AML and Compliance Glossary: Key Terms Explained

Financial-crime compliance comes with a dense vocabulary of acronyms and technical terms. This glossary explains the ones accountants and finance professionals meet most often, in plain English. Use it as a quick reference — and follow the links for deeper guides on the bigger topics.

Core concepts

Money laundering

The process of disguising the criminal origin of funds so they appear legitimate, traditionally described in three stages: placement, layering and integration.

Terrorist financing

Providing or collecting funds to support terrorism. Unlike laundering, the funds may be legitimate in origin — the concern is the destination.

Proliferation financing

Financing the spread of nuclear, chemical, biological or radiological weapons. In the UK it is addressed through a specific risk-assessment duty under Regulation 18A.

Risk-based approach

The principle that AML resources should be focused where risk is greatest, rather than applying identical checks to every client.

Due diligence terms

Know Your Customer (KYC)

The broad practice of identifying and understanding your clients. In practice it overlaps heavily with customer due diligence.

Customer Due Diligence (CDD)

The baseline checks applied to every client — identifying and verifying the customer and any beneficial owner, and understanding the purpose of the relationship. See our guide to customer due diligence.

Enhanced Due Diligence (EDD)

A deeper level of checks applied in higher-risk situations, such as PEPs or high-risk jurisdictions. Read more in our enhanced due diligence guide.

Simplified Due Diligence (SDD)

A lighter level of checks permitted where a relationship is demonstrably low risk, though monitoring obligations still apply.

Beneficial owner

The natural person who ultimately owns or controls a client — usually anyone holding more than 25% of a company's shares or voting rights.

Source of funds vs source of wealth

Source of funds is the origin of the specific money in a transaction; source of wealth is how the client built their overall assets.

People and roles

Politically Exposed Person (PEP)

An individual entrusted with a prominent public function, carrying higher corruption risk. Family members and close associates are included.

Money Laundering Reporting Officer (MLRO)

The individual responsible for receiving internal reports and deciding whether to submit a SAR to the authorities.

Relevant person / obliged entity

A business subject to AML regulations, such as an accountancy or finance firm.

Reporting and controls

Suspicious Activity Report (SAR)

A report submitted to the National Crime Agency disclosing known or suspected money laundering or terrorist financing. See our SAR guide.

Defence Against Money Laundering (DAML)

A request seeking the NCA's consent to carry out an act that might otherwise be a money-laundering offence.

Tipping off

The criminal offence of disclosing information likely to prejudice a money-laundering investigation, for example warning a client that a SAR has been made.

Transaction monitoring

Ongoing scrutiny of client activity to detect transactions inconsistent with their expected profile.

Adverse media screening

Checking clients against news and public sources for indications of financial crime or reputational risk.

Sanctions screening

Checking clients and counterparties against sanctions lists to ensure a firm does not deal with prohibited parties.

Law and institutions

FATF

The Financial Action Task Force, the global standard-setter for AML and counter-terrorist-financing, known for its Recommendations and its country watchlists.

POCA

The Proceeds of Crime Act 2002, the UK's principal money-laundering legislation, containing the main offences and the SAR regime.

AMLA

The EU's Anti-Money Laundering Authority, based in Frankfurt and operational since 2025, which will directly supervise selected high-risk firms later this decade.

High-risk third country

A jurisdiction identified as posing heightened money-laundering risk, historically triggering mandatory enhanced due diligence.

Keeping this vocabulary straight is the first step to applying it confidently. For structured learning that puts these terms into practice, explore our AML and compliance CPD courses.