Azərbaycan Respublikası Mərkəzi Bankı Banklara Nəzarət Departamenti

Supervision Department - AML/CFT Training 
Definitions GlosSTRy
 
2
 
L 
Layering 
The second phase of the classic three-step money laundering process between placement and integration, 
layering involves distancing illegal proceeds from their source by creating complex levels of financial 
transactions designed to disguise the audit trail and to provide anonymity. 
Legal Risk 
Defined by the 2001 Basel Customer Due Diligence for Banks Paper as the possibility that lawsuits, 
adverse judgments or contracts that cannot be enforced may disrupt or harm a financial institution. In 
addition, banks can suffer administrative or criminal penalties imposed by the government. A court case 
involving 
a bank may have graver implications for the institution than just the legal costs. Banks will be unable to 
protect themselves effectively from such legal risks if they do not practice due diligence in identifying 
customers and understanding and managing their exposure to money laundering. 
Letter of Credit 
A credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party 
when certain conditions are met. Letters of Credit (L/Cs) are commonly used to finance exports. Exporters 
want assurance that the ultimate buyer of its goods will make payment, and this is given by the buyer‘s 
purchase of a bank letter of credit. The L/C is then forwarded to a correspondent bank in the city in which 
the payment is to be made. The L/C is drawn on when the goods are loaded for shipping, received at the 
importation point, 
clear customs and are delivered. L/Cs can be used to facilitate money laundering by transferring money 
from a country with lax exchange controls, thus assisting in creating the illusion that an import transaction 
is involved. L/Cs can also serve as a façade when laundering money through the manipulation of import and 
export prices. Another laundering use for L/Cs is in conjunction with wire transfers to bolster the legitimate 
appearance of non- existent trade transactions. 
Letter Rogatory 
See Commission Rogatoire. 
Loan Back Method of Money Laundering 
With a loan-back, the criminal puts the illicit funds in an offshore entity that he owns and then ―loans‖ them 
back to himself or a company he owns. This technique works because it is hard to determine who actually 
controls offshore accounts in some countries. This process allows the launderer to ―clean‖ illicit money and 
to generate tax benefits by deducting purported interest payments. 
 
 

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Supervision Department - AML/CFT Training 
Definitions GlosSTRy
 
2
 
Lockbox 
Service offered by banks to companies in which the company receives payments by mail to a post office 
box and the bank picks up the payments several times a day, deposits them into the company‘s account, and 
notifies the company of the deposits. The service enables the company to put the money to work as soon as 
it is received, but the amounts must be large in order for the value obtained to exceed the cost of the service. 
In the insurance industry there is also widespread use of ―lock boxes‖ for payment of life insurance and 
annuities products. 
M
 
Mail-Forwarding or Mail-Drop Service 
A legal commercial enterprise that uses a stable, physical address as a delivery destination for letters or 
parcels on behalf of fee-paying clients who do not live on the premises. Mail can be held or forwarded at 
the client‘s request. Some mail-drops provide similar services for faxes as well. Money launderers often use 
mail drop addresses as their address, sometimes referring to their box number as either a ―suite‖ or an 
―apartment‖ number. Often, ―shell‖ or unlicensed banks are found to have mail drop addresses. 
Manipulation of Import and/or Export Prices 
A money laundering method that uses the overpricing or underpricing of products or services traded in 
international commerce to move money from one country to another. 
Memorandum of Understanding (MOU) 
Agreement between two parties establishing a set of principles that govern their relationship on a particular 
matter. An MOU is often used by countries to govern their sharing of assets in international asset-forfeiture 
cases or to set out their respective duties in anti-money laundering initiatives. Financial Intelligence Units 
(FIUs), with the task of receiving and analyzing suspicious transaction reports on an ongoing basis and 
maintaining close links with police and customs authorities, share information among themselves 
informally in the context of investigations, usually on the basis of an MOU. The Egmont Group of FIUs has 
established a model for such MOUs. Unlike the Mutual Legal Assistance Treaty (see below), this gateway 
is ordinarily used not for obtaining evidence, but for obtaining intelligence that might lead to evidence. 
Middle East and North Africa Financial Action Task Force (MENAFATF) 
A FATF-style body established for the Middle Eastern and North African regions in 2004. 
 
 
 
 

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Supervision Department - AML/CFT Training 
Definitions GlosSTRy
 
2
 
Mock Trial on Money Laundering 
Program launched by the United Nations Office on Drugs and Crime (UNODC) and the Organization of 
American States Inter-American Drug Abuse Control Commission (CICAD) in various Latin American 
countries. The program‘s objective is 
to equip investigators, prosecutors and judges with the know- how to crack money laundering cases. It uses 
cases that are built around authentic events. Since the program was launched in Ecuador in September 2002, 
a number of mock trials have been conducted. 
Monetary Instruments 
Travelers checks, negotiable instruments, including personal checks and business checks, official bank 
checks, cashier‘s checks, promissory notes, money orders, securities or stocks in bearer form. Monetary 
instruments are normally included, along with currency, in the anti-money laundering regulations of most 
countries, and financial institutions must file reports and maintain records of customer activities involving 
them. 
Money Laundering 
The process of concealing or disguising the existence, source, movement, destination or illegal application 
of illicitly- derived property or funds to make them appear legitimate. It usually involves a three part 
system: Placement of funds into a financial system, layering of transactions to disguise the source, 
ownership and location of the funds, and integration of the funds into society in the form of holdings that 
appear legitimate. The definition of money laundering varies in each country where it is recognized as a 
crime. 
Money Laundering Reporting Officer (MLRO) 
A term used in various international rules to refer to the person responsible for overseeing a financial 
institution‘s anti-money laundering activities and program and for filing reports of suspicious transactions 
with the national FIU. The MLRO is the key person in the implementation of anti-money laundering 
strategies and policies. 
Money Order 
A monetary instrument usually purchased with cash in small (generally under Euro/$500) denominations. It 
is commonly used by people without checking accounts to pay bills or to pay for purchases in which the 
vendor will not accept a personal check. Money orders may be used for laundering because they represent 
an instrument drawn on the issuing institution rather than on an individual‘s account. 
Money Services Business (MSB) 
Term used in the U.S. and elsewhere for money remittance companies; check cashers; issuers, sellers and 
redeemers of money orders and travelers checks; currency exchange houses; and stored value product 
companies. 
 

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