Financial crime is a pervasive and evolving issue in the world of finance and commerce. To navigate this complex landscape, it’s essential to understand the terminology associated with various financial crimes, regulations, and risk management strategies. This glossary provides concise definitions for key terms and concepts related to financial crime prevention and detection.
Account Takeover (ATO): Account takeover refers to the unauthorized access and control of someone else’s financial account. Cybercriminals often engage in ATO to steal funds or sensitive information.
Anti Money Laundering (AML): Anti Money Laundering refers to a set of laws, regulations, and procedures designed to prevent the illegal generation of income and the disguising of its origins through various financial transactions.
Anti-Money Laundering (AML) Software: AML software is a tool used by financial institutions to automate the process of monitoring customer transactions and identifying suspicious activities that may indicate money laundering.
Application Fraud: Application fraud occurs when individuals or entities provide false information or documents when applying for financial products or services, such as loans or credit cards.
Appointed Representative: An appointed representative is an individual or entity authorized to act on behalf of a regulated firm to perform specific activities, such as selling financial products.
Approved Reporting Mechanism: An approved reporting mechanism is an entity authorized to receive and process reports of suspicious activities or market abuse from financial institutions and market participants.
Artificial Intelligence (AI): AI refers to computer systems capable of performing tasks that typically require human intelligence, such as pattern recognition and decision-making.
Authorized Fraud: Authorized fraud occurs when a person with legitimate access to financial systems or accounts engages in fraudulent activities.
Authorized Push Payment: An authorized push payment is a type of payment where the payer authorizes the transfer of funds to another party, often through online banking or mobile apps.
Automated Clearing House (ACH): ACH is an electronic network used for processing various financial transactions, including direct deposits, bill payments, and fund transfers.
Bank Secrecy Act (BSA): The Bank Secrecy Act is a U.S. law requiring financial institutions to maintain certain records and report transactions that may involve money laundering or other illicit activities.
Batch Processing: Batch processing is the execution of a series of computer jobs (programs) without manual intervention, typically used for tasks like transaction processing.
Batch Screening: Batch screening involves the automated analysis of a batch of financial transactions or customer data to identify suspicious activities.
Beneficial Ownership and Ultimate Beneficial Owner (UBO): Beneficial ownership refers to the individuals or entities that ultimately benefit from or control an asset or financial account. UBO disclosure is crucial in preventing money laundering and fraud.
Behavioral Analytics: Behavioral analytics uses patterns of behavior to detect anomalies or potential fraud, often applied in cybersecurity and fraud prevention.
Best Execution: Best execution is a legal requirement for financial firms to execute client orders at the most favorable terms possible.
Blacklist: A blacklist is a list of individuals, entities, or countries restricted or prohibited from engaging in certain financial activities or transactions.
Business Email Compromise (BEC) Fraud: BEC fraud involves cybercriminals using compromised email accounts to deceive individuals or organizations into making fraudulent payments or revealing sensitive information.
Cardholder: A cardholder is an individual or entity that owns and uses a payment card, such as a credit card or debit card.
Cash-Intensive Business: A cash-intensive business primarily deals with cash transactions, making it more susceptible to money laundering and fraud risks.
Check Fraud: Check fraud involves the fraudulent use or alteration of checks to steal money or goods.
Citizen Fraudster: A citizen fraudster is an individual who commits fraud against government agencies or programs.
Commodity Futures Trading Commission: The Commodity Futures Trading Commission (CFTC) is a U.S. government agency responsible for regulating commodity futures and options markets.
Communications Surveillance: Communications surveillance involves monitoring electronic communications, such as emails and phone calls, to detect and prevent illegal activities.
Compliance: Compliance refers to adhering to laws, regulations, and industry standards to ensure that financial activities are conducted legally and ethically.
Compliance Risk: Compliance risk is the potential risk of financial or reputational loss resulting from violations of laws, regulations, or internal policies.
Conduct Risk: Conduct risk refers to the risk that a financial institution’s behavior or actions may lead to financial loss or harm to customers and stakeholders.
Conflicts of Interest: Conflicts of interest occur when individuals or entities have competing interests that could compromise their objectivity or integrity in financial transactions or decision-making.
Consolidated Tape Provider: A consolidated tape provider is an entity responsible for collecting and disseminating real-time financial market data.
Consumer Duty: Consumer duty refers to the responsibility of financial institutions to act in the best interests of their customers.
Control Effectiveness: Control effectiveness assesses the efficiency of risk management and compliance controls within a financial institution.
Control Room: A control room is a specialized department within a financial institution responsible for monitoring and managing conflicts of interest.
Correspondent Banking: Correspondent banking involves financial institutions providing services to other banks, often in different countries, to facilitate cross-border transactions.
Currency Transaction Report (CTR): A CTR is a report filed by financial institutions to report cash transactions exceeding a certain threshold to authorities, helping detect potential money laundering.
Customer Due Diligence (CDD): CDD is the process of verifying the identity of customers to assess their risk level and prevent money laundering and fraud.
Customer Fraud: Customer fraud refers to fraudulent activities committed by individuals against businesses or financial institutions.
Customer Identification Program (CIP): CIP is a set of procedures used by financial institutions to verify the identity of customers when opening accounts.
Designated Categories of Offense: Designated categories of offense refer to specific criminal activities categorized for regulatory reporting purposes.
Detection Management Capabilities: Detection management capabilities involve the technology and processes used to identify and respond to suspicious activities and financial crimes.
Dodd–Frank Wall Street Reform and Consumer Protection Act: The Dodd-Frank Act is a U.S. law aimed at regulating the financial industry and improving consumer protection.
Domestic Transfer: A domestic transfer is a financial transaction conducted within the same country, as opposed to international transfers.
Dual-Use Goods: Dual-use goods are items or technologies with both civilian and military applications, often subject to export controls.
eComms Surveillance: eComms surveillance involves monitoring electronic communications related to financial activities, including emails and instant messages.
Electronic Funds Transfer (EFT): An EFT is the electronic transfer of funds from one bank account to another, often used for various financial transactions.
Electronic Money (E-Money): Electronic money is a digital representation of money stored electronically, often used for online payments.
Enhanced Due Diligence (EDD): EDD is a more thorough form of due diligence conducted on high-risk customers to assess and mitigate potential financial crime risks.
European Market Infrastructure Regulation: The European Market Infrastructure Regulation (EMIR) is a European Union regulation governing over-the-counter derivatives markets.
European Securities And Markets Authority: The European Securities and Markets Authority (ESMA) is an EU authority responsible for regulating securities and markets.
False Positive: A false positive occurs when a fraud detection system incorrectly identifies a legitimate transaction or activity as suspicious.
FedNow: FedNow is a real-time payment system in the United States, facilitating instant money transfers.
Fiat Money: Fiat money is a government-issued currency that is not backed by a physical commodity like gold but has value due to government decree.
Financial Action Task Force (FATF): FATF is an intergovernmental organization that sets international standards for anti-money laundering and counter-terrorism financing.
Financial Conduct Authority: The Financial Conduct Authority (FCA) is a regulatory body in the UK responsible for overseeing financial markets and firms.
Financial Industry Regulatory Authority: The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees securities firms in the United States.
Financial Intelligence Unit (FIU): An FIU is a government agency responsible for receiving, analyzing, and disseminating information related to financial crimes.
Financial Statement Fraud: Financial statement fraud involves the manipulation of financial statements to misrepresent a company’s financial health.
First Line of Defense: The first line of defense in a financial institution includes employees and departments directly involved in customer interactions and transactions.
Fraud Detection: Fraud detection involves the use of technology and analytics to identify and prevent fraudulent activities.
Fraud Management: Fraud management encompasses strategies and processes for preventing, detecting, and responding to fraudulent activities.
Fraud Prevention: Fraud prevention refers to measures and controls implemented to stop fraudulent activities from occurring.
Front Office: The front office in a financial institution includes customer-facing departments like sales and trading.
Front Running: Front running occurs when a financial professional executes orders on a security for their account while taking advantage of advance knowledge of pending orders from clients.
Gatekeepers: Gatekeepers are individuals or entities responsible for ensuring compliance with regulations and ethical standards in the financial industry.
General Data Protection Regulation (GDPR): GDPR is a European Union regulation that governs data protection and privacy for individuals.
Governance: Governance involves the framework of policies, procedures, and decision-making structures within an organization.
Identity Fraud and Identity Theft: Identity fraud and theft involve the unauthorized use of someone else’s personal information for financial gain.
Indication Of Interest (IoI): IoI is an expression of interest from a potential buyer or seller in a financial instrument.
Insider Dealing: Insider dealing refers to trading in securities based on non-public information, often illegal.
Integration Phase (of AML): Integration is the final stage of money laundering, where illicit funds are integrated into the legitimate economy.
International Monetary Fund (IMF): The IMF is an international organization that provides financial assistance and economic policy advice to member countries.
Know Your Customer (KYC): KYC is a process used by financial institutions to verify the identity of their customers and assess the risk associated with them.
Know Your Employee (KYE): KYE is a process used by financial institutions to screen and verify the background of their employees to prevent insider fraud.
Layering Phase (of AML): Layering is the second stage of money laundering, involving complex transactions to obscure the origin of illicit funds.
Lexicon: A lexicon is a collection of words or terms specific to a particular subject, such as financial crime.
Lexicon-Based Model: A lexicon-based model uses predefined lists of words or terms to detect and analyze specific language patterns, often used in sentiment analysis and fraud detection.
Limited Liability Company (LLC): An LLC is a legal business structure that provides limited liability protection to its owners.
Machine Learning: Machine learning is a subset of AI that involves the use of algorithms and statistical models to enable computers to learn and make predictions from data.
Market Abuse Regulation: Market Abuse Regulation (MAR) is a European regulation aimed at preventing market abuse and insider trading.
Markets In Financial Instruments Directive: The Markets in Financial Instruments Directive (MiFID) is a European Union law that regulates financial markets and services.
Market In Financial Instruments Regulation: Market in Financial Instruments Regulation (MiFIR) is a European regulation that complements MiFID by providing more detailed rules for financial markets.
Markets Surveillance: Markets surveillance involves monitoring financial markets for suspicious activities and market abuse.
Marking the Close: Marking the close involves placing orders or trades near the end of a trading session to influence the closing price.
Memorandum of Understanding (MOU): An MOU is a formal agreement between two or more parties, often used for cooperation in investigations and information sharing.
Mirror Trading: Mirror trading involves copying the trading strategies of other investors or traders.
Monetary Instruments: Monetary instruments are items like cash, traveler’s checks, and money orders that can be used to store or transfer value.
Money Laundering: Money laundering is the process of making illegally obtained money appear legitimate by concealing its true source.
Money Laundering in Capital Markets: Money laundering in capital markets involves the use of securities transactions to launder illicit funds.
Money Laundering Reporting Officer (MLRO): An MLRO is a designated individual in a financial institution responsible for reporting suspicious activities to authorities.
Money Mules: Money mules are individuals used by criminals to transfer and launder illicit funds.
Money Order: A money order is a payment method similar to a check, often used for secure transactions.
Money Services Business (MSB): An MSB is a financial entity that provides services like money transmission and currency exchange.
Natural Language Processing: Natural language processing is a field of AI that focuses on the interaction between computers and human language, often used for sentiment analysis and chatbots.
Nested Account: A nested account is a financial account held within another account, often used for layering in money laundering.
Non-Governmental Organization (NGO): An NGO is a non-profit organization that operates independently of government and often engages in humanitarian or social activities.
Offshore: Offshore refers to activities, entities, or accounts located in foreign jurisdictions, often used for tax evasion or money laundering.
Offshore Alert Center Model: The Offshore Alert Center Model is a system used to detect offshore tax evasion and financial crime.
Operational Risk: Operational risk is the risk of loss resulting from inadequate or failed internal processes, systems, people, or external events.
Originator: An originator is the party that initiates a financial transaction, such as a fund transfer.
Payment Fraud: Payment fraud involves fraudulent activities related to payments, including unauthorized transactions and identity theft.
Payment Screening: Payment screening is the process of checking transactions against sanctions lists and other databases to identify potential risks.
Personal Account Dealing: Personal account dealing refers to employees trading securities in their own accounts, which can pose conflicts of interest.
Phishing Scams: Phishing scams involve fraudulent attempts to obtain sensitive information, such as login credentials, by posing as a trustworthy entity.
Placement Phase (of AML): Placement is the first stage of money laundering, where illicit funds are introduced into the financial system.
Politically Exposed Person (PEP): A politically exposed person is an individual with a prominent public position, often subject to enhanced due diligence to prevent corruption and money laundering.
Ponzi Scheme: A Ponzi scheme is a fraudulent investment scheme that promises high returns to earlier investors using funds from new investors.
Predicate Crimes: Predicate crimes are the underlying criminal activities that generate illicit proceeds subject to money laundering.
Professional Fraudster: A professional fraudster is an individual or entity that engages in fraud as a primary occupation.
Promotional Abuse: Promotional abuse involves exploiting marketing promotions or offers for financial gain.
Pump and Dump: Pump and dump is a market manipulation scheme where the price of a security is artificially inflated and then sold off for profit.
Real-Time Gross Settlement Systems (RTGS): RTGS systems enable real-time settlement of high-value financial transactions, often used for interbank transfers.
Real-Time Processing: Real-time processing involves the immediate execution of financial transactions and data processing.
Red Flag: A red flag is a warning sign or indicator of potential fraudulent or suspicious activity.
Regulation Best Interest (Reg BI): Reg BI is a U.S. Securities and Exchange Commission (SEC) regulation requiring broker-dealers to act in the best interest of retail customers.
Regulatory Compliance: Regulatory compliance involves adhering to laws and regulations applicable to a specific industry, such as finance.
Reputational Risk: Reputational risk is the potential damage to an organization’s reputation resulting from negative publicity or actions.
Risk Appetite: Risk appetite is the level of risk an organization is willing to accept to achieve its objectives.
Risk Assessment: Risk assessment involves evaluating potential risks and their impact on an organization.
Risk-Based Approach: A risk-based approach involves tailoring compliance measures to the level of risk associated with customers, transactions, or products.
Rule Based Alerting Systems: Rule-based alerting systems use predefined rules and thresholds to flag potentially suspicious activities.
Sanctions: Sanctions are penalties or restrictions imposed on individuals, entities, or countries to achieve specific policy objectives.
Sanctions Compliance: Sanctions compliance involves ensuring that a financial institution does not engage in prohibited activities with sanctioned entities.
Sanctions List: A sanctions list is a list of individuals, entities, or countries subject to sanctions.
Second Line of Defense: The second line of defense in a financial institution includes risk management and compliance functions responsible for oversight and control.
Securities And Exchange Commission: The Securities and Exchange Commission (SEC) is a U.S. regulatory agency responsible for overseeing securities markets.
Securities Finance Transaction Regulation: Securities Finance Transaction Regulation (SFTR) is a European regulation aimed at improving transparency in securities financing markets.
Senior Managers and Certification Regime: The Senior Managers and Certification Regime (SM&CR) is a UK regulatory framework that enhances accountability in financial services.
Shell Bank: A shell bank is a financial institution with no physical presence in any country, often used for illicit purposes.
Shell Company: A shell company is a business with no significant operations or assets, often used for financial transactions or fraud.
Simplified Due Diligence (SDD): SDD is a streamlined form of due diligence applied to lower-risk customers during KYC processes.
SIM Swap Scam: A SIM swap scam involves fraudulently transferring a victim’s phone number to a new SIM card to gain access to their accounts.
Social Engineering: Social engineering is the manipulation of individuals into revealing confidential information or performing actions that compromise security.
Spoofing and Layering: Spoofing and layering are market manipulation techniques involving deceptive trading practices.
Structuring: Structuring involves breaking down large financial transactions into smaller amounts to evade reporting requirements.
Suitability: Suitability in finance refers to ensuring that investment recommendations align with a client’s financial situation and objectives.
Suspicious Activity: Suspicious activity refers to transactions or behavior that may indicate potential criminal or fraudulent activity.
Suspicious Activity Report (SAR): A SAR is a report filed by financial institutions to authorities when suspicious activities are detected.
Suspicious Transaction Activity Reporting (STAR): STAR is the process of reporting suspicious transactions to authorities.
Suspicious Transaction and Order Report (STOR): A suspicious transaction and order report (STOR) is a report filed by market participants to report potential market abuse.
Synthetic Fraud or Synthetic Identity Fraud: Synthetic fraud involves creating fictitious identities or combining real and fake information to commit fraud.
Tax Fraud: Tax fraud involves deliberately providing false information on tax returns to reduce tax liability.
Trade Reconstruction: Trade reconstruction involves reconstructing the details of financial transactions for regulatory compliance and investigations.
Trade Surveillance: Trade surveillance involves monitoring financial markets and transactions to detect and prevent market abuse.
Trading Venue: A trading venue is a platform where financial instruments are traded, such as stock exchanges or electronic trading systems.
Transaction Monitoring: Transaction monitoring is the continuous review of financial transactions to identify suspicious activities.
Transaction Monitoring and Filtering Programs (TMPs): TMPs are systems that monitor and filter financial transactions to identify potential risks.
Typology: A typology is a classification or pattern of financial crime used for analysis and detection.
Unique Trade Identifier (UTI): A unique trade identifier (UTI) is a code assigned to each financial transaction to facilitate tracking and reporting.
USA PATRIOT Act: The USA PATRIOT Act is a U.S. law aimed at combating terrorism and money laundering by enhancing financial institution compliance and reporting requirements.
Virtual Currency: Virtual currency refers to digital or cryptocurrencies like Bitcoin.
Voice-To-Text Solutions: Voice-to-text solutions convert spoken language into written text and are used for transcribing phone conversations and voice messages.
Wash Trading: Wash trading involves creating artificial trading activity by buying and selling the same security to manipulate prices.
Wire Transfer: A wire transfer is an electronic transfer of funds from one bank to another, often used for large or international transactions.
Understanding these terms is essential for professionals in the financial industry, regulatory authorities, and law enforcement agencies to combat financial crime effectively and maintain the integrity of the financial system. Stay updated on the evolving landscape of financial crime to implement robust prevention and detection measures.
