Key Terms and Acronyms Decoded

Introduction

Compliance is full of acronyms. To work in AML/CFT you need to be fluent in them. This lesson decodes the most important terms you'll encounter, grouped by theme, so you never feel lost in a document or meeting again.

Identity and Customer Terms

KYC — Know Your Customer

The process of identifying and verifying who your customer is, and understanding the nature of their business and transactions. It happens at onboarding and throughout the relationship.

CDD — Customer Due Diligence

The checks you perform to know your customer, including identity verification, understanding the purpose of the relationship, and assessing risk. The level of CDD is risk-based.

EDD — Enhanced Due Diligence

Extra, more rigorous checks applied to higher-risk customers (such as PEPs, customers in high-risk jurisdictions, or complex ownership structures).

SDD — Simplified Due Diligence

Reduced checks permitted for clearly low-risk situations, where the risk of money laundering or terrorist financing is low.

The Customer Profile

PEP — Politically Exposed Person

A person entrusted with a prominent public function, whose position creates a higher risk of involvement in bribery or corruption. Their family members and close associates are often treated similarly.

UBO / BO — Ultimate Beneficial Owner / Beneficial Owner

The natural person who ultimately owns or controls an entity, including through layers of holding companies.

Suspicion and Reporting

STR — Suspicious Transaction Report

Also called SAR (Suspicious Activity Report). A report filed with the financial intelligence unit (FIU) when a transaction or activity is suspected of money laundering or terrorist financing.

FIU — Financial Intelligence Unit

The national agency that collects, analyzes, and disseminates suspicious transaction reports. Examples include FinCEN (US), NCA (UK), and national FIUs in every FATF country.

Tipping-off

Warning a customer that they are the subject of a suspicion report. This is usually a criminal offense because it can destroy an investigation.

Sanctions and Risk

OFAC — Office of Foreign Assets Control

The US agency under the Department of the Treasury that administers and enforces most US economic and trade sanctions.

SDN — Specially Designated Nationals

The OFAC list of individuals and entities whose assets are blocked and with whom US persons generally cannot deal.

BIS — Bureau of Industry and Security

The US agency that administers export controls, including the Entity List and dual-use goods.

Screening

Comparing customer and counterparty names against sanctions, PEP, and watch lists.

Legal Frameworks

FATF — Financial Action Task Force

The global standard-setting body for AML/CFT, issuing the 40 Recommendations.

BSA — Bank Secrecy Act (US, 1970)

The foundational US AML law that established reporting and record-keeping duties.

AMLD — Anti-Money Laundering Directive (EU)

The European Union's AML directives (4AMLD, 5AMLD, 6AMLD); now evolving into a directly applicable EU AML Regulation (AMLR).

POCA — Proceeds of Crime Act 2002 (UK)

The main UK statute criminalizing money laundering and related offenses.

A Quick Reference Table

Real-World Example

During onboarding, a customer is flagged as a PEP from a high-risk jurisdiction. The team applies EDD: gathers more documentation, verifies the source of funds, and escalates for senior approval. Their name is also screened against OFAC SDN and EU lists. This one flow ties together KYC, CDD/EDD, PEP, and screening.

Summary

• Learn the core identity terms: KYC, CDD, EDD, SDD
• Know the customer-profile terms: PEP, UBO
• Understand reporting: STR/SAR, FIU, tipping-off
• Know the regulators and lists: OFAC, SDN, BIS, FATF
• Remember the legal bases: BSA, AMLD/AMLR, POCA

Next Lesson

Now let's look at the global framework that ties all of this together — FATF and the standard-setters.