ACAMS Assoc Certified Anti Money Laundering Specialist Flashcards
Describe the three phases of money laundering.
- Placement is the physical disposal of cash or other assets derived from criminal activity.
- Layering is the separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds.
- Integration is supplying apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transactions.
Describe four types of risk associated with money laundering faced by a financial institution.
• Reputational risk is described as the potential that adverse publicity regarding an organization’s business practices and associations, whether accurate or not, will cause a loss of public confidence in the integrity of the
organization.
• Operational risk is described as the potential for loss resulting from inadequate internal processes, personnel or systems or from external events.
• Legal risk is the potential for lawsuits, adverse judgments, unenforceable contracts, fines and penalties generating losses, increased expenses for an
organization, or even the closure of the organization.
• Concentration risk is the potential for loss resulting from too much credit or loan exposure to one borrower or
group of borrowers.
What are the economic effects of money laundering?
- Loss of control of, or mistakes in, decisions regarding economic policy,
- Economic distortion and instability,
- Loss of tax revenue,
- Risks to privatization efforts,
- Reputation risk for the country, and
- Social costs.
What factors may contribute to the vulnerabilities of private banking with regard to money laundering?
- Perceived high profitability,
- Intense competition,
- Powerful clientele,
- The high level of confidentiality associated with private banking,
- The close relationship of trust developed between relationship managers and their clients,
- Commission-based compensation for relationship managers,
- A culture of secrecy and discretion developed by the relationship managers for their clients, and
- The relationship managers becoming client advocates to protect their clients.
Describe microstructuring.
Designing a transaction to evade triggering a reporting or recordkeeping requirement is called “structuring.” Microstructuring is essentially the same as structuring, except that it is done at a much smaller level. Instead of taking $18,000 and breaking it into two deposits, the microstructurer might break it into 20 deposits of approximately $900 each. This level of structuring makes it extremely difficult to detect.
According to FATF, what three circumstances should be kept in mind when dealing with possible cuckoo smurfing
activity?
- The existence of these deposits is not necessarily grounds to reconsider the relationship with a customer.
- It could be the indicator of laundering, therefore it should be examined carefully.
- Law enforcement will need information on the depositor, so banks should seek to identify cash deposits made by third parties and should retain surveillance footage.
How can art and antiques dealers and auctioneers mitigate their money laundering risks?
• Require all art vendors to provide names and addresses. Ask that they sign and date a form that states that the item was not stolen and that they are authorized to sell it.
• Verify the identities and addresses of new vendors and customers.
• If there is reason to believe an item might be stolen, immediately contact the Art Loss Register (www. artloss.com), the world’s
largest 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 can report suspicious activities.
Identify three ways money laundering can occur through vehicle sellers.
The industry defined as “vehicle sellers” includes sellers and brokers of new vehicles, such as automobiles, trucks, and motorcycles; new aircraft, including fixed wing airplanes and helicopters; new boats and ships, and used vehicles. Laundering risks and ways laundering can occur through vehicle sellers include:
• Structuring cash deposits below the reporting threshold, or purchasing vehicles with sequentially numbered checks or money orders,
• Trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce complex layers of transactions,
• Accepting third-party payments, particularly from jurisdictions with ineffective money laundering controls.
Describe several ways commodity futures and options accounts may be susceptible to money laundering.
There are several ways commodity and futures accounts are susceptible to money laundering, including:
• Withdrawal of assets through transfers to unrelated accounts or to high-risk countries,
• Frequent additions to or withdrawals from accounts,
• Checks drawn on, or wire transfers from, accounts of third parties with no relation to the client,
• Clients who request custodial arrangements that allow them to remain anonymous,
• Transfers of funds to the adviser for management followed by transfers to accounts at other institutions in a layering scheme,
• Investing illegal proceeds for a client, and
• Movement of funds to disguise their origin.
How does having a lawyer as a trustee on an account at a financial institution create vulnerabilities to money laundering at an institution?
Lawyers often serve as trustees by holding money or assets “in trust” for clients. This enables lawyers to conduct transactions and to administer the affairs of a client.
Sometimes, the illicit money is placed in a law firm’s general trust account in a file set up in the name of the client, a nominee, or a company controlled by the client.
Why are bearer bonds and bearer stock certificates prime vehicles for money laundering?
Bearer bonds and bearer stock certificates, or “bearer shares,” are prime money laundering vehicles because they belong, on the surface, to the “bearer.” When bearer securities are transferred, because there is no registry of owners, the transfer takes place by physically handing over the bonds or share certificates. Bearer shares offer lots of opportunities to disguise their legitimate ownership.
What is the most basic difference between terrorist financing and money laundering?
The most basic difference between terrorist financing and money laundering involves the origin of the funds. Terrorist financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be used legally.
What characteristics of charities or non-profit organizations make them particularly vulnerable to misuse for terrorist financing?
- Enjoying the public trust,
- Having access to considerable sources of funds,
- Being cash-intensive,
- Frequently having a global presence, often in or next to those areas that are exposed to terrorist activity, and
- Often being subject to little or no regulation and/or having few obstacles to their creation.
Identify the three important tasks that FATF focuses on.
- Spreading the anti-money laundering message worldwide,
- Monitoring implementation of the FATF Recommendations among FATF members, and
- Reviewing money laundering trends and countermeasures.
According to the FATF 40 Recommendations, the complete set of countermeasures against money laundering and terrorist financing covers what 5 elements?
- The identification of risks and development of appropriate policies,
- The criminal justice system and law enforcement,
- The financial system and its regulation,
- The transparency of legal persons and arrangements, and
- International cooperation.
Describe FATF’s Recommendations 20-21 (2012) on suspicious transaction reporting and liability.
The Recommendations say that financial institutions must report to the Financial Intelligence Unit where they suspect or have reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to terrorist financing. The financial institutions and the employees reporting such suspicions should be protected from liability for reporting and should be prohibited from disclosing that they have reported such activity.
According to FATF’s Recommendations (2012), what are the designated thresholds for transactions under Recommendations 10, 22, and 23?
FATF also designated specific thresholds that trigger AML scrutiny. For example, the threshold that financial institutions should monitor for occasional customers is €15,000 [Recommendation 10]; for casinos, including Internet casinos, it is €3,000 [Recommendation 22]; and
for dealers in precious metals, when engaged in any cash transaction, it is €15,000 [Recommendation 22-23].
In 2009, FATF began to publicly identify high risk jurisdictions. What made the named jurisdictions high risk?
The named countries had strategic deficiencies in their AML/CFT regimes.
Describe the elements that should be addressed in a global approach to KYC identified in the Basel Committee’s October 2004 paper called “Consolidated KYC Risk Management.”
The Basel Committee’s October 2004 paper called “Consolidated KYC Risk Management” addresses the need for banks to adopt a global approach and to apply the elements necessary for a sound KYC program to both the parent bank or head office and all of its branches and subsidiaries. These elements consist of:
• Risk management,
• Customer acceptance and identification policies, and
• Ongoing monitoring of higher-risk accounts.
How did the European Union’s Second Directive on Prevention on the Use of the Financial System for the Purpose of Money Laundering (2001) expand the scope of the First Directive?
The European Union’s Second Directive on Preventation on the Use of the Financial System for the Purpose of Money Laundering (2001) extended the scope of the First Directive beyond drug-related crimes. The definition of “criminal activity” was expanded to cover not just drug trafficking, but all serious crimes, including corruption and fraud against the financial interests of the European Community.
How does the scope of the European Union’s Third Money Laundering Directive differ from the Second Money Laundering Directive?
- It specifically includes the category of trust and company service providers,
- It covers all dealers trading in goods who trade in cash over 15,000 Euros, and
- The definition of financial institution includes certain insurance intermediaries.
According to Section 312 of the USA Patriot Act, the due diligence program for correspondent and private banking accounts must address what three measures?
The due diligence program for foreign correspondent and private banking accounts for non-U.S. persons must include “appropriate, specific and risk-based,” and, where necessary, enhanced policies, procedures and controls reasonably designed to identify and report suspected money laundering in a correspondent account maintained in the United States. This due diligence program must also be included in the institution’s anti-money laundering program.
The due diligence program must address three measures:
• Determining whether enhanced due diligence is necessary,
• Assessing the money laundering risk presented by the correspondent account,
• Applying risk-based procedures and controls reasonably designed to detect and report suspected money laundering.
How is a private banking account defined under Section 312 of the USA Patriot Act?
Under Section 312 of the USA Patriot Act, a private banking account is defined as an account with a minimum aggregate deposit of $1 million for one or more non-U.S. persons and which is assigned to a bank employee acting as a liaison with the non-U.S. person.
Why is the risk-based approach more preferable than a prescriptive approach in the area of anti-money laundering and counter-terrorist financing?
- Flexible — as money laundering and terrorist financing risks vary across jurisdictions, customers, products and delivery channels, and over time,
- Effective — as companies are better equipped than legislators to effectively assess and mitigate the particular money laundering and terrorist financing risks they face, and
- Proportionate — because a risk-based approach promotes a common sense and intelligent approach to fighting money laundering and terrorist financing as opposed to a “check the box” approach. It also allows firms to minimize the adverse impact of anti-money laundering procedures on their low-risk customers.
What are the basic elements of financial institution’s anti-money laundering program?
- A system of internal policies, procedures and controls,
- A designated compliance officer with day-to-day oversight over the AML program,
- An ongoing employee training program, and
- An independent audit function to test the AML program.
Identify, in general, who should approve policies and procedures.
Policies and procedures should be in writing, and must be approved by appropriate levels of management. In general, institution-level policies should be approved by the board, while business unit procedures can be approved by business unit management.
Identify the responsibilities of the anti-money laundering compliance officer.
A person should be designated as the anti-money laundering compliance officer. This individual should be responsible for designing and implementing the program, making necessary changes and disseminating information about the program’s successes and failures to key staff members, constructing anti-money laundering-related content for staff training programs and staying current on legal and regulatory developments in the field.
Describe how the independent audit should review Suspicious Transaction Reporting (STR) systems.
The independent audit should review Suspicious Transaction Reporting (STR) systems, which should include an evaluation of the research and referral of unusual transactions. Testing should include a review of policies, procedures and processes for referring unusual or suspicious activity from all business lines (e.g., legal, private banking, foreign correspondent banking) to the personnel or department responsible for evaluating unusual activity.
Are the costs of non-compliance with anti-money laundering laws and regulations limited to fines and penalties levied by regulators?
The cost of the fines and penalties levied by regulators due to non-compliance with anti-money laundering laws and regulations is only part of the overall expense. Significant additional costs include legal bills, potential
loss of business due to reputational damage, extensive compliance review charges, consulting fees, costs for system and other compliance program enhancements, as well as the opportunity costs as the compliance staff and others will be spending the bulk of their time addressing the consent order.
How can senior management show its commitment to compliance with anti-money laundering laws and regulations?
• Establishing a strong compliance plan that is approved by the board of directors and is fully implemented,
• Insisting that it be kept informed of compliance efforts, audit reports and any compliance failures, with corrective
measures instituted,
• Communicating compliance expectations to the institution personnel,
• Including regulatory compliance within the job descriptions and job performance evaluations of institution personnel,
• Implementing procedures, processes and controls to ensure compliance with the AML program, and
• Conditioning employment on regulatory compliance.
Identify several types of internal reports financial institutions may use to discover money laundering
and terrorist financing.
• Daily cash activity in excess of the country’s reporting threshold,
• Daily cash activity just below the country’s reporting threshold (to identify possible structuring),
• Cash activity aggregated over a period of time (e.g., individual transactions over a certain amount, or totaling more than a certain
amount over a 30-day period) to identify possible structuring,
• Wire transfer reports/logs (with filters using amount and geographical factors),
• Monetary instrument logs/reports,
• Check kiting/drawing on uncollected funds (significant debit/credit flows),
• Significant change reports, and
• New account activity reports.
Describe a typical suspicious or unusual transaction reporting process within a financial institution.
While reporting procedures vary from country to country, a typical suspicious or unusual transaction reporting process within a financial institution includes:
• Procedures to identify potential suspicious transactions or activity,
• A formal evaluation of each instance, and continuation, of unusual transactions or activity,
• Documentation of the suspicious transaction reporting decision, whether or not filed with the authorities,
• Procedures to periodically notify senior management or the board of directors of suspicious transaction filings, and
• Employee training on detecting suspicious transactions or activities.
According to the 1999 U.S. Customs “trade advisory” titled “The Black Market Peso Exchange,” what are the three red flags as indicators of BMPE?
- Payment made in cash by a third party with no connection to the underlying transaction,
- Payment made by wire transfers from third parties unconnected to the underlying transaction, and
- Payment made with checks, bank drafts or money orders not drawn on the account of the purchaser.
ABC Bank was served with a subpoena compelling the production of certain documents on a personal checking account. Describe the steps the bank should consider taking upon receipt of the subpoena.
If an institution is served with a summons or subpoena compelling the production of certain documents, the institution should have its senior management and/or counsel review the summons or subpoena. If there are no grounds for contesting the summons or subpoena, the institution should take all appropriate measures to comply with the summons or subpoena on a timely and complete basis. Failure to do so can result in adverse action and penalties for the institution. Also, the financial institution should not notify the customer who is being investigated. If the government asks the bank to keep certain accounts open, such a request should be obtained in writing under proper letterhead and authority from the government.
ABC Bank was served with a search warrant. What next steps should the Bank consider?
- Call the financial institution’s in-house or outside counsel,
- Review the warrant to understand its scope,
- Ask for and obtain a copy of the warrant,
- Ask for a copy of the affidavit that supports the search warrant (the agents are not obligated to provide a copy of the affidavit, but, if a financial institution is allowed to see the affidavit, the financial institution can learn more about the purpose of the investigation),
- Remain present while the agents record an inventory of all items they seize and remove from the premises. Keep track of the records taken by the agents,
- Ask for a copy of law enforcement’s inventory of what they have seized, and
- Write down the names and agency affiliations of the agents who conduct the search.
How should a financial institution monitor the receipt of a subpoena, summons, or other government request?
When an institution receives a subpoena, summons or other government request, the institution should do more than just produce the records or information being sought. Financial institutions should ensure that all grand jury subpoenas, as well as other information requests from government agencies, are reviewed by senior management, an investigations group or counsel to determine how best to respond to the inquiry and to determine if the inquiry or the underlying activity might pose a risk to the institution. In addition, the institution should maintain a centralized control over all requests and responses in order to ensure that the requests are responded to on a complete and timely basis and to establish a complete record of what is provided.
This centralized record will also assist with regard to the institution’s own internal investigation.
The checking account for XYZ Trading LTD, a company registered in the British Virgin Islands, was identified on a government subpoena issued to International Bank. The Bank has initiated an internal investigation on the account and its beneficial owners. What factors should the Bank consider on whether to close the account?
Based on its internal investigation, the institution should make an independent determination as to whether to close the account in issue. Some of the factors that the institution should consider are as follows:
• The legal basis for closing an account,
• The institution’s stated policies and procedures for closing an account,
• How serious is the underlying conduct. If the conduct is serious and rises to the level where the account would ordinarily be closed,
then the institution should consider closing the account, or
• As stated above, if law enforcement requests the institution to keep the account open, the institution should request that the investigator or prosecutor make that request in writing on proper government agency letterhead with the appropriate authorized signature.
If an institution decides to file an STR, what should they do as soon as possible?
Notify the investigators or prosecutors.
What type of documents would a financial institution have that could assist a financial investigator in tracking money movements?
A financial investigator’s main objective is to track the movement of money, whether through a bank, broker-dealer, money services business or casino. For example, banks maintain signature cards, which are collected at the opening of an account, account statements, deposit tickets, checks and withdrawal items and credit and debit memorandums.
Banks also keep records on loans, cashier’s checks, certified checks, traveler’s checks and money orders. They exchange currency, cash third-party checks, and conduct wire transfers, as do most money services businesses. Banks also keep safe-deposit boxes and issue credit cards.
What are the steps commonly taken to obtain mutual legal assistance?
- The central authority of the requesting country sends a “commission rogatoire” (letter rogatory, or letter of request) to the central authority of the other country. The letter includes the information sought, the nature of the request, the criminal charges in the requesting country
and the legal provision under which the request is made, - The central authority that receives the request sends it to a local financial investigator to find out if the information is available,
- An investigator from the requesting country then visits the country where the information is sought, and accompanies the local
investigator during visits or when statements are taken, - The investigator asks the central authority for permission to remove the evidence to the requesting country,
- The central authority sends the evidence to the requesting central authority, thereby satisfying the request for mutual legal assistance, and
- Local witnesses may need to attend court hearings in the requesting country.
Identify the three gateways that assist with the AML cooperation between countries.
- Mutual Legal Assistance Treaties,
- Financial Intelligence Units, and
- The Supervisory Channel.
Recommendations 36-40 from FATF’s 40 Recommendations pertain specifically to the international aspects of money laundering and terrorist financing investigations. What are Recommendations 36?40?
Recommendations 36-40 deal with mutual legal assistance treaties, extradition, confiscation of assets and mechanisms to exchange information internationally.
What is a commission rogatoire?
Also known as letter rogatory, commission rogatoire is a written request for legal or judicial assistance sent by the central authority of one country to the central authority of another when seeking evidence from the foreign jurisdiction. The letter typically specifies the nature of the request, the relevant criminal charges in the requesting country, the legal provision under which the request is made, and the information sought.
What is a country’s extraterritorial reach?
The extension of one country’s policies and laws to the citizens and institutions of another. U.S. money laundering laws contain several provisions that extend its prohibitions and sanctions into other countries. For example, the “extraterritorial jurisdiction” of the principal U.S. anti-money laundering law can apply to a non-U.S. citizen if the “conduct” occurs “in part” in the U.S. (Title 18, USC Sec. 1956(f)).
Describe a cross-border transfer.
A cross-border transfer is any wire transfer in which the originator and beneficiary institutions are located in different jurisdictions. A cross-border transfer also refers to any chain of wire transfers that has at least one cross-border element.
Describe an intermediary financial institution.
An intermediary financial institution receives funds from a wire transfer transmitter’s financial institution and relays or transmits the order of payment to the recipient’s financial institution. In an international funds transmission, intermediary financial institutions are usually located in different countries.
