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AML Glossary (2025 Edition) – 120 Essential Anti-Money Laundering Definitions

This AML Glossary provides clear, simplified definitions of the most important Anti-Money Laundering (AML), KYC, sanctions, and financial crime terms used globally. It is designed for compliance analysts, onboarding teams, transaction monitoring specialists, investigators, and AML/KYC professionals preparing for certifications.

Below are the first 30 definitions as part of the complete 120-term glossary.

Short answer:
This glossary is your quick-reference guide for AML concepts used in onboarding, transaction monitoring, customer due diligence, sanctions screening, and investigations.

AML Glossary – Definitions 1–30

1. Anti-Money Laundering (AML): Processes, laws, and controls used to detect, prevent, and report financial crimes like money laundering and terrorist financing.
2. Money Laundering: The process of disguising illegally obtained money to make it appear legitimate, often involving placement, layering, and integration.
3. Customer Due Diligence (CDD): Standard identity verification and risk assessment performed on customers before onboarding.
4. Enhanced Due Diligence (EDD): Additional checks performed on high-risk customers, including source of funds, adverse media checks, and deeper verification.
5. Simplified Due Diligence (SDD): Reduced identity verification requirements applied to low-risk customers or low-risk financial products.
6. Beneficial Owner (BO): The person who ultimately owns or controls a customer, even if ownership is indirect or through multiple layers.
7. Ultimate Beneficial Owner (UBO): The individual with ultimate control or ownership (typically ≥25%) in a company; essential for corporate KYC.
8. Politically Exposed Person (PEP): Individuals with prominent public roles and higher exposure to corruption risks. Includes family members and associates.
9. Sanctions Screening: Checking customers against global sanctions lists (UN, OFAC, EU, UK) to prevent prohibited dealings.
10. Transaction Monitoring (TM): Ongoing monitoring of transactions to detect suspicious or unusual patterns that may indicate financial crime.
11. Suspicious Activity Report (SAR): A confidential report financial institutions must file when suspicious activity is identified.
12. Suspicious Transaction Report (STR): Similar to SAR but focused specifically on suspicious transactions rather than broader customer behavior.
13. Source of Funds (SOF): Explanation or documentation showing how money used in a specific transaction was obtained.
14. Source of Wealth (SOW): Description of how a customer accumulated their overall wealth — critical for PEP and high-risk reviews.
15. FATF (Financial Action Task Force): Global intergovernmental organization that sets AML/CFT standards and assesses countries through mutual evaluations.
16. FATF Grey List: Countries under increased monitoring due to strategic AML/CFT deficiencies requiring remediation.
17. FATF Blacklist: High-risk countries subject to countermeasures due to severe AML/CFT weaknesses.
18. Shell Company: A company with no genuine operations, often used to hide ownership or launder funds.
19. Front Company: A seemingly legitimate business used to disguise illicit operations or money laundering activities.
20. Layering: The stage of money laundering where funds are moved through complex transactions to obscure their origin.
21. Integration: The stage where laundered funds re-enter the legitimate economy as clean money.
22. Structuring (Smurfing): Breaking large transactions into smaller ones to evade reporting thresholds and detection systems.
23. Red Flags: Indicators suggesting potential money laundering, sanctions evasion, or financial crime risk.
24. Name Screening: Checking a customer’s name against sanctions lists, PEP databases, law enforcement lists, and adverse media.
25. Adverse Media Screening: Searching public and media sources for negative information linked to a customer.
26. Risk-Based Approach (RBA): A framework where riskier customers receive enhanced scrutiny and lower-risk customers receive simplified checks.
27. Geographic Risk: Risk associated with customers, transactions, or business activities linked to high-risk jurisdictions.
28. Transaction Risk: Risk from abnormal, inconsistent, or unusual transaction patterns or values.
29. Customer Risk Rating (CRR): A score assigned to customers based on their risk profile and due-diligence data.
30. Correspondent Banking: A banking relationship where one financial institution provides services on behalf of another; considered high risk due to cross-border complexity.

31. Counterparty Risk: The risk that another party in a transaction may be engaged in illegal activity or pose AML concerns.
32. KYC Refresh (Periodic Review): Reassessment of customer information at scheduled intervals, based on the customer’s risk rating.
33. Trigger-Based Review: A KYC review initiated due to significant changes, such as unusual transactions, new adverse media, or sanctions hits.
34. High-Risk Jurisdiction: A region with weak AML controls, corruption, sanctions exposure, or FATF grey/black list status.
35. Cross-Border Payments: Transactions between different countries, requiring enhanced AML scrutiny due to complexity and diverse regulations.
36. Wire Transfer: Electronic transfer of funds between banks, often monitored closely for potential money laundering risks.
37. Intermediary Bank: A bank acting between two financial institutions during a cross-border transaction; often a monitoring focus.
38. Hawala / Informal Value Transfer System (IVTS): An informal money transfer network outside traditional banking systems, frequently exploited for money laundering.
39. Nested Banking: When a bank accesses another bank’s correspondent account indirectly, often increasing AML and sanctions risks.
40. Wire-Stripping: Removing or altering transaction details to conceal the involvement of a sanctioned entity or jurisdiction.
41. Beneficiary: The person receiving a payment or benefit from a financial transaction or account.
42. Originator: The person or entity initiating a financial transaction; key data element in wire transfers.
43. Transaction Pattern Analysis: Studying customer behavior patterns to identify anomalies or suspicious activity in transaction monitoring systems.
44. Account Takeover Fraud: When a criminal gains unauthorized access to a customer’s account for fraudulent activity, triggering AML red flags.
45. Identity Theft: Illegally using someone else’s identity to commit fraud, financial crime, or bypass KYC checks.
46. Fraudulent Documents: Fake or altered documents used during onboarding to hide customer identity or financial activities.
47. Adverse Media Hit: A negative news item associated with a customer, requiring review to confirm identity and severity.
48. Red Flag Indicators (RFIs): Specific behaviors or patterns that point to higher likelihood of criminal financial activity.
49. Threshold-Based Alerts: AML alerts triggered when a transaction exceeds a predefined value set by monitoring systems.
50. Behavioral Alerts: Alerts triggered by unusual customer behavior rather than monetary thresholds.
51. Alert Disposition: The final outcome of an AML alert (closed, escalated, or SAR/STR filed).
52. False Positive: An alert incorrectly identifying a customer as suspicious or high-risk.
53. True Positive: A valid match or alert where the AML risk is confirmed as genuine.
54. Escalation: The process of forwarding an alert or case to higher-level reviewers or specialized compliance teams.
55. Case Management: Documenting all evidence and handling alerts in a structured case workflow for investigation or reporting.
56. Transaction Reversal: Rejecting or reversing a transaction due to sanctions risk, suspicious patterns, or policy concerns.
57. Black Market Peso Exchange (BMPE): A criminal money laundering system where illicit USD are exchanged for local currency using brokers.
58. Digital Identity Verification: Verification of identity using biometrics, face match, document scanning, or AI-based tools.
59. Forensic Accounting: Specialized financial investigation techniques to track illicit funds and reconstruct money flows.
60. Placement: The first stage of money laundering where illegal funds enter the financial system.

61. Sanctions Evasion: Attempting to bypass international sanctions through false documentation, shell entities, rerouting payments, or obscuring ultimate beneficiaries.
62. OFAC (Office of Foreign Assets Control): The U.S. authority responsible for administering and enforcing economic and trade sanctions programs.
63. Sanctions List: A list of individuals, entities, vessels, or countries subject to restrictions by bodies such as OFAC, UN, EU, or UK authorities.
64. UN Sanctions: Sanctions imposed by the United Nations Security Council targeting terrorism, proliferation, or human rights violations.
65. EU Restrictive Measures: European Union sanctions targeting individuals, companies, and sectors based on foreign policy and security concerns.
66. UK OFSI Sanctions: Sanctions enforced by the UK’s Office of Financial Sanctions Implementation (OFSI) following post-Brexit regulation.
67. Sectoral Sanctions: Targeted sanctions applied to specific industries (e.g., energy, finance, defense) rather than individuals or countries.
68. Enhanced Sanctions Screening: Additional checks applied when dealing with high-risk customers, industries, or jurisdictions under sanction programs.
69. Dual-Use Goods: Items that have both civilian and military applications; subject to export controls and heightened AML/sanctions oversight.
70. Export Control Violations: Violations related to the illegal sale, transfer, or shipment of restricted goods or technology.
71. Correspondent Account: An account established by a bank to receive deposits or conduct business on behalf of another financial institution.
72. Nested Relationship: When multiple foreign banks access a single correspondent account, increasing AML and sanctions risks.
73. Trade-Based Money Laundering (TBML): Laundering money using international trade transactions through mispricing, over/under invoicing, or false documentation.
74. Human Trafficking Red Flags: Financial indicators suggesting exploitation, such as multiple wage deposits into a single account or rapid cash withdrawals.
75. Terrorist Financing (TF): Providing or collecting funds to support terrorist acts or organizations, even when funds originate from legitimate sources.
76. Proliferation Financing: Financing activities related to weapons of mass destruction, subject to strict global sanctions controls.
77. Money Mule: A person who transfers or receives illegally obtained money on behalf of criminals, sometimes without fully understanding the scheme.
78. Structuring Ring: A coordinated group carrying out multiple structured deposits or withdrawals to evade AML thresholds and reports.
79. Placement Account: An account used during the initial placement phase of money laundering to introduce illicit cash into the financial system.
80. Crypto Mixers / Tumblers: Services that obscure the origin of cryptocurrency by mixing multiple users’ funds, creating AML and sanctions risks.
81. On-Chain Analysis: Tracking cryptocurrency movements on public blockchains to identify suspicious wallets, clusters, and transaction patterns.
82. Travel Rule: A regulation requiring VASPs and financial institutions to share sender and receiver information for qualifying transfers.
83. VASP (Virtual Asset Service Provider): A business that conducts exchange, transfer, safekeeping, or administration of virtual assets on behalf of customers.
84. Decentralized Finance (DeFi): A blockchain-based financial ecosystem operating without traditional intermediaries, increasing AML and KYC challenges.
85. NFT Money Laundering: Using inflated NFT prices, self-trading, or wash trading to disguise illicit funds in digital asset markets.
86. CFT (Combating the Financing of Terrorism): Measures aimed at identifying, disrupting, and preventing the flow of funds to terrorist organizations or activities.
87. Financial Crime Risk Assessment (FCRA): A structured assessment used to identify and manage AML, sanctions, fraud, and terrorist financing risks within an institution.
88. Know Your Business (KYB): Due diligence performed on corporate customers to verify legal status, ownership, directors, and UBOs.
89. Legal Entity Identifier (LEI): A unique 20-character identifier assigned to legal entities to enhance transparency in global financial transactions.
90. Risk Appetite: The level and type of financial crime risk an institution is willing to accept while pursuing its business objectives.

91. MLRO (Money Laundering Reporting Officer): A senior compliance officer responsible for receiving internal suspicious activity reports and deciding whether to file SAR/STRs with authorities.
92. Risk Mitigation Measures: Controls implemented to reduce identified AML, fraud, or sanctions risks to acceptable levels.
93. 4th AML Directive: A major European framework introducing risk-based AML approaches, UBO transparency, and enhanced PEP controls.
94. 5th AML Directive (5AMLD): EU regulation expanding AML rules to cryptocurrencies, prepaid cards, virtual asset providers, and beneficial ownership registers.
95. 6th AML Directive (6AMLD): Introduced a unified definition of money laundering, harsher penalties, and criminal liability for organizations.
96. Compliance Risk: Risk of legal or regulatory sanctions, financial loss, or reputational damage due to failure to follow AML laws or internal policies.
97. Enterprise-Wide Risk Assessment (EWRA): A holistic assessment of money laundering, fraud, terrorist financing, and sanctions risks across an entire organization.
98. Model Validation: Independent testing of AML systems to ensure transaction monitoring rules and models are effective and accurate.
99. Lookback Review: Historical analysis of transactions when regulators or auditors identify control weaknesses in AML monitoring.
100. De-Risking: When financial institutions terminate high-risk customers or business lines to reduce exposure rather than managing the risk.
101. FIU (Financial Intelligence Unit): A national authority that receives and analyzes suspicious activity reports (SAR/STR) from financial institutions.
102. Egmont Group: A global network of FIUs facilitating international cooperation on financial intelligence sharing.
103. Regulatory Reporting: Mandatory submission of SARs, STRs, CTRs, and other AML reports to government agencies.
104. CTR (Currency Transaction Report): A report filed when cash transactions exceed regulatory thresholds, often USD 10,000 or equivalent.
105. KYC Utility: A shared industry platform allowing multiple financial institutions to access verified customer due diligence information.
106. False Negative: When an AML system fails to detect a true risk, resulting in undetected suspicious activity.
107. Rule-Based Monitoring: Transaction monitoring using predefined thresholds or conditions (e.g., amount, frequency, geography).
108. AI-Based Monitoring: Using machine learning models to detect unusual behavior patterns beyond traditional rule-based alerts.
109. Model Drift: A decline in AML model accuracy over time as customer behavior or fraud typologies change.
110. Trigger Event: An event requiring immediate review of a customer, such as sanctions changes, new criminal charges, or sudden activity spikes.
111. Prohibited Transactions: Transactions legally restricted due to sanctions, embargoes, or AML violations.
112. High-Risk Products: Financial products with elevated AML exposure, such as private banking, correspondent accounts, or high-value transfers.
113. Beneficial Ownership Transparency: Measures requiring disclosure of individuals who ultimately control or benefit from corporate structures.
114. Ultimate Effective Control: Identifying who has actual decision-making power within a business beyond formal ownership percentages.
115. ML/TF Typologies: Patterns, behaviors, or case studies indicating how criminals launder money or finance terrorism.
116. Red Flag Governance: A framework determining how institutions identify, document, escalate, and track red flags across teams.
117. CDD File: A complete file containing customer identification docs, UBO information, risk assessments, and due diligence notes.
118. Client Exit / Offboarding: Termination of a customer relationship due to excessive AML risk, failure to provide documentation, or sanctions exposure.
119. Reputational Risk: The potential damage to an institution’s reputation due to association with criminal activity or regulatory breaches.
120. AML Governance Framework: The complete set of policies, controls, systems, oversight structures, and accountability mechanisms used to manage AML risk at an institutional level.

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AML Glossary (120 Definitions)

AML Glossary (2025 Edition) – 120 Essential Anti-Money Laundering Definitions

AML Glossary – Definitions 1–30

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AML Glossary (120 Definitions)

AML Glossary (2025 Edition) – 120 Essential Anti-Money Laundering Definitions

AML Glossary – Definitions 1–30

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