Azərbaycan Respublikası Mərkəzi Bankı Banklara Nəzarət Departamenti

Supervision Department - AML/CFT Training 
Definitions GlosSTRy
 
2
 
Ponzi Scheme 
A money laundering system named after Charles Ponzi, an Italian immigrant who spent 10 years in jail in 
the U.S. for a scheme that defrauded 40,000 people out of $15,000,000. Ponzi‘s name became synonymous 
with the use of new investors‘ money to pay off prior investors. Ponzi schemes involve fake, non-existent 
investment schemes in which the investors are tricked into investing on the promise of unusually attractive 
returns. The operator of the scheme can keep the operation going by paying off early investors with the 
money from new investors until the scheme collapses under its own weight and/or the promoter vanishes 
with the remaining money. The scheme recently engaged in by Bernie Madoff is an example of a Ponzi 
scheme. The prime bank guaranty, roll program, bank debenture program and high yield promises are 
frequently used to entice investors into participating in Ponzi schemes. 
Predicate Crimes 
―Specified unlawful activities‖ whose proceeds, if involved in the subject transaction, can give rise to 
prosecution for money laundering. Most anti-money laundering laws contain a wide definition or listing of 
such underlying crimes. Predicate crimes are sometimes defined as felonies or ―all offenses in the criminal 
code.‖ 
Private Banking 
A department in a financial institution that provides high-end services to wealthy individuals. Private 
banking transactions tend to be marked with confidentiality, complex beneficial ownership arrangements, 
offshore investment vehicles, tax shelters and credit extension services. Private banking is viewed by many 
governments as highly vulnerable to money laundering. 
Private Investment Company (PIC) 
Also known as a Personal Investment Company, a PIC is a type of corporation that is often 
established in an offshore jurisdiction with tight secrecy laws to protect the privacy of its owners. 
In some jurisdictions, an international business company or exempt company is referred to as a 
private investment company. PICs are viewed as prime money laundering vehicles. 
Pyramid scheme 
This is the same as a Ponzi scheme. 
R
 
 

---

Supervision Department - AML/CFT Training 
Definitions GlosSTRy
 
2
 
Red Flag 
A warning signal that should bring attention to a potentially suspicious situation, transaction or activity. 
Regulatory Agency 
A government entity responsible for supervising and overseeing a category of domestic institutions. The 
agency generally has authority to issue regulations, to conduct examinations, to impose fines and penalties, 
to curtail activities and, sometimes, to terminate charters of institutions under its jurisdiction. Most financial 
regulatory agencies play a major role in preventing and detecting money laundering and other financial 
crimes. 
Remittance Services 
Also referred to as giro houses or casas de cambio, remittance services are businesses that receive cash or 
other funds that they transfer through the banking system to another account. The account is held by an 
associated company in a foreign jurisdiction where the money is made available to the ultimate recipient. 
Report on the Observance of Standards and Codes (ROSC) 
A report used by the IMF and the World Bank that summarizes the extent to which countries observe 
internationally recognized standards and codes for fiscal and monetary stability. The standards examine 
monetary and financial policy transparency, fiscal transparency, banking supervision, securities, insurance, 
payments systems, corporate governance, accounting, auditing and insolvency and creditor rights. Since 
2002, they have also included examination of anti-money laundering and terrorist financing standards. 
ROSCs summarizing countries‘ observance of these standards are prepared and published at the request of 
the member country. The results are used in consideration of IMF and World Bank loans and for the private 
sector (including rating agencies) for risk assessment. ROSCs are also useful in determining a country‘s 
prospective risks associated with money laundering. 
Reputation Risk 
The potential that adverse publicity regarding a financial institution‘s business practices and associations, 
whether accurate or not, will cause a loss of confidence in the integrity of the institution. Banks and other 
financial institutions are especially vulnerable to reputation risk because they can become a vehicle for, or a 
victim of, illegal activities perpetrated by customers. Such institutions may protect themselves through 
Know Your Customer and Know Your Employee programs. 
Respondent Bank 
A bank for which another financial institution establishes, maintains, administers or manages a 
correspondent account. 
 
 
 

---

Supervision Department - AML/CFT Training 
Definitions GlosSTRy
 
2
 
Retrospective Due Diligence 
Examining the identity and activity of existing customers and their accounts to confinancial institution their 
legitimacy. The Cayman Islands and the Bahamas, when adopting their anti-money laundering frameworks, 
required financial institutions to perform due diligence on existing customers. The U.K. considered the 
requirement, but did not implement it, citing the heavy burden on businesses in its financial sector. The U.S. 
does not require retrospective due diligence. 
Risk-Based Approach 
The assessment of the varying risks associated with different types of businesses, clients, accounts and 
transactions in order to maximize the effectiveness of an anti-money laundering program. 
Risk Matrix 
Document or chart that allows financial institutions to assess the money laundering risk of a business or 
customer relationship. A risk matrix sets out critical elements or parameters of risk—such as the country of 
origin or the type of anticipated transactions— so that institutions can calculate whether a potential client 
presents a low, medium or high level of money laundering risk. Later, the matrix allows the institution to 
make informed decisions on the frequency of transaction monitoring of particular accounts or customers. 
S
 
Safe Harbor 
Legal protection for financial institutions, their directors, officers and employees from criminal and civil 
liability for breach of 
any restriction on disclosing information imposed by contract 
or by any legislative, regulatory or administrative prohibition, 
if they report their suspicions in good faith to the Financial Investigation Unit (FIU), even if they did not 
know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually 
occurred. 
Safe Deposit Box 
A secure box inside the vault of a bank that can be used to store anything of importance a customer wishes 
to protect, such as legal documents, jewelry, coins, wills, etc. Safe deposit boxes can also provide a useful 
storage place for the proceeds of crime. 
 

---