Acams 5Th Add Flash Card Set

Front 1

Describe the three phases of money laundering.

Back 1

• Placement is the physical disposal of cash or other assets derivedfrom criminal activity.• Layering is the separation of illicit proceeds from their source bylayers of financial transactions intended to conceal the origin of theproceeds.• Integration is supplying apparent legitimacy to illicit wealththrough the re‐entry of the funds into the economy in what appearsto be normal business or personal transactions.

Front 2

Describe four types of risk associated withmoney laundering faced by a financial institution.

Back 2

• Reputational risk is described as the potential that adverse publicityregarding an organization’s business practices and associations, whetheraccurate or not, will cause a loss of public confidence in the integrity of theorganization.• Operational risk is described as the potential for loss resulting frominadequate internal processes, personnel or systems or from externalevents.• Legal risk is the potential for lawsuits, adverse judgments, unenforceablecontracts, fines and penalties generating losses, increased expenses for anorganization, or even the closureof the organization.• Concentration risk is the potential for loss resulting fromtoo much credit or loan exposure to one borrower orgroup of borrowers.

Front 3

What are the economic effects of money laundering?

Back 3

• Loss of control of, or mistakes in, decisions regarding economicpolicy,• Economic distortion and instability,• Loss of tax revenue,• Risks to privatization efforts,• Reputation risk for the country, and• Social costs.

Front 4

What are the two main reasons correspondentbanking is vulnerable to money laundering?

Back 4

• By their nature, correspondent banking relationships create asituation in which a financial institution carries out financialtransactions on behalf of customers of another institution. Thisindirect relationship means that the correspondent bank providesservices for individuals or entities for which it has neither verifiedthe identities nor obtained any first‐hand knowledge, and• The amount of money that flows through correspondent accountscan pose a significant threat to financial institutions, as they processlarge volumes of transactions for their customers’ customers. Thismakes it more difficult to identify the suspect transactions, as thefinancial institution generally does not have the information on theactual parties conducting the transaction to know whether they areunusual.

Front 5

Identify and describe the three sections of the USA PatriotAct concerning due diligence U.S. financial institutions needto perform for relationships with foreign correspondentbanking customers.

Back 5

Section 312 requires institutions must set up risk based duediligence to mitigate the money laundering risks posed by foreignfinancial institutions.Section 313, which prohibits U.S. financial institutions from openingor maintaining correspondent accounts for foreign shell banks andrequires them to take "reasonable steps" to ensure that acorrespondent account of a foreign bank is not being used indirectlyto provide banking services to a shell bank.Section 319, which requires U.S. financial institutions to maintainrecords with the names and address of the owners of foreign banksfor which they maintain correspondent accounts.

Front 6

What is a concentration account?

Back 6

Concentration accounts are internal accounts established tofacilitate the processing and settlement of multiple or individualcustomer transactions within the bank, usually on the same day.These accounts are also known as special‐use, omnibus, settlement,suspense, intraday, sweep or collection accounts. Concentrationaccounts are frequently used to facilitate transactions for privatebanking, trust and custody accounts, funds transfers andinternational affiliates.

Front 7

What factors may contribute to the vulnerabilities of privatebanking with regard to money laundering?

Back 7

• Perceived high profitability,• Intense competition,• Powerful clientele,• The high level of confidentiality associated with private banking,• The close relationship of trust developed between relationshipmanagers and their clients,• Commission‐based compensation for relationship managers,• A culture of secrecy and discretion developed by the relationshipmanagers for their clients, and• The relationship managers becoming client advocates to protect theirclients.

Front 8

Describe microstructuring.

Back 8

Designing a transaction to evade triggering a reporting orrecordkeeping requirement is called “structuring.”Microstructuring is essentially the same as structuring, except thatit is done at a much smaller level. Instead of taking $18,000 andbreaking it into two deposits, the microstructurer might break itinto 20 deposits of approximately $900 each. This level ofstructuring makes it extremely difficult to detect.

Front 9

According to FATF, what three circumstances shouldbe kept in mind when dealing with possible cuckoo smurfingactivity?

Back 9

• The existence of these deposits is not necessarily grounds toreconsider the relationship with a customer.• It could be the indicator of laundering, therefore it should beexamined carefully.• Law enforcement will need information on the depositor, sobanks should seek to identify cash deposits made by third partiesand should retain surveillance footage.

Front 10

What is one of the most important aspects ofdue diligence for a bank when establishing arelationship with a money remitter?

Back 10

Ensuring the money remitter is properly licensed.

Front 11

How can the free‐look period be used to launder money?

Back 11

A free‐look period is a feature that allows investors, for a shortperiod of time after the policy is signed and the premium paid, toback out of a policy without penalty. This process allows the moneylaunderer to get an insurance check, which represents cleanedfunds. However, as more insurance companies are subject to AMLprogram requirements, this type of money laundering is morereadily detected and reported.

Front 12

How can the early redemption method on insurance policiesbe used to launder money?

Back 12

One indicator of possible money laundering is when a potentialpolicyholder is more interested in the cancellation terms of a policythan the benefits of the policy. The launderer buys a policy withillicit money and then tells the insurance company that he haschanged his mind and does not need the policy. After paying apenalty, the launderer redeems the policy and receives a cleancheck from a respected insurer.

Front 13

How can art and antiques dealers and auctioneersmitigate their money laundering risks?

Back 13

• Require all art vendors to provide names and addresses. Ask thatthey sign and date a form that states that the item was not stolenand that they are authorized to sell it.• Verify the identities and addresses of new vendors andcustomers.• If there is reason to believe an item might be stolen, immediatelycontact the Art Loss Register (www. artloss.com), the world’slargest private database of stolen art.• Look critically when a customer asks to pay in cash.• Be aware of money laundering regulations.• Appoint a senior staff member to whom employees canreport suspicious activities.

Front 14

Identify three ways money laundering can occurthrough vehicle sellers.

Back 14

The industry defined as "vehicle sellers" includes sellers and brokers of newvehicles, such as automobiles, trucks, and motorcycles; new aircraft,including fixed wing airplanes and helicopters; new boats and ships, andused vehicles. Laundering risks and ways laundering can occur throughvehicle sellers include:• Structuring cash deposits below the reporting threshold, or purchasingvehicles with sequentially numbered checks or money orders,• Trading in vehicles and conducting successive transactions of buying andselling new and used vehicles to produce complex layers of transactions,• Accepting third‐party payments, particularly from jurisdictions withineffective money laundering controls.

Front 15

Describe several ways commodity futures and optionsaccounts may be susceptible to money laundering.

Back 15

There are several ways commodity and futures accounts are susceptible to moneylaundering, including:• Withdrawal of assets through transfers to unrelated accounts or tohigh‐risk countries,• Frequent additions to or withdrawals from accounts,• Checks drawn on, or wire transfers from, accounts of third partieswith no relation to the client,• Clients who request custodial arrangements that allow themto remain anonymous,• Transfers of funds to the adviser for management followed by transfers toaccounts at other institutions in a layering scheme,• Investing illegal proceeds for a client, and• Movement of funds to disguise their origin.

Front 16

Describe the type of services to third parties thatany person or business provides on a professional basisto participate in the creation, administration, or managementof corporate vehicles.

Back 16

Trust and company service providers (TCSP) include those persons andentities that, on a professional basis, participate in the creation,administration or management of corporate vehicles. They refer toany person or business that provides any of the following servicesto third parties:• Acting as a formation agent of legal persons,• Acting as (or arranging for another person to act as) a director orsecretary of a company, a partner of a partnership, or a similar position inrelation to other legal persons,• Providing a registered office, business address or correspondence for acompany, a partnership or any other legal person or arrangement,• Acting as (or arranging for another person to act as) a trustee of anexpress trust, and• Acting as (or arranging for another person to act as) a nomineeshareholder for another person.

Front 17

According to a 2001 report, “Money Laundering in Canada:An Analysis of RCMP Cases,” what are the four relatedreasons to establish or control a shell company for moneylaundering purposes?

Back 17

• Shell companies accomplish the objective of converting thecash proceeds of crime into alternative assets,• Through the use of shell companies, the launderer cancreate the perception that illicit funds have been generatedfrom a legitimate source,• Once a shell company is established, a wide range oflegitimate and/or bogus business transactions can be used tofurther the laundering process, and• Shell companies can also be effective in concealing criminalownership. Nominees can be used as owners, directors,officers or shareholders.

Front 18

What is the significance of a trust account, whether offshoreor onshore, in the context of money laundering?

Back 18

The significance of a trust account — whether onshore oroffshore — in the context of money laundering cannot beunderstated: It can be used as part of the first step inconverting illicit cash into less suspicious assets; it can helphide criminal ownership of funds or other assets; and it isoften an essential link between different money launderingvehicles and techniques, such as real estate, shell and activecompanies, nominees and the deposit and transfer ofcriminal proceeds.

Front 19

How does having a lawyer as a trustee on an accountat a financial institution create vulnerabilities tomoney laundering at an institution?

Back 19

Lawyers often serve as trustees by holding money orassets “in trust” for clients. This enables lawyers toconduct transactions and to administer the affairs of a client.Sometimes, the illicit money is placed in a law firm’s generaltrust account in a file set up in the name of the client, anominee, or a company controlled by the client.

Front 20

Why are bearer bonds and bearer stock certificatesprime vehicles for money laundering?

Back 20

Bearer bonds and bearer stock certificates, or “bearershares,” are prime money laundering vehicles because theybelong, on the surface, to the “bearer.” When bearersecurities are transferred, because there is no registry ofowners, the transfer takes place by physically handing overthe bonds or share certificates. Bearer shares offer lots ofopportunities to disguise their legitimate ownership.

Front 21

What is the most basic difference between terroristfinancing and money laundering?

Back 21

The most basic difference between terrorist financing andmoney laundering involves the origin of the funds. Terroristfinancing uses funds for an illegal political purpose, but themoney is not necessarily derived from illicit proceeds. On theother hand, money laundering always involves the proceedsof illegal activity. The purpose of laundering is to enable themoney to be used legally.

Front 22

What is the difference in the money trail betweenterrorist financing and money laundering?

Back 22

The money trail for money laundering is circular with moneyeventually ending up with the person who generated it. Onthe other hand, the money trail for terrorist financing is linearwith the money generatedbeing used to propagate terrorist groups and activities.

Front 23

What general characteristics of terrorist financing cana financial institution look at to avoid becomingconduits for terrorist financing?

Back 23

FATF's report entitled "Guidance for Financial Institutions inDetecting Terrorist Financing" published April 24, 2002describes general characteristics of terrorist financing that afinancial institution can look at to avoid becoming conduitsfor terrorist financing, including: (a) Use of an account as afront for a person with suspected terrorist links, (b)Appearance of an accountholder’s name on a list ofsuspected terrorists, (c) Frequent large cash deposits inaccounts of non‐profit organizations, (d) High volume oftransactions in the account, and (e) Lack of a clearrelationship between the banking activity and thenature of the accountholder’s business.

Front 24

Why are hawalas attractive to terrorist financiers?

Back 24

Hawalas are attractive to terrorist financiers because they,unlike formal financial institutions, are not subject to formalgovernment oversight and do not keep detailed records in astandard form. Although some hawaladars do keep ledgers,their records are often written in idiosyncratic shorthand andare maintained only briefly.

Front 25

What characteristics of charities or non‐profit organizationsmake them particularly vulnerable to misuse for terroristfinancing?

Back 25

• Enjoying the public trust,• Having access to considerable sources of funds,• Being cash‐intensive,• Frequently having a global presence, often in or next tothose areas that are exposed to terrorist activity, and• Often being subject to little or no regulation and/or havingfew obstacles to their creation.

Front 26

Identify the three important tasks that FATF focuses on.

Back 26

• Spreading the anti‐money launderingmessage worldwide,• Monitoring implementation of the FATF Recommendationsamong FATF members, and• Reviewing money laundering trends and countermeasures

Front 27

According to the FATF 40 Recommendations, the completeset of countermeasures against money laundering andterrorist financing covers what 5 elements?

Back 27

• The identification of risks and development of appropriatepolicies,• The criminal justice system and law enforcement,• The financial system and its regulation,• The transparency of legal persons and arrangements, and• International cooperation.

Front 28

Identify the seven topics of international standardsincorporated into the FATF 40 Recommendations (2012).

Back 28

• AML/CFT policies and procedures [Recommendations 1‐2],• Money laundering and confiscation [Recommendations 3‐4],•Terrorist financing and financing of proliferation[Recommendations 5‐8],• Financial and non‐financial institution preventative measures[Recommendations 9‐23],• Transparency and beneficial ownership of legal persons andarrangements [Recommendations 24‐25],• Powers and responsibilities of competent authorities and otherinstitutional measures [Recommendations 26‐35], and• International cooperation [Recommendations 36‐40].

Front 29

Describe FATF's Recommendation 1 (2012)on the risk‐based approach.

Back 29

Countries should start by identifying, assessing andunderstanding the money laundering and terroristfinancing risks they face. Then they should take appropriatemeasures to mitigate the identified risks.The risk‐based approach allows countries to target theirlimited resources in a targeted manner to their ownparticular circumstances, thereby increasing theefficiency of the preventative measures. Financial institutionsshould also use the risk‐based approachto identify and mitigate the risks they face.

Front 30

Describe FATF's Recommendation 15 (2012) on newtechnologies.

Back 30

Countries and financial institutions should assess the risksassociated with developments of new products, businesspractices, delivery mechanisms and technology. Financialinstitutions should assess these risks prior to launching newproducts; they should also take appropriatemeasures to mitigate the risks identified.

Front 31

Describe FATF's Recommendations 20‐21 (2012) onsuspicious transaction reporting and liability.

Back 31

The Recommendations say that financial institutions mustreport to the Financial Intelligence Unit where they suspector have reasonable grounds to suspect that funds are theproceeds of a criminal activity or are related to terroristfinancing. The financial institutions and the employeesreporting such suspicions should be protected from liabilityfor reporting and should be prohibited from disclosingthat they have reported such activity.

Front 32

According to FATF's Recommendations (2012), what are thedesignated thresholds for transactions underRecommendations 10, 22, and 23?

Back 32

FATF also designated specific thresholds that trigger AMLscrutiny. For example, the threshold that financial institutionsshould monitor for occasional customers is €15,000[Recommendation 10]; for casinos, including Internet casinos,it is €3,000 [Recommendation 22]; andfor dealers in precious metals, when engaged in anycash transaction, it is €15,000 [Recommendation 22‐23].

Front 33

In 2009, FATF began to publicly identifyhigh risk jurisdictions. What made the namedjurisdictions high risk?

Back 33

The named countries had strategic deficiencies in theirAML/CFT regimes.

Front 34

What are six principles set forth in the Basel Committee'sStatement of Principles called “Prevention of Criminal Use ofthe Banking System for the Purpose of Money Laundering”?

Back 34

In 1988, the Basel Committee issued a Statement of Principles called“Prevention of Criminal Use of the Banking System for the Purpose ofMoney Laundering” in recognition of the vulnerability of the financialsector to misuse by criminals. This was a step toward preventing the use ofthe banking sector for money laundering, and it set out principles withrespect to:• Customer identification,• Compliance with laws,• Conformity with high ethical standards and local laws and regulations,• Full cooperation with national law enforcement to the extent permittedwithout breaching customer confidentiality,• Staff training, and• Record keeping and audits.

Front 35

Identify the seven specific customer identification issuesas identified in the Basel Committee's October 2001paper called "Customer Due Diligence for Banks."

Back 35

• Trust, nominee and fiduciary accounts,• Corporate vehicles, particularly companies with nominee shareholders orentities with shares in bearer form,• Introduced businesses,• Client accounts opened by professional intermediaries, such as “pooled”accounts managed by professional intermediaries on behalf of entities suchas mutual funds, pension funds and money funds,• Politically exposed persons,• Non‐face‐to‐face customers, i.e., customers who do not presentthemselves for a personal interview, and• Correspondent banking.

Front 36

What are the four key elements of Know Your Customer (KYC)as identified in the Basel Committee's October 2001 papercalled "Customer Due Diligence for Banks?"

Back 36

• Customer identification,• Risk management,• Customer acceptance, and• Monitoring.

Front 37

Describe the elements that should be addressed in aglobal approach to KYC identified in the BaselCommittee's October 2004 paper called"Consolidated KYC Risk Management."

Back 37

The Basel Committee's October 2004 paper called"Consolidated KYC Risk Management" addresses the need forbanks to adopt a global approach and to apply the elementsnecessary for a sound KYC program to both the parent bankor head office and all of its branches and subsidiaries. Theseelements consist of:• Risk management,• Customer acceptance and identification policies, and• Ongoing monitoring of higher‐risk accounts.

Front 38

How did the European Union's Second Directive onPrevention on the Use of the Financial System for thePurpose of Money Laundering (2001) expand thescope of the First Directive?

Back 38

The European Union's Second Directive on Preventation onthe Use of the Financial System for the Purpose of MoneyLaundering (2001) extended the scope of the First Directivebeyond drug‐related crimes. The definition of “criminalactivity” was expanded to cover not just drug trafficking, butall serious crimes, including corruption and fraud against thefinancial interests of the European Community.

Front 39

How does the scope of the European Union's Third MoneyLaundering Directive differ from the Second MoneyLaundering Directive?

Back 39

• It specifically includes the category of trust and companyservice providers,• It covers all dealers trading in goods who trade in cash over15,000 Euros, and• The definition of financial institution includes certaininsurance intermediaries.

Front 40

How does the Caribbean Financial Action Task Force (CFATF)monitor member's implementation of theanti‐money laundering recommendations?

Back 40

The CFATF monitors members’ implementation of theanti‐money laundering recommendations identified in theKingston Declaration through the following activities:• Self‐assessment of the implementation of therecommendations,• An ongoing program of mutual evaluation of members,• Coordination of, and participation in, training and technicalassistance programs,• Biennial plenary meetings for technical representatives, and• Annual ministerial meetings.

Front 41

According to the Egmont Group, what is the definitionof a Financial Intelligence Unit (FIU)?

Back 41

In 1996, based on the work of its Legal Working Group,Egmont approved a definition of an FIU. It was amended in2004 to reflect the FIUs’ role in combating terrorism financingas follows: (a) A central, national agency responsible forreceiving (and, as permitted, requesting), analyzing anddisseminating to the competent authorities, disclosures offinancial information, (b) Concerning suspected proceeds ofcrime and potential financing of terrorism, and (c) Requiredby national legislation or regulation, in order to combatmoney laundering and terrorism financing.

Front 42

According to the Wolfsberg Anti‐Money Laundering Principlesfor Private Banking (2000), what are situations for privatebanking that require further due diligence?

Back 42

• Public officials, including individuals holding, or having held,positions of public trust, as well as their families and closeassociates,• High‐risk countries, including countries “identified bycredible sources as having inadequate anti‐money launderingstandards or representing high‐risk for crime andcorruption, ” and• High‐risk activities, involving clients and beneficial ownerswhose source of wealth “emanates from activities known tobe susceptible to money laundering.