IAB Professional Practice key terms

The process of disguising the origin of money obtained from crime so it appears legitimate. It typically moves through placement, layering, and integration stages to break the link to the underlying offence.

The first stage of money laundering, where criminal cash enters the financial system. Examples include depositing small amounts across branches, buying assets, or using cash-intensive businesses to absorb illicit funds.

The stage of laundering that separates funds from their source through complex transactions. Rapid transfers, offshore accounts, shell companies, and converted assets are used to obscure the audit trail.

The final laundering stage, in which funds re-enter the legitimate economy looking clean. The criminal can then use them for investment, property purchase, or ordinary spending without attracting suspicion.

The underlying crime that generates proceeds requiring laundering, such as fraud, drug trafficking, or tax evasion. Supervisors expect firms to treat proceeds of any listed offence as reportable.

A confidential disclosure to the financial intelligence unit describing activity that may indicate laundering or terrorist financing. Firms file it promptly and must not tip off the customer that a report was made.

Disclosing to a customer or third party that a suspicious activity report has been filed or that an investigation is underway. It is a criminal offence because it can undermine detection and enforcement.

The checks a firm performs to identify and verify customers and understand their expected activity. It covers identity, beneficial ownership, purpose of the relationship, and ongoing monitoring.

Additional scrutiny applied to higher-risk relationships, such as politically exposed persons or customers in high-risk jurisdictions. It involves deeper source-of-funds checks, senior sign-off, and more frequent review.

Reduced verification measures permitted where the risk of laundering is demonstrably low, for example certain listed public bodies. The firm must still identify the customer and document why lower measures apply.

The natural person who ultimately owns or controls a customer or the funds involved, often identified by a shareholding threshold. Firms must look through corporate structures to find them.

A person entrusted with prominent public functions, plus close associates and family members. Their position creates higher corruption risk, so firms apply enhanced scrutiny and senior approval before onboarding.

Evidence showing where the money used in a transaction came from, such as salary, property sale, or inheritance. It differs from source of wealth, which explains the total accumulated fortune.

An explanation of how a customer accumulated their overall fortune, supported by documents such as business sale records or probate papers. It establishes the legitimacy of the whole relationship, not one payment.

Allocating compliance resources according to assessed risk rather than applying identical controls to everyone. Higher-risk customers receive more scrutiny, while lower-risk ones may receive proportionate, lighter measures.

A documented evaluation of how exposed a firm is to laundering and terrorist financing through its customers, products, channels, and countries. It drives the design of policies, controls, and monitoring thresholds.

Continuous review of transactions and relationships against the expected profile to spot unusual activity. It includes periodic refresh of customer information and scrutiny of transactions that fall outside the norm.

The overall process of establishing who a client is, what they do, and whether the relationship makes sense. It underpins onboarding decisions and feeds later monitoring and reporting.

The national body that receives and analyses suspicious activity reports and shares findings with law enforcement. Firms report to it and may receive requests for further information.

The regulator that monitors whether firms comply with anti-money laundering obligations. It can inspect, request records, impose remediation requirements, and sanction failures.

An entity with no meaningful operations or assets, often used to hold accounts or move money while hiding who controls it. Its opacity makes it a common laundering vehicle requiring close scrutiny.

Structuring cash deposits or withdrawals into small amounts to stay below reporting thresholds or avoid attention. It is a recognised red flag and may itself constitute a criminal offence.

A warning indicator suggesting possible laundering, such as unusually large cash payments, reluctance to provide identification, or transactions with no clear business purpose. Red flags prompt further enquiry and possible reporting.

Retaining customer identification, transaction, and correspondence records for the legally required period. Good records let a firm reconstruct decisions and demonstrate compliance during supervisory review.

A system recording every transaction twice, as an equal debit and credit, so total debits always equal total credits. It provides an internal check on accuracy and supports reliable financial statements.

The collection of accounts recording all transactions by category, such as sales, wages, or bank. Balances from the ledger feed the trial balance and the financial statements.

The main ledger holding all income, expense, asset, liability, and equity accounts. Each account has a code and accumulates postings that are summarised at period end.

A recorded transaction showing the accounts debited and credited, the amount, date, and explanation. Adjusting entries for accruals, depreciation, and corrections are posted this way.

A list of all ledger balances at a given date, split into debits and credits, used to check that they agree. It is the starting point for preparing financial statements.

The structured list of account codes and names a business uses to classify transactions. A well-designed chart supports consistent reporting and easier analysis.

Recognising income or expense in the period it is earned or incurred, regardless of when cash moves. Accruals ensure statements reflect activity accurately rather than only bank movements.

A payment made in advance for goods or services not yet received, carried as an asset until consumed. Insurance and rent paid ahead are common examples adjusted at period end.

Comparing the bank statement with the cash book to explain differences such as unpresented cheques or bank charges. It confirms the cash balance and detects errors or fraud.

A book recording receipts and payments through the bank and cash accounts. Its balance is reconciled to the bank statement and posted to the ledger.

The documented path showing how a figure was built up, from source documents through journals to reports. It allows reviewers to verify accuracy and trace adjustments.

The process of calculating and paying employee wages and salaries, including deductions, taxes, and pension contributions. It also covers record keeping and statutory reporting to authorities.

The total earnings an employee is due before any deductions, including basic salary, overtime, bonuses, and allowances. Deductions for tax and contributions are taken from this figure.

The amount an employee actually receives after tax, social security, pension, and other deductions. It equals gross pay minus all lawful deductions.

A system collecting income tax from wages as they are paid, rather than in a lump sum later. Employers withhold and remit it based on tax codes supplied by the revenue authority.

A reference used by an employer to calculate how much income tax to withhold from an employee's pay. It reflects the employee's allowances and any adjustments notified by the tax authority.

A social security contribution charged on earnings and paid by both employees and employers. It funds benefits and is calculated using earnings bands and thresholds.

A statement given to an employee each pay period showing gross pay, each deduction, and net pay. It provides evidence of earnings and helps resolve payment queries.

A reporting method requiring employers to send payroll data to the tax authority each time employees are paid. It keeps tax records current and supports benefit calculations.

A legal duty on employers to enrol eligible workers into a workplace pension and deduct contributions unless the worker opts out. Contributions are shared between employer and employee.

The minimum payment an employer must make to an eligible employee absent through illness, subject to qualifying days and waiting periods. It is paid through payroll and recorded as a deduction-free item.

A basis of accounting recording transactions when they occur rather than when cash changes hands. It matches revenue with the expenses incurred to earn it, giving a truer view of performance.

A statement showing assets, liabilities, and equity at a point in time. It demonstrates that assets equal liabilities plus equity and reveals the business's financial position.

A report of revenue and expenses over a period, arriving at profit or loss. It shows how the business performed and is often called the profit and loss account.

The systematic allocation of the cost of a fixed asset over its useful life. It spreads expense across periods that benefit from the asset rather than charging it all at purchase.

The assumption that a business will continue operating for the foreseeable future. If that assumption fails, assets may need revaluation and statements prepared on a different basis.

The threshold at which an omission or misstatement could influence a user's decisions. It guides how much detail is disclosed and where audit effort is focused.

The difference between current assets and current liabilities, showing short-term liquidity. Positive working capital suggests a business can meet obligations falling due within a year.