is caused by an inadvertent or negligent failure to meet a professional (legal) commitment to a specific customer (including fiduciary and appropriateness standards) or by the nature or design of a product. It is a recognised risk category in regulatory frameworks worldwide (Basel II/III standards), usually called Customer, Products and Business Practices.

In addition, banks can suffer administrative or criminal penalties imposed by the government. A court case involving a bank may have graver implications for the institution than just the legal costs. Banks cannot effectively protect themselves from such legal risks if they do not practice due diligence in identifying customers and understanding and managing their exposure to money laundering.

  • Category L

Letter of Credit (LC)

Definition:

A credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party when certain conditions are met.

  • Category M

Markets in Financial Instruments Directive (MiFID II)

Definition:

European Union’s Markets in Financial Instruments Directive (MiFID) is a set of financial regulations to safeguard and enhance financial markets’ efficiency. MiFID II, the second iteration of these rules effective as of January 3rd, 2018, expands MiFID II. This set of rules aims to increase transparency on tradable securities (RTS23), improve the accuracy of timestamps (RTS25), regulate high-frequency trading (HFT), provide regulators with more capability to regulate MAR and mitigate more trading on to regulated venues in addition to the remit of the original directive.

  • Category M

Memorandum of Understanding (MOU)

Definition:

A formal document outlining an agreement between two or more parties.

  • Category M

Money Laundering

Definition:

Money laundering is the process of hiding the source of money obtained from illegal sources and converting it to a clean source, thereby avoiding prosecution, conviction, and confiscation of the criminal funds. It is an unlawful exercise that converts illicit money into legally gained money.

Shape Money laundering is a serious financial crime. AML measures have gained importance in preventing and curbing such practices.

  • Category M

Money Laundering Reporting Officer (MLRO)

Definition:

This term is used in different international standards to describe the person in charge of managing a company’s AML activities and program and filing reports of suspicious transactions with the national FIU. The MLRO is the primary individual in implementing AML strategies and policies and filing SAR or STR.

  • Category M

Money Mule

Definition:

An individual who is recruited, often unknowingly, by criminals to transfer illegally obtained money between different accounts or jurisdictions. Money mules are used to launder money and evade detection by law enforcement agencies. They may be persuaded through various means, such as job offers or romance scams, and are typically unaware of the criminal nature of their activities. Involvement as a money mule is illegal and can have serious legal consequences for those implicated.

  • Category N

Name Screening

Definition:

The process of matching an internal record (i.e., customer, counterparty, related account party) against a sanctioned list record, either manually or through an automated screening tool.

Name screening may also include batch name screening, which allows a firm to periodically screen its entire customer base using automatic screening tools. When onboarding new customers, name screening against sanctions lists is undertaken before accepting a new customer relationship, done in real-time. Name screening forms a part of entry controls, which give the institution more opportunities to collect SDD information.

  • Category N

Natural person

Definition:

A human being (one with a legal personality) is an individual who is distinguished from the broader category of a legal person, like a corporation.

  • Category N

Nesting

Definition:

The practice where a respondent bank provides downstream correspondent services to other financial institutions and processes these transactions through its correspondent account. The correspondent bank is thus processing transactions for financial institutions on which it has not conducted due diligence. While this is a normal part of correspondent banking, it requires the correspondent bank to conduct enhanced due diligence on its respondent’s AML program to adequately mitigate the risk of processing the customer’s customers’ transactions.

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