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Non-Governmental Organization (NGO) 
International organizations that are not directly linked to the governments of specific countries, such as 
Doctors without Borders and the International Red Cross. Some countries‘ anti- money laundering 
regulations for NGOs still have loopholes that some worry could be exploited by terrorists or terrorist 
sympathizers trying to secretly move money. 
 

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Non-Profit Organizations (NPO) 
These can take on a variety of forms, depending on the jurisdiction and legal system, including associations, 
foundations, fund-raising committees, community service organizations, corporations of public interest, 
limited companies and public benevolent institutions. FATF has suggested practices to help authorities 
protect organizations that raise or disburse funds for charitable, religious, cultural, educational, social or 
fraternal purposes from being misused or exploited by financiers of terrorism. 
Nostro Account 
Nostro and vostro accounts are mirror correspondent accounts maintained by two banks in different 
jurisdictions to facilitate transactions in each other‘s local currency—essentially, clearing accounts that 
balance foreign currency transactions between the two institutions. For example, Bank X from Brazil might 
open a U.S.-dollar account at Bank Y in the U.S., called a ―nostro‖ (literally ―our‖) account; Bank Y might 
open a mirror account in Brazilian reals with Bank X in Brazil—a ―vostro‖ (―your‖) account. Financial 
regulators have expressed concern over the transparency of nostro and vostro account relationships, 
especially when there are multiple layers of accounts within primary relationships. 
O
 
Office of Foreign Assets Control (OFAC) 
Office within the U.S. Department of the Treasury that administers and enforces economic and trade 
sanctions against targeted foreign countries, terrorism-sponsoring organizations, terrorists, international 
narcotics traffickers, 
and others based on U.S. foreign policy and national security goals. After September 11, 2001, OFAC 
became a significant player in the anti-money laundering field as well. The office issues various lists, 
including ―Specially Designated Narcotics Traffickers‖ and ―Specially Designated Terrorists,‖ and its 
regulations require U.S. persons, including financial institutions, to block and file reports on accounts, 
payments or transfers 
in which an OFAC-designated country, entity or individual 
has an interest. OFAC requirements have an extraterritorial reach because they require U.S. persons and 
entities located outside of the U.S. to comply. Independent of origin or final destination, if a U.S. financial 
institution acts as an intermediary for a transaction that involves an OFAC-designated entity, the funds must 
be blocked. 
 
 

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Offshore 
Literally, away from one‘s own home country—if one lives in Europe, the U.S. is ―offshore.‖ In the money 
laundering lexicon, the term refers to jurisdictions deemed favorable to foreign investments because of low 
or no taxation or strict bank secrecy regulations. 
Offshore Bank 
Though licensed to conduct banking activities, an offshore bank is prohibited from doing business with 
local citizens or in local currency as a condition of its license. 
Offshore Financial Center (OFC) 
Institutions that cater to or otherwise encourage banks, trading companies, and other corporate or legal 
entities to physically or legally exist in a jurisdiction but limit their operations to ―offshore,‖ meaning 
outside the jurisdiction (see Offshore). OFCs have historically been located in the Caribbean or on 
Mediterranean islands to be in reasonable proximity to the major financial centers of the U.S. and Europe. 
Offshore Group of Banking Supervisors (OGBS) 
Organization that promotes the supervision of banks in their jurisdictions and furthers international 
cooperation among Offshore Banking Supervisors, Basel Committee member nations, and other banking 
supervisors. The OGBS was established in 1980 at the instigation of the Basel Committee on Banking 
Supervision, with which it maintains close contact. Through the Working Group on Cross-Border Banking, 
the Offshore Group joined with the Basel Committee in preparing a paper on Customer Due Diligence for 
Banks, which the Basel Committee issued in 2001. This paper reinforces principles 
set out in earlier Basel Committee papers by providing more precise guidance on the essential elements of 
Know Your Customer standards and their implementation. Offshore Group members are fully committed to 
the KYC standards contained in the paper. The Working Group also has produced as an annex to the 
Customer Due Diligence paper a General Guide to Account Opening and Customer Identification.   
Omnibus Account 
See Clearing Account. 
Operational Risk 
The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or 
systems, or as a result of external events. Public perception that a bank is not able to manage its operational 
risk effectively can disrupt or harm the business of the bank. 
 

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Organization for Economic Cooperation and Development (OECD) 
International organization that assists governments on economic development issues in the global economy. 
OECD houses the FATF secretariat in Paris.   
Organization of American States: Inter-American Drug Abuse Control Commission (Comisión 
Interamericana para el Control del Abuso de Drogas) (CICAD) 
OAS has issued several sets of anti-money laundering recommendations through its Inter-American Drug 
Abuse Control Commission (CICAD). They include amendments to the OAS Model Regulations issued in 
1992. CICAD has sponsored and coordinated training seminars for public officials and bankers on anti-
money laundering measures and oversees the anti-money laundering efforts of its member countries in the 
Western Hemisphere. 
Originator 
The account holder or, where there is no account, the person (natural or legal) which places the order with 
the financial institution to perform the wire transfer. 
Over The Counter (OTC) 
Two distinct meanings in the money laundering context: 
1.
 
As used in U.S. Bank Secrecy Act reporting forms, it refers to deposits of cash made physically at a 
branch.   
2.
 
In the securities industry, it describes the market for trading equities that are not listed on an 
organized stock exchange, or for trading securities such as corporate bonds, mortgage- backed or 
asset-backed securities, currency swaps, etc. In the OTC market, trading is conducted remotely by 
broker- dealers rather than on a physical exchange floor, and prices are set by negotiation between 
the buyer and seller rather than by ―auction bidding‖ on the floor of an exchange. 
P 
Passive Trust 
See Bare Trust. 
 
 

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Payable Through Account 
Transaction account opened at a depository institution 
by a foreign financial institution through which the foreign institution‘s customers engage, either directly or 
through sub-accounts, in banking activities and transactions in the country where the account was opened. 
Such accounts pose risks to the depository institutions that hold them because it can be difficult to conduct 
due diligence on foreign institution customers who are ultimately using the PTA accounts. 
PC-R-EV 
See MONEYVAL. 
Physical Cross-Border Transportation of Currency 
Any in-bound or out-bound transportation of currency or bearer negotiable instruments from one country to 
another. The term includes: (1) physical transportation by a natural person, or in that person‘s 
accompanying luggage or vehicle; (2) shipment of currency through cargo containers; and (3) the mailing 
of currency or bearer negotiable instruments. 
Physical Presence 
Existence of an actual brick and mortar location with meaningful management of the institution physically 
located within a country, where it maintains business records and is subject to supervision. The mere 
existence of a local agent or low level staff does not constitute physical presence. 
Placement 
The first phase of the money laundering process: The physical disposal of cash proceeds derived from 
illegal activity. 
Poey Kuan 
See Alternative Remittance System. 
Policies 
A financial institution‘s operating regulations and its internal rules that define how employees are expected 
to conduct themselves. 
Politically Exposed Person (PEP) 
According to FATF‘s revised 40 Recommendations of 2003, a PEP is an individual who has been entrusted 
with prominent public functions in a foreign country, such as a head of state, senior politician, senior 
government official, judicial or military official, senior executive of a state-owned corporation or important 
political party official, as well as their families and close associates. The term PEP does not extend to 
middle- ranking individuals in the specified categories. Various country regulations will define the term 
PEP, which may include domestic as well as foreign persons.
 

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Ponzi Scheme 
A money laundering system named after Charles Ponzi, an Italian immigrant who spent 10 years in jail in 
the U.S. for a scheme that defrauded 40,000 people out of $15,000,000. Ponzi‘s name became synonymous 
with the use of new investors‘ money to pay off prior investors. Ponzi schemes involve fake, non-existent 
investment schemes in which the investors are tricked into investing on the promise of unusually attractive 
returns. The operator of the scheme can keep the operation going by paying off early investors with the 
money from new investors until the scheme collapses under its own weight and/or the promoter vanishes 
with the remaining money. The scheme recently engaged in by Bernie Madoff is an example of a Ponzi 
scheme. The prime bank guaranty, roll program, bank debenture program and high yield promises are 
frequently used to entice investors into participating in Ponzi schemes. 
Predicate Crimes 
―Specified unlawful activities‖ whose proceeds, if involved in the subject transaction, can give rise to 
prosecution for money laundering. Most anti-money laundering laws contain a wide definition or listing of 
such underlying crimes. Predicate crimes are sometimes defined as felonies or ―all offenses in the criminal 
code.‖ 
Private Banking 
A department in a financial institution that provides high-end services to wealthy individuals. Private 
banking transactions tend to be marked with confidentiality, complex beneficial ownership arrangements, 
offshore investment vehicles, tax shelters and credit extension services. Private banking is viewed by many 
governments as highly vulnerable to money laundering. 
Private Investment Company (PIC) 
Also known as a Personal Investment Company, a PIC is a type of corporation that is often 
established in an offshore jurisdiction with tight secrecy laws to protect the privacy of its owners. 
In some jurisdictions, an international business company or exempt company is referred to as a 
private investment company. PICs are viewed as prime money laundering vehicles. 
Pyramid scheme 
This is the same as a Ponzi scheme. 
R
 
 

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Red Flag 
A warning signal that should bring attention to a potentially suspicious situation, transaction or activity. 
Regulatory Agency 
A government entity responsible for supervising and overseeing a category of domestic institutions. The 
agency generally has authority to issue regulations, to conduct examinations, to impose fines and penalties, 
to curtail activities and, sometimes, to terminate charters of institutions under its jurisdiction. Most financial 
regulatory agencies play a major role in preventing and detecting money laundering and other financial 
crimes. 
Remittance Services 
Also referred to as giro houses or casas de cambio, remittance services are businesses that receive cash or 
other funds that they transfer through the banking system to another account. The account is held by an 
associated company in a foreign jurisdiction where the money is made available to the ultimate recipient. 
Report on the Observance of Standards and Codes (ROSC) 
A report used by the IMF and the World Bank that summarizes the extent to which countries observe 
internationally recognized standards and codes for fiscal and monetary stability. The standards examine 
monetary and financial policy transparency, fiscal transparency, banking supervision, securities, insurance, 
payments systems, corporate governance, accounting, auditing and insolvency and creditor rights. Since 
2002, they have also included examination of anti-money laundering and terrorist financing standards. 
ROSCs summarizing countries‘ observance of these standards are prepared and published at the request of 
the member country. The results are used in consideration of IMF and World Bank loans and for the private 
sector (including rating agencies) for risk assessment. ROSCs are also useful in determining a country‘s 
prospective risks associated with money laundering. 
Reputation Risk 
The potential that adverse publicity regarding a financial institution‘s business practices and associations, 
whether accurate or not, will cause a loss of confidence in the integrity of the institution. Banks and other 
financial institutions are especially vulnerable to reputation risk because they can become a vehicle for, or a 
victim of, illegal activities perpetrated by customers. Such institutions may protect themselves through 
Know Your Customer and Know Your Employee programs. 
Respondent Bank 
A bank for which another financial institution establishes, maintains, administers or manages a 
correspondent account. 
 
 
 

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Retrospective Due Diligence 
Examining the identity and activity of existing customers and their accounts to confinancial institution their 
legitimacy. The Cayman Islands and the Bahamas, when adopting their anti-money laundering frameworks, 
required financial institutions to perform due diligence on existing customers. The U.K. considered the 
requirement, but did not implement it, citing the heavy burden on businesses in its financial sector. The U.S. 
does not require retrospective due diligence. 
Risk-Based Approach 
The assessment of the varying risks associated with different types of businesses, clients, accounts and 
transactions in order to maximize the effectiveness of an anti-money laundering program. 
Risk Matrix 
Document or chart that allows financial institutions to assess the money laundering risk of a business or 
customer relationship. A risk matrix sets out critical elements or parameters of risk—such as the country of 
origin or the type of anticipated transactions— so that institutions can calculate whether a potential client 
presents a low, medium or high level of money laundering risk. Later, the matrix allows the institution to 
make informed decisions on the frequency of transaction monitoring of particular accounts or customers. 
S
 
Safe Harbor 
Legal protection for financial institutions, their directors, officers and employees from criminal and civil 
liability for breach of 
any restriction on disclosing information imposed by contract 
or by any legislative, regulatory or administrative prohibition, 
if they report their suspicions in good faith to the Financial Investigation Unit (FIU), even if they did not 
know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually 
occurred. 
Safe Deposit Box 
A secure box inside the vault of a bank that can be used to store anything of importance a customer wishes 
to protect, such as legal documents, jewelry, coins, wills, etc. Safe deposit boxes can also provide a useful 
storage place for the proceeds of crime. 
 

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Seize 
To prohibit the transfer, conversion, disposition or movement of funds or other assets on the basis of an 
action initiated by a competent authority or a court under a freezing mechanism. However, unlike a freeze, a 
seizure allows the competent authority to take control of specified funds or other assets. The seized assets 
remain the property of the person(s) or entity(ies) that held an interest in them at the time of the seizure, 
although the competent authority will often take over possession, administration or management of the 
seized assets. 
Self-Regulatory Organization (SRO) 
A body that represents a profession (e.g., lawyers, notaries, other independent legal professionals or 
accountants), and which is made up of member professionals, has a role in regulating the persons who are 
qualified to enter and practice in the profession, and also performs supervisory or monitoring functions. For 
example, such a body would enforce rules to ensure that high ethical standards are maintained by those in 
the profession. 
Senior Foreign Political Figure 
U.S. term for foreign politically exposed persons. See Politically Exposed Persons. 
Settlors 
Persons or companies who transfer ownership of their assets to trustees by means of a trust deed. Where the 
trustees have some discretion as to the investment and distribution of the trust‘s assets, the deed may be 
accompanied by a non-legally binding letter setting out what the settlor wishes done with the assets. 
Shell Bank 
Bank that exists on paper only and that has no physical presence in the country where it is incorporated or 
licensed, and which is unaffiliated with a regulated financial services group that is subject to effective 
consolidated supervision. These banks are able to evade day-to-day regulation. Recommendation 18 of the 
FATF 40 Recommendations says that countries should not approve the establishment, and should not 
accept the continued operation, of shell banks. Financial institutions should refuse to enter into, or continue, 
correspondent banking relationships with shell banks, and should guard against establishing relations with 
respondent foreign financial institutions that permit their accounts to be used by shell banks. 
Simple Trust 
See Bare Trust. 
Smart Card 
Plastic card resembling traditional credit or debit cards that contains a computer chip capable of storing 
more information than a magnetic stripe, such as health insurance, e-cash, government identification and 
credit card data. 
 

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Smurfing 
A commonly used money laundering method, smurfing involves the use of multiple individuals and/or 
multiple transactions making cash deposits, buying monetary instruments or bank drafts in amounts under 
the reporting threshold. See Structuring. 
Smurfs 
Individuals hired by money launderers to go from financial institution to financial institution purchasing 
monetary instruments or depositing currency or monetary instruments in amounts under the reporting 
threshold. 
Special Recommendations 
FATF‘s international standards on terrorist financing. At an Extraordinary Plenary on the Financing of 
Terrorism held in Washington, D.C., in 2001, FATF expanded its mission beyond money laundering by 
issuing eight Special Recommendations dealing with terrorism financing. During the meeting, FATF issued 
new standards on terrorist financing, and called on all countries to adopt and implement them. In October 
2004, FATF issued the ninth Special Recommendation, addressing cross- border wires. The ―Special 
Recommendations‖ are designed to deny terrorists and their supporters access to the international financial 
system.   
Split Deposits 
A series of deposits in which a customer splits a sum of money and makes smaller deposits into two or 
more accounts that add up to the original amount. 
Sting Operation 
Investigative tactic in which undercover officers pose as criminals, sometimes through a ―front‖ business, to 
win 
the confidence of suspected or known criminals to gather information and to obtain evidence of criminal 
conduct. It is an effective means of identifying criminals, penetrating criminal organizations and identifying 
tainted property in money laundering and other cases. 
Stored Value Card 
Pre-paid payment card that stores a monetary value from which purchase amounts are deducted each time 
the card is used. 
STR 
See Suspicious Transaction Report. 
 
 
 

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Structuring 
Illegal act of splitting cash deposits or withdrawals into smaller amounts, or purchasing monetary 
instruments, to stay under a currency reporting threshold. The practice might involve dividing a sum of 
money into lesser quantities and making two or more deposits or withdrawals that add up to the original 
amount. Money launderers use structuring to avoid triggering a filing by a financial institution. The 
technique is common in jurisdictions that have compulsory currency reporting requirements. See Smurfing.