CAFP flashcards

34 cards. Read the term and the definition here. The deck at the top of this page is optional.

Placement stage

The first laundering stage, in which illicit cash enters the financial system through deposits, currency exchanges, casinos, or cash-intensive businesses, creating the first link between the criminal proceeds and the legitimate economy.

Layering stage

The second laundering stage, using transfers, shell companies, trades, and conversions to obscure the audit trail and separate proceeds from their source, making tracing difficult for investigators.

FATF Recommendation 15

Requires virtual asset service providers to be registered or licensed, supervised for AML/CFT, and subject to preventive measures including customer due diligence, recordkeeping, and suspicious transaction reporting.

Risk-based approach

An approach under which institutions allocate compliance resources proportionate to assessed money laundering and terrorist financing risk, applying enhanced measures to higher-risk relationships and simplified measures only to lower-risk ones.

Wolfsberg Principles

Private-sector guidance from the Wolfsberg Group setting expectations for customer due diligence, correspondent banking, politically exposed persons, and payment transparency; they are not legally binding instruments.

Customer Identification Program

A written US programme required by PATRIOT Act Section 326 that collects name, date of birth, address, and identification number, verifies identity within a reasonable time, and retains records.

Section 314(b) safe harbor

A USA PATRIOT Act provision permitting financial institutions that have registered with FinCEN to share information with each other about suspected money laundering or terrorist financing without liability.

Section 311 special measures

Authority for the US Treasury to impose special measures, such as recordkeeping and reporting requirements or correspondent account prohibitions, on jurisdictions or institutions of primary money laundering concern.

Foreign shell bank prohibition

PATRIOT Act Section 313 bars US financial institutions from maintaining correspondent accounts for foreign banks that have no physical presence in any jurisdiction and are unaffiliated with a regulated depository institution.

Fifth Anti-Money Laundering Directive

EU Directive 2018/843, which extended AML obligations to virtual asset service providers, expanded access to beneficial ownership registers, and strengthened measures against high-risk third countries.

Beneficial owner threshold

Under the US CDD Rule, each natural person owning 25 percent or more of a legal entity directly or indirectly, plus one individual with significant managerial control over the entity.

Politically exposed person

An individual entrusted with a prominent public function, along with family members and close associates, who presents higher corruption risk and requires enhanced due diligence and senior management approval.

Enhanced due diligence

Additional measures applied to higher-risk relationships, including source of wealth and funds verification, senior management approval, deeper ownership analysis, and more frequent monitoring of account activity.

Simplified due diligence

Reduced CDD measures permitted only where the institution documents that the relationship presents demonstrably lower risk; it is never allowed when money laundering is suspected.

Indirect ownership calculation

Ownership through intermediate entities is computed by multiplying percentages along the ownership chain, so a 50 percent stake in an entity holding 50 percent of another equals 25 percent.

SAR filing deadline

US institutions must file a suspicious activity report within 30 calendar days of initial detection, extendable to 60 days when no suspect is identified; continuing activity needs follow-up within 120 days.

Structuring

Deliberately arranging currency transactions below the 10,000 dollar reporting threshold to evade the reporting requirement; it is a criminal offence regardless of whether the underlying funds are legitimate.

Currency transaction report

A US filing required for currency transactions exceeding 10,000 dollars in one business day by or for one person, with aggregation of multiple transactions and limited exemptions for qualifying customers.

Tipping off

Disclosing to a customer or third party that a suspicious activity report has been or will be filed; it is prohibited and criminal in many jurisdictions because it can compromise investigations.

Alert tuning

Adjusting monitoring scenario thresholds and parameters using data on alert volumes, false positives, and confirmed cases, to improve detection while keeping investigative capacity manageable and documented.

OFAC 50 percent rule

An entity is treated as blocked if one or more blocked persons own, directly or indirectly, 50 percent or more of it in aggregate, even if the entity itself does not appear on the list.

Strict liability sanctions

US civil sanctions enforcement does not require proof of knowledge or intent; a violation can be established by the prohibited transaction itself, with intent affecting penalty severity rather than liability.

Sectoral sanctions list

Designations that restrict specific dealings, such as new debt or equity transactions, with named Russian entities rather than blocking all property and interests in property.

Fuzzy name screening

Matching customer and counterparty names against sanctions lists using algorithms that tolerate spelling variation and transliteration differences, producing candidate hits that analysts must adjudicate and document.

UK Bribery Act Section 7

Creates a corporate offence where a commercial organisation fails to prevent a person associated with it from bribing another, with a defence of having adequate procedures in place.

Trade-based money laundering

Moving value across borders by misrepresenting the price, quantity, or quality of goods in trade transactions, often using over-invoicing, under-invoicing, or phantom shipments.

FCPA accounting provisions

US Foreign Corrupt Practices Act requirements that issuers keep accurate books and records and maintain a system of internal accounting controls covering transactions and asset safeguarding.

Terrorist financing distinction

Unlike money laundering, terrorist financing may involve small sums from legitimate sources; detection focuses on destination, intended use, and links to designated persons or conflict zones.

Independent testing

Periodic AML programme review by internal audit or an external party not involved in the programme, assessing policy, CDD, monitoring, and reporting, with findings tracked to remediation.

Residual risk

The risk remaining after controls are applied, derived by assessing inherent risk across customers, products, channels, and geographies and then evaluating the effectiveness of mitigating controls.

Financial Intelligence Unit

A national body that receives, analyses, and disseminates suspicious transaction reports and other financial intelligence to law enforcement and international counterparts, operating under administrative, law enforcement, or judicial models.

Egmont Group

An international network of financial intelligence units that supports secure information exchange, provides training, and promotes standards for FIU cooperation through channels such as the Egmont Secure Web.

Travel rule for virtual assets

A FATF requirement that originating and beneficiary virtual asset service providers exchange originator and beneficiary information on transfers, mirroring the wire transfer transparency standard.

Synthetic identity fraud

Fraud using a fabricated identity combining real and false data, such as a real Social Security number with an invented name, which can evade matching against credit bureau and watchlist records.