IATI Diploma cheat sheet

Money laundering stages: placement (introducing illicit cash into the financial system), layering (obscuring the source through complex transactions), and integration (reintroducing laundered funds as legitimate assets).

Terrorist financing differs from money laundering because the funds may originate from legitimate sources; the objective is to conceal the destination and purpose rather than the source.

Predicate offences are the underlying crimes that generate proceeds; AML obligations typically apply once proceeds of any predicate offence enter the financial system.

The three core AML/CTF obligations for financial institutions are customer due diligence, ongoing monitoring, and reporting of suspicious transactions.

A suspicious transaction is one that is inconsistent with the customer's known profile, business, or the expected pattern of activity for that product.

The Financial Action Task Force (FATF) is the global standard-setter; its 40 Recommendations form the basis of national AML/CTF regimes.

Risk-based approach means allocating more resources to higher-risk customers, products, and jurisdictions, and less to lower-risk ones.

Money laundering is a process, not a single act; detection therefore depends on monitoring relationships and patterns over time, not only individual transactions.

FATF Recommendations cover AML/CTF, proliferation financing, and transparency; they are not legally binding but are implemented through national law and supervised compliance.

The FATF mutual evaluation process assesses a country's technical compliance (laws and regulations) and effectiveness (outcomes in practice).

The Wolfsberg Group publishes industry guidance on CDD, correspondent banking, and payment transparency; adherence is voluntary but often referenced by regulators.

The Basel Committee on Banking Supervision sets core principles for customer due diligence and account opening in the banking sector.

The UN Convention against Illicit Traffic in Narcotic Drugs (Vienna Convention) and the UN Convention against Transnational Organized Crime (Palermo Convention) provide the international legal basis for criminalizing money laundering.

The UN International Convention for the Suppression of the Financing of Terrorism (1999) requires states to criminalize terrorist financing and implement targeted financial sanctions.

FATF Recommendation 15 requires countries and virtual asset service providers to assess and mitigate money laundering and terrorist financing risks associated with virtual assets.

The Egmont Group facilitates international cooperation and information exchange among financial intelligence units (FIUs).

Risk = likelihood × impact; in AML/CTF, likelihood is the probability of the institution being used for money laundering or terrorist financing, and impact is the severity of consequences.

Inherent risk is the risk before controls; residual risk is the risk remaining after controls are applied.

Customer risk factors include occupation, source of wealth, geographic location, and the nature of the business relationship.

Product/service risk factors include anonymity, cash intensity, cross-border capability, and complexity of the product.

Country/geographic risk factors include FATF call-for-action jurisdictions, weak AML/CTF regimes, corruption, and sanctions exposure.

A business-wide risk assessment (BWRA) identifies and documents the institution's overall ML/TF risk profile; it should be reviewed periodically and when material changes occur.

Customer risk rating (low, medium, high) determines the level of due diligence and monitoring applied to each relationship.

Risk-based approach requires that enhanced due diligence be applied to higher-risk relationships and simplified due diligence only where lower risk is demonstrably justified.

CDD measures: identify the customer, verify identity using reliable independent sources, identify the beneficial owner, understand the purpose and intended nature of the relationship, and conduct ongoing monitoring.

A beneficial owner is a natural person who ultimately owns or controls a legal entity or arrangement; common thresholds are 25% ownership or control, but control can also arise through other means.

For legal entities, CDD includes verifying the entity's existence, ownership structure, and the identity of its directors and beneficial owners.

Simplified due diligence may be applied only where the risk of ML/TF is low and the institution documents the basis for that determination.

CDD must be completed before establishing a business relationship or carrying out an occasional transaction above the applicable threshold, except where permitted by law to complete it shortly after.

Ongoing monitoring includes keeping CDD information up to date and reviewing transactions against the customer's expected activity profile.

Politically exposed persons (PEPs) are individuals entrusted with prominent public functions, their family members, and close associates; they require enhanced due diligence.

If CDD cannot be completed, the institution should not establish the relationship, should consider terminating an existing one, and should consider filing a suspicious transaction report.

Enhanced due diligence (EDD) includes additional measures beyond standard CDD, such as obtaining senior management approval, establishing source of wealth and source of funds, and conducting more frequent monitoring.

EDD is required for politically exposed persons (PEPs), correspondent relationships with respondent institutions in other jurisdictions, and customers in higher-risk countries.

Source of wealth refers to how the customer accumulated their overall wealth; source of funds refers to the origin of the specific funds involved in the relationship or transaction.

Senior management approval is a mandatory EDD measure before establishing or continuing a high-risk relationship.

Enhanced monitoring for high-risk relationships may include more frequent transaction reviews, lower thresholds for escalation, and periodic relationship reviews.

Correspondent banking EDD includes understanding the respondent bank's business, reputation, AML/CTF controls, and the nature of the transactions to be processed.

Shell banks (institutions with no physical presence in any country) should not be permitted as correspondent customers.

High-risk relationships should be reviewed at least annually, or more frequently if the risk profile warrants.

Transaction monitoring systems use rules, thresholds, and behavioural analytics to detect activity inconsistent with a customer's expected profile.

Alerts generated by monitoring systems must be investigated, documented, and either escalated or closed with a rationale.

A suspicious activity report (SAR) or suspicious transaction report (STR) is filed with the national financial intelligence unit (FIU) when there are reasonable grounds to suspect money laundering or terrorist financing.

The threshold for suspicion is objective: it is based on what a reasonable person would suspect given the facts, not on proof of criminality.

Tipping off (disclosing to the customer that a report has been or will be filed) is a criminal offence in many jurisdictions.

Record-keeping requirements typically mandate retention of CDD records and transaction records for at least five years after the end of the relationship or the transaction.

Red flags include structuring (transactions just below reporting thresholds), unusual cash activity, rapid movement of funds, and transactions with no apparent economic purpose.

The FIU analyses SARs/STRs and disseminates intelligence to law enforcement and other authorities; filing a report does not automatically trigger a criminal investigation.

Targeted financial sanctions require freezing without delay the funds and economic resources of designated persons and entities, and prohibiting making funds or resources available to them.

Sanctions lists include UN Security Council consolidated lists, national lists (e.g., OFAC, EU, UK OFSI), and regional lists.

Screening must be conducted against all applicable sanctions lists at onboarding and on an ongoing basis as lists are updated.

A sanctions hit requires investigation, and if confirmed, freezing of assets and reporting to the competent authority without delay.

Strict liability applies in some jurisdictions: a breach can occur even without knowledge or intent.

Sanctions screening should cover customers, beneficial owners, directors, and relevant counterparties.

Ownership and control tests extend sanctions to entities owned or controlled by designated persons, even if the entity itself is not listed.

Proliferation financing refers to providing funds or financial services for the proliferation of weapons of mass destruction; it is addressed through targeted financial sanctions and other measures.

An effective AML/CTF programme includes a designated compliance officer, written policies and procedures, employee training, independent testing, and customer due diligence.

The compliance officer (or MLRO) is responsible for overseeing the programme, receiving internal suspicious activity reports, and filing reports with the FIU.

Senior management and the board are responsible for approving the AML/CTF programme and ensuring adequate resources for compliance.

Independent testing (audit) should be conducted periodically to assess the effectiveness of the AML/CTF programme and controls.

Training should be role-based, documented, and refreshed regularly; it should cover red flags, reporting obligations, and sanctions screening.

Record-keeping and retention policies must ensure that CDD and transaction records are available to regulators and law enforcement upon request.

A whistleblowing or confidential reporting channel should be available for employees to report suspected violations without fear of retaliation.

Group-wide compliance programmes should apply AML/CTF standards across all branches and subsidiaries, including those in other jurisdictions.