GlossaryA-B-C-D-E-F-G-H-I-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z
AAccounts & transactions monitoring Alternative remittance systems Anti-Money Laundering/Counter-Terrorism Financing Rules (AML/CTF Rules) Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) Asia/Pacific Group on Money Laundering (APG) Authorised deposit - taking institution (ADI) BBasel Committee on Banking Supervision CCross-border movements of physical currency and/or bearer negotiable instruments DDesignated business group (DBG) EFFinancial Action Task Force (FATF) Financial intelligence unit (FIU) Financial Transactions Reports Act 1988 (FTR Act) GHIInternational currency transfer report (ICTR) International funds transfer instruction (IFTI) KLNNon - face - to - face customers OOffshore financial transactions PPolitically - exposed person (PEP) RSSignificant cash transaction report (SCTR) Suspect transaction report (SUSTR) TVW
Account
Under the Financial Transitional Reporting Act 1988, an 'account' means any facility or arrangement by which a 'cash dealer' does any of the following:
An account also includes any facility or arrangement for a safety deposit box or any other form of safe deposit. It does not include an arrangement for a loan that sets out the amounts and times of advances and repayments, being amounts and times from which the borrower and lender may not depart during the term of the loan. Account informationAccount information, in relation to an account with a 'cash dealer' under the FTR Act, means:
Accounts & transactions monitoringIn an effective KYC policy, customer accounts and transactions are properly classified in terms of risk and are regularly monitored. Through checks and thresholds, unusual activities or activities by high-risk customers are detected and reviewed. There are four key elements of effective accounts and transactions monitoring: data consolidation, activity reporting, high-risk reviews and procedures. You can refer to these elements in this glossary. Activity reportingThe practice, followed by business intelligence systems, of automatically detecting and reviewing unusual account and transaction activities. Alternative remittance systemsThese systems exist and operate outside, or parallel to, traditional banking and financial channels. These systems are typically unregulated or minimally regulated and involve no, or minimal, documentation. These systems typically involve networks of funds transfer agents who accept funds from the remitter and deliver funds to the recipient, in many cases without using the standard inter-bank wire transfer and settlement system. These systems are often referred to as 'underground banking' but this term is not always correct. They often operate in the open with complete legitimacy. However, because these systems are largely unregulated and can involve minimal documentation, they are vulnerable to money laundering and terrorism financing. Such systems are often based within ethnic cultures, including those referred to as 'Hawala' in the Middle East, 'Hundi' in India and 'Fei Chien' in China. AML/CTF compliance reportSubmitted to AUSTRAC by reporting entities under the AML/CTF Act. These reports provide AUSTRAC with information about reporting entities' compliance with the AML/CTF Act, AML/CTF Rules and regulations. This obligation came into effect on 12 June 2007. Anti-Money Laundering/Counter-Terrorism Financing Rules (AML/CTF Rules)Under section 229 of the AML/CTF Act, the AUSTRAC CEO may, in writing, make AML/CTF Rules which contain further details relating to the obligations of reporting entities under that Act, or which exempt certain services from the provisions of the Act. The AML/CTF Rules are legislative instruments and are therefore binding. Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act)The AML/CTF Act received Royal Assent on 12 December 2006. It forms part of a legislative package implementing reforms to Australia's AML/CTF regulatory regime. The AML/CTF Act covers the financial and gambling sectors, bullion dealers and other professionals or businesses ('reporting entities' as defined in the Act) providing 'designated services' as defined in the Act. The AML/CTF Act is being implemented in stages, with commencement dates for different provisions occurring one day, 6 months, 12 months and 24 months after Royal Assent. It is also gradually replacing and expanding upon most of the provisions which exist under the FTR Act. The AML/CTF Act imposes a number of obligations on reporting entities when they provide designated services. These obligations include:
The AML/CTF Act takes risk-based approach to regulation. Reporting entities determine the way in which they meet their obligations based on their assessment of the risk of whether providing a designated service to a customer may facilitate money laundering or terrorism financing. ApprovalsThe financial services practice of obtaining approvals for new customers or new transactions, from appropriate officials within an institution. Graduated approval levels enable escalation of the review of potentially high-risk customers. Asia/Pacific Group on Money Laundering (APG)The APG is an independent international body whose members work together to combat money laundering and the financing of terrorism; for example, ensuring that the FATF's '40 Recommendations' on money laundering and '9 Special Recommendations on Terrorist Financing' are effectively implemented and enforced in the Asia Pacific region. The AUSTRAC CEO is head of the Australian delegation to the APG. Asset conversion
The practice of using illegal money to purchase assets such as real estate, diamonds, gold and vehicles. These can then be sold or used. AuditThe practice of reviewing accounts, transactions and policies for measuring them or determining their compliance with relevant standards. Internal and external audits test and report on KYC policies and their implementation. AUSTRACThe Australian Transaction Reports and Analysis Centre. AUSTRAC is part of the Attorney-General's portfolio and reports to the Minister for Home Affairs. AUSTRAC was established under the FTR Act and is continued in existence under the AML/CTF Act. In essence, AUSTRAC acts as an information and analysis conduit between regulated entities (in the financial and gambling sectors) and law enforcement, revenue collection, national security, regulatory and social justice partner agencies and foreign counterparts. Under the AML/CTF Act, AUSTRAC continues its role as Australia's financial intelligence unit. Importantly, AUSTRAC has an expanded role as the national AML/CTF regulator with supervisory, monitoring and enforcement functions over a diverse range of business sectors. AUSTRAC CEOThe Chief Executive Officer of AUSTRAC is known as the AUSTRAC CEO. Under the FTR Act this role was known as the Director of AUSTRAC, but changed under the AML/CTF Act. Authorised deposit-taking institution (ADI)Both the FTR Act and AML/CTF Act define ADI as:
Common types of ADIs are banks, credit unions and building societies. Basel Committee on Banking SupervisionThe Basel Committee on Banking Supervision was established in 1974 by the governors of the central banks of the Group of Ten (G-10) countries. The Committee's Secretariat is located in Basel, Switzerland. The Basel Committee does not have any formal supervisory authority. Instead, through more than 30 working groups and task forces, it formulates broad supervisory standards and guidelines and recommends statements of best practice by central banks. Basel minimum standardsThe minimum standards for the supervision of international banking groups and their cross-border establishments issued by the Basel Committee on Banking Supervision in July 1992, establish four main principles:
Beneficial ownerThe actual or economic owner of an offshore company, as distinct from the registered or nominal owner. BeneficiaryA person named in a life insurance policy, annuity, will, trust, or other agreement to receive a financial benefit. A beneficiary can be an individual, a company, an organisation, or other type of entity. Cash dealerDefined in section 3 of the FTR Act. 'cash dealer' covers various business types in the financial, bullion and gambling industries. Cash dealers have obligations under the FTR Act including account opening and signatory identification requirements, financial transaction reporting and record retention. AUSTRAC monitors and inspects cash dealer compliance with the FTR Act and associated regulations. Cash transactionA transaction involving the physical transfer of currency from one person to another (as defined in the FTR Act). ClassificationClassification of customers enables the collection of different types of information according to customers and risk profiles. Concentration riskConcentration risk occurs on the assets side of a business if financial institutions have too much exposure to one customer or a group of related customers. It also occurs on the liabilities side if they hold large concentrations of funds from one customer or group (in which case financial institutions may face liquidity risks if these funds are suddenly withdrawn). CorporationA corporation is a legal entity, which is established under the corporate laws of a particular country or jurisdiction. Correspondent bankingCorrespondent banking involves a financial institution providing banking services to another financial institution, where the institutions carry on business in different countries. The AML/CTF Act sets obligations on reporting entities entering into correspondent banking relationships, including the requirement to perform risk assessments both prior to and after entering into such relationships (ongoing due diligence). The AML/CTF Rules set matters to be assessed and also provide that only 'nostro' and 'vostro' accounts (see the definitions in this glossary) are affected by the correspondent banking obligations. Cross-border movements of physical currency and/or bearer negotiable instrumentsUnder the AML/CTF Act, anyone who is carrying, mailing or shipping cash of AUD10,000 or more into or out of Australia, must report this to a Customs officer, police officer, or the AUSTRAC CEO. Commonly this is done by travellers at airports and seaports when going through Customs. The reports are then forwarded to AUSTRAC by Customs. Bearer negotiable instruments (BNIs) are also reported if being carried into or out of Australia, but only when required by a Customs or police officer. The reports are forwarded to AUSTRAC and there is no monetary threshold involved (for example, a blank BNI would be reported). Customer acceptanceThis is the point at which a new customer is accepted or rejected and it is the easiest point at which the risk of dealing with illegal money can be avoided. By following good customer acceptance policies, we can avoid dealing with entities and individuals who might engage in illegal transactions. The three key elements to a good customer acceptance policy are: profiles, due diligence and approvals. You can refer to them in this glossary. Customer identificationEstablishing the identity of customers is central to a KYC policy. This is important both for the customer acceptance/rejection decision and the ongoing monitoring of customers' accounts and transactions. By identifying customers effectively, we are able to deal with them in an appropriate manner. The three key elements to effective customer identification are: classification, information gathering and documentation. You can refer to them in this glossary. Data consolidationInformation management systems enable the consolidation of data relating to each customer. Designated business group (DBG)Under the AML/CTF Act, a DBG comprises two or more persons where:
Certain obligations under the AML/CTF Act may be discharged by a member of the DBG for other members of the DBG. The AML/CTF Rules set certain conditions for forming a DBG, including forms that must be completed and sent to AUSTRAC. DocumentationDocumentation forms and procedures enable the creation of a complete and referable record about each customer. This also relates to record-keeping obligations under AML/CTF legislation. Due diligenceDue diligence processes, with different levels of intensity depending on (for example) customer type and account size, enable the collection of appropriate customer information. Egmont GroupThe Egmont Group is the coordinating body for an international group of financial intelligence units (FIUs) formed in 1995 to promote and enhance international AML/CTF cooperation. It is named after the location of the group's first meeting at the Egmont - Arenberg Palace in Brussels. The group provides a forum for FIUs to improve support to their respective national AML/CTF programs. Electronic transfersIn the money laundering context, this involves the transfer of money through electronic payment systems that do not require sending funds through a named account. Fei Chein'Fei Chien' (or 'flying money') is a term used to describe many of the alternative remittance systems in China, as well as the economies of East and South-East Asia with substantial Chinese business networks. The systems involve extensive networks of money dealers in these regions, who transfer money on behalf of clients. The dealers often have clan or family relationships or regional affiliations and typically effect transfers with minimal or no documentation. Like many other alternative remittance systems, fei chien systems are unregulated. Fei chien systems are extensively used for transfers of legitimate funds (for example, by workers in Hong Kong to transfer wage income to family members in China). These systems are vulnerable to money laundering and terrorism financing. FiduciaryA fiduciary is a person who acts, holds assets, or maintains accounts on behalf of (and for the benefit of), another person. A fiduciary has an obligation to take such action or manage such assets or accounts in the best interests of the other person. Financial Action Task Force (FATF)The FATF is a Paris-based inter-governmental forum established in 1989, which develops and promotes international best practice in AML/CTF standards. This is achieved through the '40 Recommendations' on money laundering and '9 Special Recommendations on Terrorist Financing' which are widely accepted as the global standards in AML/CTF. The FATF conducts periodic mutual evaluations of its members against these recommendations and when necessary, publishes a list of non-cooperative countries and territories. The FATF also reviews money laundering and terrorism financing trends and techniques and publishes reports of relevant typologies. Financial institutionUnder the FTR Act, a financial institution is defined as an ADI or co-operative housing society. It also includes certain bodies corporate, casino operators and totalisator boards, but only in relation to specific document retention obligations. Under the AML/CTF Act, a financial institution is an ADI, bank, building society, or credit union. The AML/CTF Rules may specify others considered to be financial institutions (for the purposes of the AML/CTF Act). Financial intelligence unit (FIU)The Egmont Group adopted the following definition of an FIU in November 1996: Financial Transactions Reports Act 1988 (FTR Act)The FTR Act was Australia's principal legislation aimed at preventing money laundering (until the passing of the AML/CTF Act in December 2006). Among other related purposes, the FTR Act provides for the reporting of certain transactions and transfers, imposes certain obligations in relation to accounts and established AUSTRAC (which is continued in existence by the AML/CTF Act). GamblingGambling is used to launder money by trading illegal funds to gamble chips at a casino, which are cashed in again as the proceeds of gambling 'winnings'. Hawala'Hawala' is a term used to describe many of the alternative remittance systems prevalent in the Middle East and South Asia. These systems involve extensive networks of 'hawaladars' or hawala dealers who transfer money on behalf of clients. The hawala dealers often have clan or family relationships or regional affiliations and typically effect transfers with minimal or no documentation. Like many other alternative remittance systems, hawala systems are unregulated. Hawala systems are extensively used to transfer legitimate funds (for example, by workers in the Middle East Gulf states to transfer wage income to family members in South Asia or Africa). These systems are vulnerable to money laundering and terrorist financing. High-risk reviewsHigh - risk customers are regularly reviewed and substantial high - risk customers are personally known to management. Holding companyA holding company is a corporation whose principal assets are shares in other companies. Holding company structures are often used in legitimate businesses for many reasons, such as separation of different lines of business, tax efficiency, financial structuring and managing cross - border operations. Hundi'Hundi' is a term used to describe many of the alternative remittance systems prevalent in South Asia (e.g. India, Pakistan) and the Middle East Gulf states. These systems involve extensive networks of money dealers who transfer funds on behalf of clients. The dealers often have clan or family relationships or regional affiliations and typically effect transfers with minimal or no documentation. Like many other alternative remittance systems, hundi systems are unregulated. Hundi systems are extensively used for transfers of legitimate funds (for example, by workers in the Middle East Gulf states to transfer wage income to family members in Pakistan). These systems are vulnerable to money laundering and terrorism financing. Individuals
These are customers who are individual people. Higher risk individuals include 'politically exposed persons,' professional intermediaries and individuals with inadequate identification or business backgrounds. Information gatheringEffective information - gathering strategies enable the building of a solid information base on each customer. Insurance purchaseIllegal money can be used to buy insurance policies and instruments, which can be cashed at a later date. IntegrationAfter funds are layered and distanced from their origins, they are made available to criminals to use and control as apparently legitimate funds. This final stage in the money laundering process is called integration. The laundered funds are made available for investment in legitimate or illegitimate businesses, or spent to promote the criminal's lifestyle. International currency transfer report (ICTR)Under the FTR Act, ICTRs were reported (usually at Customs areas in air and sea ports) to declare the transfer (by mailing or carrying) of AUD10,000 or more (or the foreign equivalent) in cash into or out of Australia. This report type has now been replaced under the AML/CTF Act by an equivalent obligation referred to as 'cross-border movements of physical currency'. International funds transfer instruction (IFTI)IFTIs are reported by cash dealers under the FTR Act. An IFTI is an instruction which is electronically transmitted into or out of Australia for a transfer of funds. IFTI reporting under the AML/CTF Act will commence on 12 December 2008. Introductory accountAn introductory account is an account established for a new customer who has been introduced or referred by an existing customer. Know your customer (KYC)KYC policies ensure that financial businesses can effectively identify, verify and monitor customers and customer - driven transactions. The objectives of KYC policy are:
LayeringTo conceal the illegal origin of 'placed' funds and thereby make them really useful, these funds must be moved, dispersed and disguised. The process of distancing the placed funds from their illegal origins is known as layering. Money launderers use different techniques to layer funds. These include using multiple banks and accounts, professional intermediaries, corporations and trusts. Funds may be shuttled through a web of many accounts, companies and countries to disguise their origins. Legal entitiesLegal entities include companies, trusts, banks and partnerships. Higher risk legal entities include offshore private companies, trusts and correspondent banks. Legal risksIf financial institutions are used as vehicles for illegal activities by customers, the institutions face the risk of fines, penalties, injunctions and even forced discontinuance of operations. Apart from regulatory risk, involvement in illegal activities could lead to third-party judgments and unenforceable contacts. In addition, professionals in financial institutions may also personally be subject to legal action. Nominee companyA company formed for the purpose of holding securities and other assets in its name or to provide nominee directors and officers on behalf of the clients of its parent bank or trust company. Non-bank financial servicesNon - bank financial services include funds transfers, currency exchange and other financial services for which a banking license is not required. As AML/CTF compliance measures have been improving at banks, criminals have increasingly turned to non-bank financial services as conduits for their money laundering activities. Non-face-to-face customersCustomers who open accounts or transact business through methods such as the internet, post or telephone, which do not require direct 'in person' contact with the financial service providers. Non-profit entitiesAn association or company that has non-commercial objectives such as charitable, developmental, social or religious. Non-residentA non-resident account is set up by a person who is the resident of a country other than the one in which the account is opened. Nostro accountAn account a financial institution holds with a foreign financial institution (i.e. located in another country), usually in the currency of the foreign country. 'Nostro' is Latin for 'ours'. See also 'vostro account' in this glossary. Offshore banksOffshore banks accept deposits from non-residents. A number of countries have well-developed offshore banking sectors, combined with very loose AML/CTF regulations. Money launderers may use offshore banks in such countries to move money through different accounts to conceal its origins. Offshore customersAny customer or transaction involving an offshore component often requires a higher degree of scrutiny and KYC. Offshore financial transactionsBanks or other financial institutions operating 'offshore' are exempt from a wide range of regulations normally imposed on 'onshore' institutions. Their transactions are tax-exempt, not encumbered by reserve requirements, free of interest rate restrictions and often, though not always, exempt from regulatory scrutiny with respect to liquidity or capital adequacy. Over the last 50 years, all of the world's major banks have opened branches in offshore financial centres. Many jurisdictions have been willing to 'charter' banks upon presentation of the required fees. As long as they do not do banking business with the local population, their books are unexamined and their practices are uncontrolled. Operational riskThe risk of direct or indirect loss from faulty or failed internal processes, management and systems. PlacementThe first stage of money laundering. At this stage, illegal funds or assets are first brought into the financial system. When illegal funds are placed in the financial system, they become more liquid. For example, if cash is converted into a bank deposit, it becomes easier to transfer and manipulate. Politically - exposed person (PEP)The Financial Action Task Force (FATF) defines PEPs as: individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. The definition is not intended to cover middle ranking or more junior individuals in the foregoing categories. (FATF, Glossary to the 40 Recommendations.) Professional intermediariesA professional intermediary is an accountant, banker, broker, lawyer or similar professional who manages an account or transacts on behalf of a client. ProfilesA profile refers to a typology of a customer, account or transaction. Well - developed and applied customer profiles are used to identify and classify potentially high - risk customers. Record keepingThe FTR Act and AML/CTF Act both impose record-keeping obligations on regulated entities. These obligations include retaining certain transaction records and customer identification documents for a certain period of time (generally this is 7 years after a transaction or end of customer relationship, under the above Acts). Regulated entitiesIn relation to Australian AML/CTF legislation, this term is used to incorporate both 'cash dealers' under the FTR Act and 'reporting entities' under the AML/CTF Act. Reporting entityLike 'cash dealers' under the FTR Act, reporting entities have certain obligations under the AML/CTF Act. These include customer identification and verification (KYC), record-keeping and financial transaction and compliance reporting. Reporting entities must also adopt, maintain and comply with AML/CTF programs. Those who are providers of 'registrable designated remittance services' must register with AUSTRAC. Financial institution reporting entities have correspondent banking risk assessment and due diligence obligations. Risk managementTo ensure that the risks posed by money laundering, terrorism financing and other criminal activities are consistently dealt with, good risk management practices are essential. Financial institutions should remain vigilant about customer-driven risk. There are four key elements to effective risk management practices: processes, teams and channels, training and audit. You can refer to them in this glossary. Securities dealersSecurities dealers carry on a business of purchasing/selling securities, for example stocks, bonds, shares. In Australia and many other countries, they must hold a licence. SignatoryUnder the FTR Act a signatory in relation to an account with a cash dealer, is a person or persons who instruct (whether in writing or not and whether signed or not) the cash dealer to conduct transactions in relation to the account. Significant cash transaction report (SCTR)A report made under the FTR Act, of a cash transaction involving the transfer of currency of AUD10,000 or more (or the foreign currency equivalent). 'Currency' under the FTR Act means physical cash (i.e. notes and coins), but not other monetary instruments (e.g. cheques, money orders). The equivalent reporting obligation under the AML/CTF Act, called a 'threshold transaction' report, comes into effect on 12 Decemebr 2008. Unlike SCTRs under the FTR Act, the new obligation includes both physical cash and 'e-currency' (defined in the AML/CTF Act). SmurfingThe deposit of small amounts of cash into any number of banks and/or bank accounts. In Australia, smurfing deposits are usually amounts of less than AUD10,000, to avoid the SCTR obligation under the FTR Act. SourcesFunds may come from drug trafficking, tax evasion, smuggling, theft, terrorism, arms trafficking, corrupt practices and other illegal activities. Suspect transaction report (SUSTR)Under the FTR Act, a report of a transaction which a cash dealer has reasonable grounds to suspect may be linked to tax evasion, money laundering, criminal or terrorist acts. Cash dealers should report a suspect transaction if they have suspicions about the monies, individuals or circumstances involved in a transaction. There does not have to be a completed transaction in order to report. Anything that raises a cash dealer's suspicion can be reported as a suspect transaction, including enquiries or suspicious behaviour.
Transaction recordsRecords that show account or transaction activity. Bank account and credit card statements are examples of transaction records. TrustsA trust is a legal entity or arrangement in which assets (typically financial assets and securities) are held by one person (the trustee) in trust for the benefit of another person or group of persons (the beneficiaries). Verification recordsRecords that identify the legitimacy of a customer. Copies of passports, birth certificates and certificates of incorporation are examples of verification records. Vostro accountAn account a financial institution holds on behalf of a foreign financial institution (i.e. located in another country). 'Vostro' is Latin for 'yours'. See also 'nostro account' in this glossary. Wash cycleThe process by which illegal money is made legitimate. |