Glossary
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A
Absolute Advantage
A person, company or country has an absolute advantage if its output per unit of input of all goods and services produced is higher than that of another person, company or country.
Accounts Payable
A category of liabilities that represents funds due to creditors. Usually, accounts payable is due to trade creditors who have supplied goods or services without requiring immediate payment. Accounts payable is sometimes simply called payables. Accounts payable to trade creditors are sometimes called accounts payable trade, due to trade, or trade payments.
Acquisition
One company taking control of another by purchasing a majority or all of the target company's outstanding shares. An "unfriendly" or "hostile" acquisition attempt is usually characterized by an offer far in excess of the market value of the shares, which is meant to induce current stockholders into selling, The target company's management may retaliate by soliciting competing offers from other companies in hope that a bidding war will frighten off the attacker.
Asset Forfeiture and Money Laundering Section (AFMLS)
A part of the U.S. Department of Justice that provides centralized management for the Department's asset forfeiture program to ensure its integrity and maximize its law enforcement potential, while also providing managerial direction to the Department's components in prosecuting money laundering.
Agreement Corporation
Corporation chartered by a state to engage in international banking: so named because the corporation enters into an "agreement" with the Fed's Board of Governors that it will limit its activities to those permitted and Edge Act Corporation.
Alternative Remittance Systems (ARS)
The means of transferring funds and sometimes gold through traditional "underground" banking networks by which trading companies accept money at one location and make it available in another. These systems are common in the Middle East (called Hawala), Africa, South Asia (called Hundi) and Asia.
Anti-Money Laundering (AML)
The legal controls that require financial institutions and other regulated entities to prevent or report money laundering activities.
American Depository Receipt (ADR)
A receipt that is issued by a U.S. Depositary Bank which represents shares of a foreign corporation held by the bank. Because ADRs are quoted in U.S. dollars and trade just like any other stock, they make it simple for investors to diversify their holdings internationally.
American Stock Exchange (AMEX)
An open auction market similar to the NYSE where buyers and sellers compete in a centralized marketplace. The AMEX typically lists small to medium cap stocks of younger or smaller companies. Until 1921 it was known as the New York Cumulative Exchange.
Amortization
The process of fully paying off indebtedness by installments of principal and earned interest over a definite time.
Annual Percentage Rate (APR)
The cost of credit on a yearly basis expressed as a percentage.
Appraisal Fee
The charge for estimating the value of property offered as security.
Appreciation
Increase in the value of an asset.
Asia Pacific Group on Money Laundering (APG)
The FATF-style regional body for the Asia/Pacific region. It is an autonomous international organization founded in 1997 in Bangkok, Thailand. The APG consists of 38 member jurisdictions and a number of international and regional observers. Jurisdictions that join the APG commit to implement the international standards to combat money laundering and the financing of terrorism, in particular the Forty Recommendations on Money Laundering and the Nine Special Recommendations on Terrorist Financing of the Financial Action Task Force on Money Laundering (FATF). These standards are referred to as the international standards for Anti-money Laundering/Combating the Financing of Terrorism (AML/CFT).
Automated Clearing House (ACH)
Electronic clearing and settlement system for exchanging electronic transactions among participating depository institutions; such electronic transactions are substitutes for paper checks and are typically used to make recurring payments such as payroll or loan payments. The Federal Reserve Banks operate an automated clearinghouse, as do some private sector firms.
Automated Teller Machine (ATM)
Computer-controlled terminal located on the premises of financial institutions or elsewhere, through which customers may make deposits, withdrawals or other transactions as they would through a bank teller. Other terms sometimes used to describe such terminals are customer-bank communications terminal (CBCT) and remote service unit (RSU). Groups of banks sometimes share ATM networks located throughout a region of the country that may include portions of several states.
Automatic Transfer Service (ATS) Account
A depositor's savings account from which funds may be transferred automatically to the same depositor's checking account to cover a check written or to maintain a minimum balance.
Balance of Payments
An accounting statement of the money value of international transactions between one nation and the rest of the world over a specific time period. The statement shows the sum of transactions of individuals, businesses and government agencies located in one nation, against those of all other nations.
Balance of Trade
That part of a nation's balance of payments dealing with imports and exports, that is trade in goods and services, over a given period. If exports of goods exceed imports, the trade balance is said to be favorable; if imports exceed exports, the trade balance if said to be unfavorable.
Bankers' Automated Clearing Services (BACS)
BACS (originally an acronym for Bankers' Automated Clearing Services) is responsible for bulk electronic clearing and the management and provision of related payment services to the UK banking industry. It has been operating for over thirty years and is among the largest automated clearing houses in the world.
Bank for International Settlements (BIS)
International organization established in 1930 and based in Basle, Switzerland, that serves as a forum for central banks collecting information, developing analyses and cooperating on a wide range of policy-related matters.
Bank Holding Company (BHC)
Company that owns, or has controlling interest in, one or more banks. A company that owns more than one bank is known as a multibank holding company. The Board of Governors is responsible for regulating and supervising bank holding companies, even if the bank owned by the holding company is under the primary supervision of a different federal agency (the Comptroller of the Currency or the Federal Deposit Insurance Corporation).
Bank Note
A term used synonymously with paper money or currency issued by a bank. Notes are, in effect, a promise to pay the bearer on demand the amount stated on the face of the note. Today, only the Federal Reserve Banks are authorized to issue bank notes, i.e. Federal Reserve notes, in the United States.
Bank Regulation
The formulation and issuance by authorized agencies of specific rules or regulations, under governing law, for the conduct and structure of banking.
Bankwire
An electronic communications network owned by an association of banks and used to transfer messages between subscribing banks. Bankwire also offers a clearing service called cashwire that includes a settlement facility.
Banker's Acceptance
Negotiable time drafts, or bills of exchange, that have been accepted by a bank which, by accepting, assumes the obligation to pay the holder of the draft the face amount of the instrument on the maturity date specified. They are used primarily to finance the export, import, shipment or storage of goods.
Bank Secrecy Act (BSA)
Passed in 1970 and was amended by the USA PATRIOT Act of 2001, this Act consists of a number of recordkeeping and reporting requirements designed to overcome foreign bank secrecy laws and to deter money laundering. The requirement to file Form FinCEN 8300 reporting currency transactions above US$10,000 (CTR) is a Bank Secrecy Act rule.
Batch-Processing
The transmission or processing of a group of related payment instructions.
Beneficial Owner
The natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted and who has the authority to fund, direct or manage the account.
Black List
See Non-cooperative countries or territories.
Board of Governors
Central, governmental agency of the Federal Reserve System, located in
Washington, D.C., and composed of seven members who are appointed by the President and confirmed by the Senate. The Board of Governors is responsible for domestic and international economic analysis; with other components of the System, for the conduct of monetary policy; for supervision and regulation of certain banking organizations; for operation of much of the nation's payments system; and for administration of most of the nation's laws that protect consumers in credit transactions.
Book-Entry Securities
Securities that are recorded in electronic records called book entries, rather than as paper certificates. Ownership of U.S. government book-entry securities is transferred over Fedwire.
Broker-Dealer
Any person, other than a bank, engaged in the business of buying or selling securities on its own behalf or for others.
Capital Market
The market in which corporate equity and longer-term debt securities (those maturing in more than one year) are issued and traded.
Caribbean Financial Action Task Force (CFATF)
The Caribbean regional equivalent of the Financial Action Task Force (FATF) anti-money laundering organization with legal, financial and law enforcement expertise. The CFATF monitors AML policies, sets AML standards and handles related responsibilities.
Central Bank
The principal monetary authority of a nation, which performs several key functions, including issuing currency and regulating the supply of credit in the economy. The Federal Reserve is the central bank of the United States.
Central Bank Intervention
The buying or selling of currency, foreign or domestic, by central banks in order to influence market conditions or exchange rate movements.
Channeling
An account used to receive, consolidate and re-transfer laundered funds.
Check Clearing
The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts. The Federal Reserve operates a nationwide check-clearing system.
Clearinghouse
An institution where mutual claims are settled between accounts of member depository institutions. Clearinghouses among banks have traditionally been organized for check-clearing purposes, but more recently have cleared other types of settlements, including electronic fund transfers.
Clearing House Automated Payment System (CHAPS) An electronic transfer system for sending same day value payments from bank to bank. It operates in partnership with the Bank of England in providing a payment and settlement service for banks. The CHAPS Clearing Company had operated two separate Clearings, CHAPS Sterling and CHAPS Euro until 16 May 2008 when CHAPS Euro was terminated.
The CHAPS Sterling payment system, developed in 1984, is one of the largest real-time gross settlement systems in the world, second only to Fedwire in the United States. CHAPS offers its members and their participants an efficient, risk-free, reliable same-day payment mechanism. Every CHAPS payment is unconditional, irrevocable and guaranteed.
Clearinghouse Interbank Payments System (CHIPS)
An automated clearing system used primarily for international payments. This system is owned and operated by the New York Clearinghouse banks and engages Fedwire for settlement.
Collateral
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default (also called security).
Commercial Bank
Bank that offers a broad range of deposit accounts, including checking, savings and time deposits and extends loans to individuals and businesses. Commercial banks can be contrasted with investment banking firms, such as brokerage firms, which generally are involved in arranging for the sale of corporate or municipal securities.
Committee of Hemispheric Financial Issues (CHFI)
Established in December of 1994, within the framework of the First Summit of the Americas, as a forum where Finance Ministers of the Hemisphere could meet and discuss relevant economic and financial issues for the region especially anti-money laundering measures. Also known as the Committee on Hemispheric Money Laundering.
Community Reinvestment Act (CRA)
Enacted by Congress in 1977, the CRA encourages banks to help meet the credit needs of their communities for housing and other purposes, particularly in neighborhoods with low or moderate incomes, while maintaining safe and sound operations.
Comparative Advantage
Describes the ability of a person, company or country to produce a good or service at a lower cost relative to other goods and services. Even though a country may have an absolute advantage over another country, it still will be better off specializing in the good or service in which it has a comparative advantage and trading for goods and services it doesn't produce as efficiently.
Competitive Bidders
One of two categories of bidders on Treasury securities: competitive and noncompetitive. Competitive bidders are usually financial institutions.
Comptroller of the Currency
An officer of the Treasury Department responsible for chartering national banks and has primary supervisory authority over them. All national banks are required to be members of the Federal Reserve System and are insured by the Federal Deposit Insurance Corporation.
Concentration Account
Also called clearing or omnibus account. Account in which funds of one or more customers are consolidated, pooled or commingled. Used by a financial institution for bank-to-bank or administrative transactions. The USA PATRIOT Act prohibits the use of concentration accounts for customer business because they hide the identity of the customer.
Confiscation
The forfeiture of funds or assets to a Government regulatory agency can result if the account holder commits a crime or holds fund from a money laundering scheme. A key AML tool, it assumes all assets of a money launderer are derived from money laundering. So, in an account of US$1million, even if only US$1,000 can be directly tied to money laundering, the Government can confiscate all US$1million.
Consumer Advisory Council (CAC)
A statutory body established by Congress in 1976. The Council, with 30 members who represent a broad range of consumer and creditor interests, advises the Federal Reserve Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.
Core Principles
Refers to the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision, the Objectives and Principles for Securities Regulation issued by the International Organization of Securities Commissions and the Insurance Supervisory Principles issued by the International Association of Insurance Supervisors.
Correspondent Account
An account established to receive deposits from, make payments on behalf of a foreign financial institution or handle other financial transactions relates to such institution.
Correspondent Bank
Bank that accepts deposits of, and performs services for, another bank (called a respondent bank); in most cases, the two banks are in different cities.
Credit
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.
Credit Union
Financial cooperative organization of individuals who have a common bond, such as place of employment or residence or membership in a labor union. Credit unions accept deposits from members, pay interest (in the form of dividends) on the deposits out of earnings and use their funds to provide consumer installment loans to members.
Currency Appreciation
An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates, a unit of one currency buys more units of another currency.
Currency Depreciation
A decline in the value of one currency relative to another currency. Depreciation occurs when, because of a change in exchange rates, a unit of one currency buys fewer units of another currency.
Currency Devaluation
A deliberate downward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.
Currency Revaluation
A deliberate upward adjustment in the official exchange rate established, or pegged, by a government against a specified standard, such as another currency or gold.
Current Account Balance
The difference between the nation's total exports of goods, services and transfers and its total imports of them. Current account balance calculations exclude transactions in financial assets and liabilities.
Currency and Monetary Instrument Transportation Report (CMIR)
Report to be filed with the Commissioner of Customs reporting bulk movement in or out of the U.S. of monetary instruments such as currency, bank checks, travelers checks, bearer securities, money orders, negotiable instruments and similar instruments of over US$10,000.
Currency Transaction Report (CTR)
Report filed with FinCEN to report cash transactions of over US$10,000.
Customer Identification Program (CIP)
A requirement under the USA PATRIOT Act that all financial institutions must verify the identity of individuals wishing to conduct financial transactions. The requirement also specifies that companies check their customers against lists of known money launderers, such as the OFAC SDN list.
Deficit
The amount each year by which government spending is greater than government income.
Demand Deposit
A deposit that may be withdrawn at any time without prior written notice to the depository institution. A checking account is the most common form of demand deposit.
Depository Institution
A financial institution that obtains its funds mainly through deposits from the public. This includes commercial banks, savings and loan associations, savings banks and credit unions. Although historically they have specialized in certain types of credit, nonbank depository institutions have broadened their powers in recent years. For example, NOW accounts, credit union share drafts and other services similar to checking accounts may be offered by thrift institutions.
Depreciation
A non-cash expense that provides a source of free cash flow. Amount allocated during the period to amortize the cost of acquiring long-term assets over the useful life of the assets.
Designated Threshold
Amount above which transaction might be subject to analysis as money laundering or terrorist finance. For instance, the FATF sets US$15,000 or euros as the level at which cash transactions in precious metals or stones should be reported. The U.S. sets this level at US$10,000.
Due Diligence
Under the USA PATRIOT Act due diligence requirements specify that a financial institution assess the money laundering risk posed for an account, based on a consideration of relevant risk factors; applies risk-based policies, procedures and controls to detect and report known or suspected money laundering activity.
Euro Banking Association (EBA)
The Euro Banking Association is an association consisting of 190 European banks. It serves as a forum for the European payments industry and plays a major role in the development of payment infrastructure solutions at a pan-European level. Through its industry initiatives and the euro payment systems it has delivered, the EBA has been and continues to be a key contributor to the creation of a standardised Single Euro Payments Area (SEPA).
Economic Growth
An increase in the nation's capacity to produce goods and services.
Economic Shocks
Events that impact the economy, come from outside it, and are unexpected and unpredictable (e.g., Hurricane Andrew in 1991, the rise in oil prices by OPEC).
Egmont Group
An unofficial forum for Financial Intelligence Units to establish standards and mechanisms for cooperation and establish protocols for exchanging information.
Electronic Data Interchange (EDI)
The direct exchange of information electronically, from one firm's computer to another firms's computer in a structures format.
Electronic Funds Transfer (EFT)
Transfer of funds electronically rather than by check or cash. The Federal Reserve's Fedwire and automated clearinghouse services are EFT systems.
Electronic Fund Transfer Systems (EFTS)
A variety of systems and technologies for transferring funds (money) electronically rather than by check. Includes Fedwire, automated clearinghouses (ACHs) and other automated systems.
Enhanced Due Diligence
A USA PATRIOT Act requirement for a financial institution with a private foreign bank account to take reasonable steps to ascertain the identity of each of the owners of the foreign bank and the nature and extent of the ownership interest of each owner; conduct enhanced scrutiny of the account to guard against money laundering and report any suspicious transactions and to ascertain whether the foreign bank provides correspondent accounts to other foreign banks and, if so, the identity of those banks and related due diligence information, as appropriate under the USA PATRIOT Act.
Escalation
When an employee reports suspicious activity to the AML Compliance Officer, a senior manager or enforcement agency.
Eurodollars
Deposits denominated in U.S. dollars at banks and other financial institutions outside the United States. Although this name originated because of the large amounts of such deposits held at banks in Western Europe, similar deposits in other parts of the world are also called Eurodollars.
European Committee on Banking Standards (ECBS)
The European Committee for Banking Standards (ECBS) was formed in 1992 by the European Credit Sector Associations (ECSAs) to represent the interests of banks of the European banks from the countries of the European Union (EU), the European Economic Area (EEA), and the European Free Trade Association (EFTA). It develops technical reports and standard implementation guidelines and represents the European banking sector to the various standards and industry bodies.
Excess Reserves
Amount of reserves held by an institution in excess of its reserve requirement and required clearing balance. Also see reserves.
Exchange Rate
The price of a country's currency in terms of another country's currency.
Federal Advisory Council (FAC) Advisory group made up of one representative (in most cases a banker) from each of the 12 Federal Reserve districts. Established by the Federal Reserve Act, the council meets periodically with the Board of Governors to discuss business and financial conditions and make recommendations.
Federal Deposit Insurance Corporation (FDIC) An independent deposit insurance agency created by Congress in 1933 to maintain stability and public confidence in the nation's banking system. The FDIC promotes safety and soundness of insured depository institutions and the U.S. financial system by identifying, monitoring and addressing risks to the deposit insurance funds; minimizes disruptive effects from the failure of banks and savings associations; and ensures fairness in the sale of financial products and the provision of financial services.
Federal Open Market Committee (FOMC) Twelve-member committee made up of the seven members of the Fed's Board of Governors; the president of the Federal Reserve Bank of New York; and, on a rotating basis, the presidents of four other Reserve Banks. The FOMC meets eight times a year to set Federal Reserve guidelines regarding the purchase and sale of government securities in the open market as a means of influencing the volume of bank credit and money in the economy. It also establishes policy relating to System operations in the foreign exchange markets.
Federal Reserve Bank One of the 12 operating arms of the Federal Reserve System, located throughout the nation, that together with their 25 branches carry out various System functions, including operating a nationwide payments system, distributing the nation's currency and coin, supervising and regulating member banks and bank holding companies and serving as banker for the U.S. Treasury.
Federal Reserve District (Reserve District or District) One of the twelve geographic regions served by a Federal Reserve Bank.
Federal Reserve System The central bank of the United States, created by Congress and made up of a seven-member Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks, and their 25 branches.
Fedwire Electronic funds transfer network operated by the Federal Reserve. Fedwire is usually used to transfer large amounts of funds and U.S. government securities from one institution's account at the Federal Reserve to another institution's account. It is also used by the U.S. Department of the Treasury and other federal agencies to collect and disburse funds.
Financial Action Task Force on Money Laundering (FATF GAFI or FATF)
International anti-money laundering organization with legal, financial and law enforcement expertise. Monitors AML policies in different countries, sets AML standards, etc.
Financially Exposed Person (FEP)
An individual who is a high level executive with a management or director position in one of the world's largest companies. Because they generally have access, directly or indirectly, to corporate wealth such an association makes them high risk.
Financial Crimes Enforcement Network (FinCEN) Bureau in the U.S. Department of the Treasury formed in 1990 to oversee, centralize and coordinate financial intelligence gathering, regulatory compliance, government initiatives, criminal prosecution and enforcement having to do with laundering and associated foreign financial transactions and relationships, information on currency flows and financial criminal activities. The main U.S. body to prevent and detect money laundering.
Financial Institution An institution that uses its funds chiefly to purchase financial assets (loans, securities) as opposed to tangible property. Financial institutions can be classified according to the nature of the principal claims they issue.
Financial Intelligence Unit (FIU) A government agency found in many countries, responsible for investigating and preventing criminal manipulation of finance systems.
Financial Stability Forum (FSF) Convened in April 1999 to promote international financial stability through information exchange and international cooperation in financial supervision and surveillance. The FSF brings together senior representatives for financial authorities representing 26 countries (e.g. central banks, supervisory authorities and treasury departments), international financial institutions, international regulatory and supervisory groupings, committees of central bank experts and the European Central Bank. It is based in Basel, Switzerland.
Fiscal Policy The federal government's decisions about the amount of money it spends and collects in taxes to achieve a full employment and noninflationary economy.
Fixed Rate A traditional approach to determining the finance charge payable on an extension of credit. A predetermined and certain rate of interest is applied to the principal.
Foreign Bank and Financial Accounts Report (FBAR) The requirement by the U.S. Internal Revenue Service that those who own a foreign bank account, brokerage account, mutual fund, unit trust or other financial account may be required to report the account annually. Report filed with FinCEN for foreign accounts of over US$10,000 held by U.S. companies or individuals.
Foreign Currency Operations Purchase or sale of the currencies of other nations by a central bank for the purpose of influencing foreign exchange rates or maintaining orderly foreign exchange markets. Also called foreign-exchange market intervention.
Forfeiture See Confiscation.
Front Company An entity used to hide the beneficial owner.
Gatekeepers Professionals such as lawyers, accountants and investment advisors that can block or expedite funds from entering the banking system. In certain cases, they can use their own accounts to effect entry and thereby hide the identity of the beneficial owner. The FATF recommendations encourage countries to apply their AML requirements for financial institutions to gatekeepers.
Groupe d’Action Financiere sur le blanchiment de capitaux (GAFI) Name in France for the Financial Action Task Force.
Government Securities Securities issued by the U.S. Treasury or federal agencies.
Gross Domestic Product (GDP) Total value of goods and services produced by labor and property located in the United States during a specific period. In 1991, GDP became the U.S. government's primary measure of economic activity in the nation, replacing gross national product (GNP), which is the total value of goods and services produced by labor and property supplied by U.S. residents (but not necessarily located within the country).
Hawala See Alternative Remittance Systems.
High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Conceived in the U.S. Money Laundering and Financial Crimes Strategy Act of 1998 as a means of concentrating law enforcement efforts at the U.S. federal, state and local levels in high intensity money laundering zones. HIFCAs may be defined geographically or they can also be created to address money laundering in an industry sector, a financial institution or group of financial institutions.
Hundi
See Alternative Remittance Systems.
International Bank Account Number (IBAN) The IBAN concept was developed by the European Committee for Banking Standards (ECBS) and the International Standards Organisation (ISO) and is an internationally agreed standard ISO 13616: 1997. It was created as a viable and practical international bank identifier, used internationally to uniquely identify the account of a customer at a financial institution, to assist error-free cross-border payments and to improve the potential for payments STP.
Inflation A rise, over time, in the average level of prices.
Interest Payments The return expressed in percentage earned on an investment each year. These payments are issued every six months based on an annual rate.
International Banking Facility (IBF) Facilities which, in general, can accept time deposits from foreign customers free of reserve requirements and interest rate limitations, and can lend to foreigners if the funds are for the conduct of foreign business outside of the United States. Net borrowing from these facilities by domestic banking offices is subject to reserve requirements.
International Financial Institutions (IFIs) Refers to financial institutions that have been established (or chartered) by more than one country and hence are subject to international law. Their owners or shareholders are generally national governments, although other international institutions and organizations occasionally figure as shareholders. The most prominent IFIs are creations of multiple nations. However, some bilateral financial institutions (created by two countries) exist and are technically IFIs. Many of these are multilateral development banks.
International Monetary Fund (IMF) An international organization with 146 members, including the United States. The main functions of the IMF are to lend funds to member nations to finance temporary balance of payments problems, to facilitate the expansion and balanced growth of international trade and to promote international monetary cooperation among nations. The IMF also creates special drawing rights (SDRs), which provide member nations with a source of additional reserves. Member nations are required to subscribe to a Fund quota, paid mainly in their own currency. The IMF grew out of the Bretton Woods Conference of 1944.
International Organization for Standardization ISO is not an acronym but the name of a standards setting organization chartered by the United Nations. The name ISO is derived from Greek and connotes equality, i.e. each member country regardless of size or wealth gets only one vote. The ISO 4217 are the standard three letter currency codes. These codes are usually composed of the ISO 3166 two letter country code plus a third letter representing the name of the currency.
Investment Bank Also known as underwriters, investment banks serve as middlemen between corporations issuing new securities and the buying public. Normally one or more investment banks buy the new issue of securities from the issuing company for a negotiated price. The company walks away with this new supply of capital, while the investment banks form a syndicate and resell the issue to their customer base and the investing public. Investment banks perform a variety of other financial services, such as merger and acquisition advice and market analysis.
Joint and Travel Rule A U.S. regulation that specifies certain information, including name, address or transmitter and recipient, amount, identity of recipient's financial institution and account number be recorded for wire transfers of $3,000 or more.
Know Your Customer (KYC) Best practices policy used to perform enhanced due diligence. It is applied to determine the identity of a customer, define an account's normal business and identify behavior that deviates from this norm.
Know Your Employee (KYE) Internal best practices policy for understanding an employee's background, conflicts of interest and susceptibility to money laundering complicity.
Large Currency Transaction Form Form 4789, a U.S. Internal Revenue Service form on which cash transactions over $10,000 must be reported.
Layering In the USA PATRIOT Act, the stage of laundering in which the origin and trail of funds introduced into the financial system are hidden by creating layers of transactions. The stages are Placement, Layering and Integration.
Liquidity Quality that makes an asset easily convertible into cash with relatively little loss of value in the conversion process. Sometimes used more broadly to encompass credit in hand and promises of credit to meet needs for cash.
Long Arm Jurisdiction A country's extraterritorial reach. For instance, under the USA PATRIOT Act, the U.S. can convict non-residents of crimes in which they participated while outside of the United States.
Magnetic Ink Character Recognition (MICR) A description comprising numbers and symbols printed in magnetic ink on documents for automated processing. For checks, this MICR line appears at the bottom of the check.
Margin With regard to securities, this term refers to a fractional amount of full value, or the equity outlay (down payment) required for an investment in securities purchased on credit.
Member Bank Depository institution that is a member of the Federal Reserve System. All federally chartered banks are automatically members of the System. State-chartered banks are divided into those that are members of the System (state member banks) and those that are not (nonmember banks).
Monetary Policy A central bank's actions to influence the availability and cost of money and credit, as a means of helping to promote national economic goals. Tools of monetary policy include open market operations, discount policy and reserve requirements.
Money Anything that serves as a generally accepted medium of exchange, a standard of value and a means to save or store purchasing power. In the United States, currency (the bulk of which is Federal Reserve notes), coin and funds in checking and similar accounts at depository institutions are examples of money.
Money Laundering
To move illegally acquired cash through financial systems so that it appears to be legally acquired. The USA PATRIOT Act mentions three stages of this process: Placement, Layering and Integration.
Money Laundering Control Act of 1986 (MLCA) Passed in 1984, this United States Act of Congress made money laundering a Federal crime. The Act strengthened the Bank Secrecy Act (BSA) in many respects and resulted in the creation of the following money laundering offenses: 1. Deliberately avoiding reporting requirements under the BSA; 2. Knowingly aiding a criminal to launder money; and, 3. Knowingly engaging in a financial transaction in excess of US$10,000 with proceeds from criminal activity.
Money Laundering Coordination Center (MLCC) Part of the U.S. Treasury Department, the MLCC acts as a safety mechanism so that all undercover Customs Department actions are tracked and coordinated in real-time, thus ensuring that money laundering investigations do not conflict with one another and that undercover agents are not unknowingly pursuing the same target. The MLCC also analyzes information provided by these operations in order to more fully develop targets and expand investigations.
Money Laundering Suppression Act of 1994 (MLSA) A U.S. law that requires banking agencies to develop anti-money laundering examination procedures. It also streamlined the Currency Transaction Report (CTR) exemption process.
Money Services Businesses (MSBs)
Certain non-bank financial services companies such as currency dealers or exchangers, check cashers and travelers check issuers.
Mutual Legal Assistance Treaty (MLAT) A mutual legal assistance treaty is an agreement between two foreign countries for the purpose of gathering and exchanging information in an effort to enforce criminal laws.
National Association of Securities Dealers (NASD) A self-regulatory organization with jurisdiction over certain broker-dealers. The NASD requires member brokers to register and conducts examinations for compliance with net capital requirements and other regulations. It also conducts market surveillance of the over-the-counter (OTC) securities market. National Association of Securities Dealers Automated Quotations (NASDAQ) is a subsidiary of the NASD which facilitates the trading of approximately 5,000 most active OTC issues through an electronically connected network.
National Association of Securities Dealers Automated Quotations (NASDAQ ) A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks.
National Credit Union Administration (NCUA) The federal government agency that supervises, charters and insures federal credit unions. NCUA also insures state-chartered credit unions that apply and qualify for insurance. The NCUA also operates a credit facility for member credit unions.
Non–member Bank Depository institution that is not a member of the Federal Reserve System. Specifically, a state-chartered commercial bank that has elected not to join the System.
Non–cooperative Countries or Territories (NCCT) Countries designated by the FATF as consistently ignoring money laundering rules or unwilling to pass or enforce laws to prevent money laundering. The “black list” is revised annually.
Non–financial Trades and Businesses (NFTB) Businesses subject to the Bank Secrecy Act that are not financial institutions (ex. dealers in precious metals and stones, real estate agents, lawyers and car dealers.
Organization of American States (OAS) The North American, Central American and South American region's principal multilateral forum for strengthening democracy, promoting human rights and confronting shared problems such as poverty, terrorism, illegal drugs and corruption. It includes 34 participating countries and Cuba, who has not been allowed to participate since 1962.
Organization for Economic Cooperation and Development (OECD)
OECD brings together the governments of 30 countries committed to democracy and the market economy from around the world to support sustainable economic growth, boost employment, raise living standards, maintain financial stability, assist other countries' economic development, contribute to growth in world trade
Office of Foreign Assets Control (OFAC) A bureau of the Treasury Department that administers economic and trade sanctions. OFAC also targets and blocks the financial transactions and assets of terrorists, narcotics traffickers, and foreign countries posing a threat to our national security and economy. OFAC acts under Presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
Office of the Comptroller of the Currency (OCC) An independent bureau of the Treasury Department and the oldest federal financial regulatory body. The OCC oversees the nation's federally chartered banks and through a system of bank supervision and regulation promotes safety and soundness by requiring that national banks adhere to sound management principles and comply with the law, and encourages banks to satisfy customer and community needs while remaining efficient competitors in the financial services market.
Office of Thrift Supervision (OTS) A bureau of the Treasury Department, established in August 1989, which has the authority to charter federal thrift institutions and serve as the primary regulator of approximately 2,000 federal and state-chartered thrifts.
Offshore Financial Center (OFC)
A Place that offers little or no government interference in legitimate business and financial activities. In addition, many OFCs offer very low or zero tax rates and provide excellent communications facilities. Also called international financial center (IFC).
PATRIOT Act Communications System (PACS)
A means to communicate with FinCEN, including electronic filing of SAR’s and CTR’s to FinCEN.
Payable Through Account Correspondent
An account opened at a depository institution by a foreign financial institution to engage, either directly or through a sub account, in banking activities. Payable through accounts can hide the identity of a customer.
Payments System Collective term for mechanisms (both paper-backed and electronic) for moving funds, payments and money among financial institutions throughout the nation. The Federal Reserve plays a major role in the nation's payments system through distribution of currency and coin, processing of checks, electronic transfer of funds and the operation of automated clearinghouses that transfer funds electronically among depository institutions; various private organizations also perform payments system functions.
Physical Presence
A place of business that is maintained by a foreign bank, located at a fixed address (not electronic) in a country in which the foreign bank operates, employs 1 or more individuals full time and maintains operating records that are subject to inspection by the banking authority which licensed the foreign bank.
Placement
Mentioned in the USA PATRIOT Act as the initial money laundering stage in which criminally derived funds are introduced into the financial system. The stages are Placement, Layering and Integration.
Politically Exposed Person (PEP)
A PEP is a current or former senior official of government, a major political party or certain corporations and his/her immediate family members as well as any close personal or professional associate of such a person. They may pose a potential risk to financial institutions.
Predicate Offenses
Crimes underlying money laundering or terrorist finance activity. Initially, these were drug-related offenses, which continue to be the primary predicate offenses, however, most countries have broadened the definition to include any serious crime.
Premium The amount by which the auction price of a bill, note, or bond is higher than its face value.
Private Banking Account
Special accounts for high net worth individuals in which an individual "private banker" coordinates the financial institution's services with the customer's requirements. Accounts generally require a minimum balance of US$1 million. Transactions tend to be marked with confidentiality, complex beneficial ownership arrangements, offshore investment vehicles, tax shelters and credit extension services. Private banking is viewed by many governments as vulnerable to money laundering.
Productivity The amount of physical output for each unit of productive input.
Recession A significant decline in general economic activity extending over a period of time.
Red Flag
An alert that signals possible money laundering or terrorist financing. Red flags require investigation and possibly the filing of a Suspicious Activity Report (SAR).
Regional Check Processing Center (RCPC) A Federal Reserve check processing operation that clears checks drawn on depository institutions located within a specified area. RCPCs expedite collection and settlement of checks within the area on an overnight basis.
Repatriation of Assets
If funds or assets are transferred out of U.S. jurisdiction by a suspected launderer, FinCEN may obtain a subpoena for their return to the United States.
Reserves A depository institution's vault cash (up to the level of its required reserves) plus balances in its reserve account (not including funds applied to its required clearing balance).
Required Reserve Balance Portion of its required reserves that a depository institution must hold in an account at a Federal Reserve Bank.
Risk Matrix
Chart to assess customer risk based on predefined variables, such as location, nature of business, etc.
Safe Harbor
Protects persons or agencies disclosing or reporting suspicious activity in good faith from civil liability to person that was reported.
Savings Bank Depository institution historically engaged primarily in accepting consumer savings deposits and in originating and investing in securities and residential mortgage loans; now may offer checking-type deposits and make a wider range of loans.
Securities Paper certificates (definitive securities) or electronic records (book-entry securities) evidencing ownership of equity (stocks) or debt obligations (bonds).
Securities and Exchange Commission (SEC) An independent, nonpartisan, quasi-judicial regulatory agency with responsibility for administering the federal securities laws. The purpose of these laws is to protect investors and to ensure that investors have access to disclosure of all material information concerning publicly traded securities. The Commission also regulates firms engaged in the purchase or sale of securities, people who provide investment advice, and investment companies.
Self-Regulatory Organizations (SRO) Nongovernment organizations that have statutory responsibility to regulate their own members such as the New York Stock Exchange (NYSE) and National Association of Securities Dealers (NASD).
Service Charge A component of some finance charges, such as the fee for triggering an overdraft checking account into use.
Settlement When payment is made for a trade.
Shell Bank
A bank incorporated in a jurisdiction in which it has no physical presence and which is unaffiliated with a regulated group.
Single European Payments Area (SEPA)
The Single Euro Payments Area (SEPA) initiative provides a unified STP payments system for all EU member states for direct debits, credits and card payments.
SEPA Credit Transfer (SCT)—SEPA instrument for Credit Transfers
SEPA Direct Debit (SDD)—SEPA instrument for Direct Debits
Smurfing
Using structured transactions or multiple small bank accounts to evade reporting requirements.
Society for Worldwide Interbank Financial Telecommunications (S.W.I.F.T. ) A message writing system that connects worldwide participating banks, primarily for the purpose of communicating payment information. Frequently, the S.W.I.F.T. message is only part of an international payment.
Special Drawing Rights (SDR) A type of international money created by the International Monetary Fund (IMF) and allocated to its member nations. SDRs are an international reserve asset, although they are only accounting entries (not actual coin or paper, and not backed by precious metal). Subject to certain conditions of the IMF, a nation that has a balance of payments deficit can use SDRs to settle debts to another nation or to the IMF.
Spot Transaction A foreign exchange transaction in which each party promises to pay a certain amount of currency to the other on the same day or within one or two days.
State Member Bank A bank that is chartered by a state and has elected to join the Federal Reserve System.
Straight Through Processing (STP) Allows transactions to move seamlessly through the processing cycle, without manual intervention or redundant handling.
Structured Transaction
A composite of small transactions or other devices used in an attempt to evade cash or other reporting requirements.
Substitute Property
If funds or assets are transferred out of U.S. jurisdiction by a suspected launderer, FinCEN may obtain a subpoena to seize property of equivalent value from the suspected launderer.
Surcharge An extra charge imposed on those who purchase with a credit card instead of cash. (Currently, surcharges for credit card purchases are prohibited.)
Suspicious Activity
Relates to funds that are inconsistent with a customer’s business or industry practice and therefore are derived from possible illegal activity in which the beneficiary hides the source of funds or tries to circumvent reporting requirements.
Suspicious Activity Report (SAR) A U.S. requirement obligating financial institutions to report transactions involving proceeds derived from suspicious or illegal activity or from a plan to violate federal regulations, avoid reporting requirements or facilitate criminal activity.
Suspicious Transaction Report (STR)
A report typically filed with regulatory officials in a number of countries if a financial institution suspects or has reasonable grounds to suspect that funds it is handling are the proceeds of criminal activity or are related to terrorist financing. Term used in Europe and by the FATF for Suspicious Activity Report.
Swap An arrangement between the central banks of two countries for standby credit to facilitate the exchange of each other’s currencies.
Terrorist Financing
Funding sources and infrastructure used by terrorist groups. This is characterized by hiding sources and divorcing them from the terrorist activity they support.
Thrift Institution A general term encompassing savings banks, savings and loan associations, and credit unions.
Thrift Institutions Advisory Council (TIAC) A council, established following the passage of the Monetary Control Act of 1980, whose purpose is to provide information and views on the special needs and problems of thrifts. The group is comprised of representatives of savings banks, savings and loan associations, and credit unions.
Transaction Account A checking or similar account from which transfers can be made to third parties. Demand-deposit accounts, negotiable order of withdrawal (NOW) accounts, automatic transfer service (ATS) accounts, and credit union share draft accounts are examples of transaction accounts at banks and other depository institutions.
Treasury Bill (T-bill) Short-term U.S. Treasury security having a maturity of up to one year and issued in denominations of $10,000 to $1 million. T-bills are sold at a discount: Investors purchase a bill at a price lower than the face value (for example, the investor might buy a $10,000 bill for $9,700); the return is the difference between the price paid and the amount received when the bill is sold or it matures (if held to maturity, the return on the T-bill in the example would be $300). T-bills are the type of security most frequently used in Federal Reserve open market operations.
Treasury Bond Long-term security having a maturity of 10 years or longer issued in denominations of $1,000 or more. A 30-year bond is sometimes referred to as a long bond. Bonds pay interest semiannually, and the principal is payable at maturity.
Treasury Note Intermediate-term security having a maturity of one to 10 years and issued in denominations of $1,000 or more. Notes pay interest semiannually, and the principal is payable at maturity.
Typology A term used by the FATF to describe money laundering and terrorist finance methods and techniques.
U.N. Security Council Resolution 1373 (2001)
Requires members to freeze terrorist assets and calls for members to assist one another in investigations and to not support terrorist acts or provide safe havens.
U.S. Department of the Treasury
Anti-money laundering responsibility and decision-making authority rests with the Secretary of the Treasury. Treasury is the center of the U.S. anti-money laundering effort. Policymakers at the Treasury make all substantive policy decisions involved in rulemaking. The rules are developed with input from all interested parts of the Federal Government enforcement and coordination are centralized at the Treasury Department.
U.S. Treasury Securities Interest-bearing obligations of the U.S. government issued by the U.S. Department of the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. There are three types of marketable Treasury securities—bills, notes and bonds.
USA PATRIOT Act
As an acronym, stands for “Uniting and Strengthening America by providing Appropriate Tools Required to Intercept and Obstruct Terrorism” (October 25, 2001).
Variable Rate A variable-rate agreement, as distinguished from a fixed-rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.
Velocity The rate at which money balances turn over in a period for expenditures on goods and services (often measured as the ratio of GNP—gross national product—to the money stock). A larger velocity means that a given quantity of money is associated with a greater dollar volume of transactions.
Willful Blindness
The act of permitting illegal activity to occur, knowing it was taking place. The standard of what constitutes knowledge is a legal definition. In the U.S., this generally means knowing or suspecting. The fringe question is whether a party should have known, given the facts or circumstances or whether knowledge was deliberately avoided. A person found willfully blind is treated under the law as though he or she had actual knowledge of the activity.
Wire Transfers One of the two major methods of electronic funds transfer. Only the payer can originate the remittance. A wire transfer’s information format is completely flexible, but this flexibility adds significantly to the bank’s labor costs and results in much higher fees.
Wolfsberg Group
Consists of leading international banks that formulate AML guidelines, procedures and preventive measures.
Yield The return on a loan or investment, stated as a percentage of price.
