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2. Industry Regulation > 2. Money Laundering > Flashcards

2. Money Laundering Flashcards

0
Q

What is dirty money?

A

Money derived from criminal activities.

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1
Q

What is money laundering?

A

It is the process of turning dirty money into money that appears to be legitimate (clean money)

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2
Q

What are the two major differences between terrorist financing and other money laundering activities?

A
  1. Often, only quite small sums of money are required to commit terrorist acts, making identification and tracking more difficult.
  2. If legitimate funds are used to fund terror activities, it is difficult to identify when the funds become ‘terrorist funds’.
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3
Q

How much was being laundered by financial criminals, drug dealers & arms traffickers worldwide in 2007

A

US $1 trillion

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4
Q

What body was created by a G7 summit in 1989 in response to growing international concerns over money laundering?

A

The Financial Action Task Force (FATF)

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5
Q

What are the three principal areas that the FATF focuses on?

A
  1. Setting standards for national anti-money laundering (AML) & counter-terrorist-financing programmes.
  2. Evaluating how effectively member countries have implemented the standards
  3. Identifying money laundering and terrorist-financing methods and trends
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6
Q

Name the three notable AML laws implemented by countries.

A
  1. US PATRIOT ACT
    This includes extensive regulatory requirements for financial institutions including requiring them to implement a client identification programme and to screen transactions and clients for risk on a routine basis.
  2. UK PROCEEDS OF CRIME ACT 2002 (POCA)
    Earlier legislation had moved AML on to a statutory basis & this act substantially extended the anti-AML environment, made disclosure of income sources compulsory & enabled the seizing of assets earned from illegal activities.
  3. EU MONEY LAUNDERING DIRECTIVES
    Extended the range of activities considered to be financial crimes & extended the requirement to have in place AML obligations to firms outside the standard financial services environment
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7
Q

What group is of particular relevance to the wealth management industry?

A

The private sector WOLFSBERG GROUP.

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8
Q

What is the Wolfsberg Group?

A

It is an association of 11 global banks which aims to develop financial services industry standards and related products for know your customer, anti-money laundering & counter-terrorist-financing policies.

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9
Q

What are the 5 main offences involved in money laundering?

A
  1. Concealing
  2. Arrangements
  3. Acquisition, use & possession
  4. Failure to disclose
  5. Tipping off
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10
Q

What is the offence of ‘concealing’?

A

It is an offence for a person to conceal or disguise criminal property.

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11
Q

What is the offence of ‘arrangements’?

A

It is an offence for a person to enter into an arrangement that they know or suspect facilitates the acquisition, retention, use of control of criminal property for another person.

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12
Q

What is the offence of ‘acquisition, use & possession’?

A

It is an offence to acquire, use of have possession of criminal property.

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13
Q

What is the offence of ‘failure to disclose’? (3 points)

A
  1. The person knows or suspects that another person is laundering money.
  2. The information giving rise to the knowledge or suspicion came to the person during the course of business in a regulated sector.
  3. The person does not make the required disclosure as soon as is practicable
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14
Q

What is the offence of ‘tipping off’?

A

It is an offence to tell a person that a disclosure of a suspicion has been made.

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15
Q

What are the 3 main areas that money laundering regulations place requirements on firms on?

A
  1. Firms are required to carry out certain identification procedures, implement certain internal reporting procedures for suspicions and keep records in relation to anti-money laundering activities.
  2. Firms must train their staff adequately in the regulations & how to recognise & deal with suspicious transactions.
  3. There is a catch-all requirement that firms should establish internal controls appropriate to forestall & prevent money laundering. This includes the appointment of an employee as the firm’s money laundering reporting officer (MLRO).
16
Q

What are the three stages of money laundering?

A
  1. Placement
  2. Layering
  3. Integration
17
Q

What is ‘placement’ (referring to the first stage of money laundering)

A

This typically involves placing the criminally derived cash into some form of bank account.

18
Q

What is ‘layering’? (Referring to the 2nd stage of money laundering).

A

Involves moving the money around in order to make it difficult for the authorities to link the placed funds with the ultimate beneficiary of the money. Disguising the original source of the funds might involve buying and selling foreign currencies, shares or bonds.

19
Q

What is ‘integration’? (Referring to the 3rd stage of money laundering).

A

At this stage, the layering has been successful and the ultimate beneficiary appears to be holding legitimate funds (clean money).

20
Q

What is CDD?

A

CDD or Customer Due Diligence is the identification procedure that a firm must carry out when forming a business relationship.

21
Q

What are the 3 procedures of CDD?

A
  1. Identifying the customer & verifying their identity
  2. Identifying the beneficial owner, where relevant, & verifying their identity
  3. Obtaining information of the purpose & intended nature of the business relationship

Financial institutions must also undertake checks to determine the source of funds that the client wishes to invest & check international black lists.

22
Q

What are the acceptable types of documentary evidence that can prove the identity of an individual new client

A

An official document with a photograph will prove the name, eg, passport or international driving licence; a utilities bill (gas, water or electricity) with name and address will prove the address supplied is valid.

23
Q

What are the acceptable types of documentary evidence that can prove the identity of an corporate new client (a company).

A

Proof of identity & existence would be drawn from the constitutional documents (Articles and Memorandum of Association) and sets of accounts. For smaller companies proving the identity of the key stakeholders (directors & shareholders) would also be required.

24
Q

What is an EDD?

A

An EDD or Enhanced Due Diligence is a check for a client who is a Politically Exposed Person. I.e. Someone who performs important public functions for a state.

25
Q

What does SSD stand for?

A

Simplified Due Diligence.

2. Industry Regulation (4 decks)

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