Compliance & Risk Management Glossary

Comprehensive definitions of key terms in sanctions screening, AML/KYC compliance, and risk management.

Compliance

Beneficial Owner (BO) / Ultimate Beneficial Owner (UBO)

The natural person who ultimately owns or controls a customer, or on whose behalf a transaction is conducted — typically defined by an ownership or control threshold (commonly 25%) applied through however many corporate layers separate them from the account. Also known as the Ultimate Beneficial Owner (UBO).

De-risking

The process by which financial institutions terminate or restrict business relationships with clients or categories of clients to avoid, rather than manage, perceived risk in the context of money laundering or terrorist financing.

Risk-Based Approach (RBA)

A foundational principle in AML/CTF where firms allocate resources and implement controls proportional to the level of money laundering and terrorist financing risks they face.

Financial Crime

Correspondent Banking

Provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank). This is a high-risk area for money laundering due to the lack of direct customer relationships.

Terrorist Financing (TF)

The financial support, in any form, of terrorism or those who encourage, plan, or engage in terrorism.

Typology

A term used to describe patterns or methods used by criminals to launder money or finance terrorism. Identifying these helps compliance professionals train their monitoring systems.

Product Feature

Case Management

The structured process and system used to investigate, review, document, and resolve alerts and matches generated by screening systems.

Screening Threshold

The level of fuzzy matching or scoring used by a screening system to determine when a potential match (alert) is generated. A lower threshold generates more matches, but also more False Positives.

Ongoing Monitoring

Re-running sanctions and PEP screening for an existing customer whenever the underlying watchlists change, rather than screening only once at onboarding.

Regulatory

AML (Anti-Money Laundering)

A set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.

CDD (Customer Due Diligence)

The process of gathering and verifying information about a customer to assess their risk profile and ensure they are who they claim to be. It forms the foundation of a robust AML program.

CIP (Customer Identification Program)

The mandatory part of a financial institution’s KYC process that requires verifying the identity of a customer, usually involving collecting and documenting identification documents.

EDD (Enhanced Due Diligence)

An elevated level of scrutiny and investigation applied to high-risk customers, such as PEPs, or to transactions involving high-risk jurisdictions or products.

FATF (Financial Action Task Force)

An intergovernmental organization established to set standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats.

FinCEN (Financial Crimes Enforcement Network)

A bureau of the U.S. Department of the Treasury that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing, and other financial crimes.

Jurisdiction

The territory or area over which a government or regulatory body has legal authority. AML/Sanctions compliance must adhere to the laws of relevant jurisdictions.

KYC (Know Your Customer)

The mandatory process of identifying and verifying the identity of a client before or during the time they conduct financial transactions. It is a key part of CDD.

SAR (Suspicious Activity Report)

A report filed by a financial institution with a national financial intelligence unit (e.g., FinCEN in the U.S.) when a transaction or activity is suspected to be related to money laundering, fraud, or other illegal activities.

Risk Data

Adverse Media

Publicly available negative information regarding an entity (person or business) that could indicate financial crime, corruption, fraud, or other unlawful activity.

Politically Exposed Person (PEP)

An individual who is, or has been, entrusted with a prominent public function — a head of state, senior politician, or senior military official, for example — along with their family members and close associates. PEPs pose a higher risk of corruption because of their access to public funds, not because of any allegation against them.

Relatives and Close Associates (RCA)

A relative or close associate (RCA) is a person whose PEP risk exists only because of their relationship to an office-holder — a spouse, child, sibling, or business partner of a politically exposed person — not because they hold a qualifying office themselves.

Sanctions

Dual-Use Goods

Items, materials, software, or technology that can be used for both commercial (civilian) purposes and military, chemical, biological, or nuclear weapons purposes.

OFAC (Office of Foreign Assets Control)

The regulatory body within the U.S. Department of the Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.

OFAC SDN List

The Specially Designated Nationals and Blocked Persons List maintained by OFAC. This is the primary U.S. sanctions list, and any individual or entity on it is blocked from transacting with U.S. persons.

Sanctions Evasion

The act of deliberately concealing or misrepresenting information to bypass trade or financial sanctions, often involving complex financial structures, trade misinvoicing, or using non-sanctioned intermediaries.

Sanctions List

A public registry of individuals, entities, and countries subject to economic or financial restrictions imposed by governments (e.g., OFAC, UN, EU).

Trade Sanctions

Restrictions placed on commercial activity, such as imports, exports, and technology transfers, typically targeting specific countries or sectors.

Export-Control Lists

Lists such as the BIS Entity List, Unverified List, and Denied Persons List that restrict dealings in specific goods, software, or technology rather than freezing an entire account. A match creates a licensing requirement or denial-order restriction on an item — a materially different consequence from a sanctions designation.

Law-Enforcement Wanted Lists

Lists such as the FBI Most Wanted list, Interpol Red Notices, and national fugitive lists. These are not sanctions designations and carry no automatic prohibition on dealing with the listed person — a match is risk intelligence that feeds a human decision, not a legal block.

Screening

False Positive (FP)

A screening alert generated by the system when a potential match is found, but upon analyst review, the subject is confirmed to be not the sanctioned individual or entity.

Fuzzy Name Matching

A technique used in screening to identify potential matches between names or addresses even when there are minor variations, misspellings, or phonetic differences. This is critical for catching sanctions evaders who deliberately or incidentally spell a name differently from the version a designating government published.

Screening Fatigue

The phenomenon where analysts become desensitized or overwhelmed by the volume of alerts, particularly False Positives (FPs), leading to reduced scrutiny, burnout, and increased operational risk.

True Match

A confirmed match where the subject being screened is definitively identified as the individual or entity listed on a sanctions list.

Watchlist Filtering

The technological process of comparing customer or transaction data against official sanctions lists and other prohibited party databases (watchlists) to identify potential matches.

Sanctions Screening

The process of checking a name — a customer, counterparty, vessel, or supplier — against government lists of restricted parties before a transaction or relationship proceeds. When a name matches, the check holds until a person confirms whether the listed party and the party being screened are the same.

PEP Screening

The process of identifying individuals entrusted with a prominent public function — heads of state, ministers, senior judges, and the equivalent — plus their close family and associates, at onboarding and on an ongoing basis, so the relationship can receive enhanced due diligence.

Double Metaphone

A phonetic-encoding algorithm that converts a name into up to two code representations based on how it sounds rather than how it is spelled, so names like Mohammed, Muhammad, and Mohamad can still match despite different spellings.

Entity Resolution

The process of determining whether two records — a screened customer and a listed party, or two records already in a database — refer to the same real-world person, vessel, or organization, despite differences in spelling, formatting, or available identifiers.