AHSAN HABIB Flashcards
CAMS Prep
What is the threshold for entities obliged to report suspicious transactions i.e. persons trading in goods or carrying out cash transactions as per 5th EU AML Directive ?
€ 10,000. CDD is to be applied for transfers of funds (cross border/domestic) exceeding € 1,000. As per FATF Special Recommendation 7, cross-border wire transfers over € 1,000 should be accompanied by the information on the purpose of the transfer. This law also requires art dealers and businesses in becoming more transparent with their transactions, especially those exceeding €10,000.
What is the reporting threshold for Gambling service providers under 6th EU AML Directive (AMLD6) ?
All Gambling service providers are subject to EU AMLD6 rules where a single transaction by a customer or a series of transactions amount to (or add up to) at least €2,000.
A close relative of a privately-owned bank’s senior manager requests to open an account. Because of this relationship, the front line staff expedites the opening of the account without following established account opening procedures. Applying the Basel Committee on Banking Supervision principles, which is the highest operational risk here ?
Failure to conduct proper due diligence
Which are key issues to ensure the effectiveness of a compliance testing program?
Tone at the top (Management’s commitment towards ethical behavior); Get the best out of technology;Work effectively with other control functions. According to Basel Committee on Banking Supervision’s Customer Due Diligence for Banks, the compliance function should provide an evaluation of a bank’s policies and procedures independent from its management.
What are the recent innovations for companies to raise capital outside of traditional securities markets and funding sources ?
Initial Coin Offerings and Initial Token Offerings. These Alt-offerings are very simple: A company raises capital by selling its own proprietary virtual currency to the public instead of shares of stock or debt offerings like bonds. These proprietary coins or tokens are typically purchased with other virtual currencies, such as Bitcoin or Ether.
Which are red flags for artwork/ antiques transactions ?
Clients who knowingly wish to sell at an artificially low or inflated price; Anonymous agents acting for undisclosed buyers or sellers and having the payment wired to the auction house from offshore havens; An artwork presented with limited or no documentation or provenance (record of ownership); The art can be sold privately and anonymously to other buyers; If an artwork is an antiquity or its source country has been in recent conflicts (e.g. North Korea, Venezuela, Ukraine, Iran, Syria, Myanmar, Armenia, Azerbaijan). The Chinese art market, where regulation is lax, is thought to be particularly prone to money laundering.
During an ongoing investigation into a client’s activities by a competent authority, what should a compliance officer do ?
Communicate with regulatory and law enforcement authorities in line with applicable local laws. If there are no grounds for contesting the 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 financial institution. The financial institution should not notify the customer who is being investigated. There is no requirement to do it ‘ONLY IN WRITING’.
How IP (Internet Protocol) address helps to implement ‘Follow the Money’ concept ?
IP addresses are generally associated with a specific computer or server, but they may or may not be associated with an individual user. This could lead to data privacy concerns. If the AML team is doing an investigation, it needs IP addresses to figure something out. It’s about financial crime and that money has to flow somewhere, and it might not flow through the institution that experienced the theft, but it will through others, just as it did in the hack of Bangladesh’s central bank.
Which conduits do cybercriminals use to move their funds?
Digital currency, Money transfer services, Money mules (people who are used to transport and launder stolen money) and shell corporations.
Which is the main function performed by FinCEN ?
FinCEN is one of US Treasury’s primary agencies to oversee and implement policies to prevent and detect money laundering. FinCEN works in partnership with the financial community to deter and detect money laundering, uses counter-money laundering laws, such as the Bank Secrecy Act (BSA), to require reporting and recordkeeping by banks and other financial institutions. FinCEN provides intelligence and analytical support to law enforcement and works to maximize information sharing among law enforcement agencies.
Which situation is a red flag for houses of worship (Church, Mosque, Temple) ?
When there is no disclosure or conversation of how the money is spent.
Which is the fifth pillar of an effective BSA/AML compliance program?
Customer Due Diligence (CDD). Rest 4 pillars are Internal policies, procedures; Designation of a compliance officer; a thorough and ongoing training program; Independent review for compliance.
Which situation best describes the term ‘chip walking’ from a Casino?
If a patron leaves the casino with a large amount of chips; if a patron has more than $10,000 in chips, but choose to cash out less.
What is Penny Stock ?
Securities with very low market price, volume and/or liquidity that are traded on a securities exchange or on an OTC markets. They tend to be more volatile than those on the major exchanges. Penny stocks are often subject to efforts by fraudsters to falsely inflate trading volume and share prices.
What is OTC Market ?
In Over-The-Counter Market, securities are bought and sold outside of established securities markets.
Which Recommendation specifically aims to ensure that basic information on the originator and beneficiary of wire transfers is immediately available?
FATF Recommendation 16
What should you NOT do when writing an SAR narrative?
Use of jargon or acronyms is to be avoided. No need to include all transactional details in the narrative if a detailed transaction log in link/attachment is included. In situations involving non-account holders, information in SAR narrative should be included to the maximum extent possible. Addresses of suspects are important; filing institutions should note the suspect’s primary street addresses, but also, any other known addresses, including any post office box numbers and apartment numbers when applicable.
The anti-money laundering specialist of a small bank has identified suspicious activity at a branch located in an area of town where drug dealers are known to operate. An investigation of this activity discloses that the suspicious transactions occurred within the last 3 months and were processed by the same teller. The teller did not file an internal report of unusual activity on these transactions. When checking personal files, the specialist finds that the teller has been a trusted employee for over 15 years, has an impeccable work record, and has participated in several anti money laundering training sessions. The specialist recently became aware that the employee’s daughter has contracted a rare disease and is undergoing a very expensive treatment program. Regarding the teller’s failure to report the unusual activity to the institution, what should the specialist recommend ?
Directing the teller to file a suspicious transaction report.
Which statute was enacted in 1978 to limit how banks interact with American law enforcement ?
The Right to Financial Privacy Act
What is lulling ?
When a fraudster contacts a victim via mail in order to deceive the victim into a false sense of security and to delay them from notifying authorities.
What should be done when verifying a customer’s identity?
Perform the ID check in a well-lit area; Check the identification document under a UV (Ultraviolet) light; Ask the person (who is presenting the document) about his/her age.
What does Yates Memo say regarding criminal/civil investigation ?
The Yates memo, issued by then-Deputy Attorney General Sally Yates of the US Department of Justice, reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing. The Final Rules of 2016 gave explicit responsibility to Senior Management for arranging/appointing MLRO (Money Laundering Reporting Officer). Final Rules are designed to prevent unlawful transactions with targets of economic sanctions administered by OFAC. As per these rules, the Board of Directors/ Senior Management of the regulated FI have to make annual certifications to DFS (US Department for Financial Services) confirming that they have taken all steps necessary to comply with the transaction monitoring and Filtering Program requirements. Final Rules also apply to NBFIs with a banking law licence such as check cashers and money transmitters.
During investigation, the AML officer finds structured transactions in the Chairman of the Board of Directors’ account. Should he report to the Board of Directors (bypassing the Chairman) without disclosing the irregularities ?
No, it’s better to go directly to the Chairman and discuss about the potential suspicious activity. Going to the Board (which is a peer group) and not disclosing the issue may not be an apt option. Best practice is to follow the internal STR reporting procedure of the FI.
What are the three components said to be critical for a successful fight against corruption?
Leadership, a judicial system and a regulatory regime
In which money laundering phase can virtual currencies be used?
Placement, Layering and Integration (all the three stages)
What makes correspondent banking vulnerable to money laundering?
Large volumes and high values of transactions and limited information about parties and the source of funds; Lack of first-hand information about the respondent bank’s customers as they (ultimate customers) are at arm’s length (unrelated /independent); Effectiveness of the regulatory regime may be unknown; If the correspondent bank account is allowed to be used as a Payable-through-Account (PTA); If the correspondent bank account is allowed to be used by foreign banks to conduct large financial transactions on behalf of their customers; If the correspondent bank account is allowed to be used by other banks (Nesting).
What makes lone wolf terrorists (people who may be influenced or motivated by the ideology and beliefs of an external group and may act alone, in support of such a group) hard to detect ?
They often do not leave an online footprint that could be tracked by law enforcement.
Which is a red flag of elder financial exploitation/ abuse for Money Laundering purpose ?
Unfamiliar signatures on checks; A set of “out-of-sync” (not in harmony) check numbers; Use of account shortly after the addition of a new authorized signer; Changes in Spending and Transaction Patterns; Sudden changes in accounts or practices, such as unexplained withdrawals of large sums of money, particularly with a vulnerable adult who is escorted by another (e.g., caregiver, family member, “friend”) who appears to be directing the changing activity patterns; Statements are sent to an address other than the vulnerable adult’s home.
Which Money Laundering method is known to have developed in Colombia and arose from the need of Colombian exporters to turn dollars earned from the sale of goods to pesos that the exporters could use in Colombia ?
Black Market Peso Exchange (BMPE). This method is complicated and involves multiple participants globally. BMPE is a form of trade-based money laundering, to convert the proceeds of drugs sold in the US or Europe from dollars and euros into pesos in Mexico and Colombia through the trade of commodities by money brokers. BMPE is primarily a method used to smuggle dollars or pesos across the border from the United States to Mexico, and vice versa. BMPE is very similar to Hawala/Hundi. If the following elements are added to Hawala, it becomes BMPE: Trade based activity; Peso and Dollar; Illegal money earned in US and transferred to Peso countries i.e. Mexico, Colombia, Argentina, Cuba, Chile, the Dominican Republic, the Philippines and Uruguay.
Who are Third-party Payment Processors or Third-Party Service Providers (TPSP) ? Why are they vulnerable to ML risks ?
TPSPs are bank customers that provide payment processing services to merchants and other business entities. Popular third-party payment/credit cards of North America are Walmart Mastercard, Hudson’s Bay Mastercard, Canadian Tire Mastercard, Sears Mastercard. Payment processors can be used to mask criminals’ illegal or suspicious transactions and to launder criminal proceeds, including the proceeds of consumer fraud. Automated Clearing House (ACH) credit transactions originating abroad also have been used to place illicit funds directly into domestic financial institutions. Payment processors pose greater money laundering and fraud risk if they do not have an effective means of verifying their merchant clients’ identities and business practices and due to multiple layers of TPSPs that appear to be unnecessarily involved in transactions. Risks are heightened when the processor does not perform adequate due diligence on the merchants for which they are originating payments; If MSBs are used for ML by Cashing checks without obtaining adequate proof of identity; No Currency Transaction Reports have been filed when required.
What are the key principles outlined by FinCEN that will help foster a culture of compliance in any institution ?
FinCEN (a bureau within the U.S. Treasury Department) outlines six key principles: 1) leadership should be engaged, 2) Compliance should not be compromised by revenue interests, 3) Relevant information should be shared throughout the organization, 4) Leadership should provide adequate human and technological resources, 5) The program should be effective and tested by an independent and competent party; 6) Leadership and staff should understand how their BSA reports are used. FinCEN is the delegated administrator of the BSA. As such, it is charged with issuing guidance and regulations, enforcing the BSA and coordinating communication and investigations with law enforcement agencies and financial institutions.
What is De-Risking ?
Purposeful rejection or termination of financial relationships with groups of customers or lines of businesses considered high risk under BSA/AML standards. The approach towards de-risking is counter-productive to the goals of an anti-money laundering /countering the financing of terrorism (AML/CFT) framework as it encourages the flow of funds via unregulated channels. Financial institutions should instead manage their risks intelligently on a case-by-case basis rather than taking the shortcut and eliminating the risk wholesale.
Who are categorized as Specially Designated Nationals (SDNs) ?
Individuals, groups and entities subject to economic sanctions by the US Treasury and OFAC. These include individuals, groups and entities that are not country-specific. Their assets are blocked, and US entities /persons are generally prohibited from dealing with them. The SDN list is frequently updated; however, there is no predetermined timetable for updating. Names are added and removed as appropriate. Cross-border banking can get confusing when international regulation provides different regulatory regimes e.g. the U.S. sanctions list is not legally binding in Europe. Canada’s economic sanctions apply to activities of Canadian nationals/firms outside Canada, regardless of any export from Canada.
What is Smurfing ?
Smurfing is a type of structuring in which multiple individuals (“smurfs”) are hired to deposit the amounts under reporting thresholds or to avoid reporting requirements.Smurfs deposit cash, rather than withdrawing it. Smurfs often use accounts set up using dead peoples’ identities.
Why Biometrics (such as fingerprint or voice/facial/iris recognition) is gaining popularity as ID verification technique in KYC ?
It enhances security and protect the identity and confidential information of consumers; also reduces the normal time it would take to open a new account; enhances security by preventing the use of shared credentials; increases process efficiency and keeps customers’ privacy.
What is Refund Fraud ?
It occurs when a social security number, or a list of numbers, is stolen or bought and a false tax return is filed and the money is mailed to an address accessible by the schemer.
Which term should be included in the narratives of a SAR when reporting elder abuse?
Elder financial exploitation
Which is the most efficient means for drug and human smuggling organizations to rapidly move illicit proceeds within the interior of the U.S. to those states (e.g. California, Arizona, New Mexico, Texas) bordering the Republic of Mexico ?
Interstate funnel accounts and Interstate cash accounts. A funnel account (sometimes referred to as an interstate funnel account) is a method used to launder money that exploits branch networks of financial institutions. It involves illegal funds deposited into an account at one geographic location that gives criminals immediate access to the money via withdrawals in a different geographic location. The transaction amounts are kept under the AML reporting requirements in an attempt to avoid detection.
What are the challenges banks may face when upgrading their AML systems?
Understanding the features, functionality and options available in updated AML softwares; Understanding the complexity and life cycle of a new AML system; Understanding and keeping up with current regulatory expectations and issued guidances.
What should an institution have in their AML policies and procedures ?
The FI’s AML Policy should contain components on when and how employees will be trained (on-going training, as well as initial/onboarding training of new employees); Ability to incorporate relevant legislative and regulatory AML changes; Review of the AML policy by the Board of Directors. The policy should explain all technical terms and acronyms thoroughly and should exclude the FI’s propriety information. The AML Policy does not need to have procedures in it.
In which investigative methodologies can Financial Intelligence be used ?
Financial intelligence can be used effectively in three investigative methodologies: strategic investigations, tactical investigations, and historic investigations.
What is the main role played by FSRB ?
FSRB plays a role for identifying and addressing AML/CFT technical assistance needs. FSRBs work to protect the FATF Brand in the common interest of all.
What is Form 8821 ?
Form 8821 authorizes any individual, corporation, firm, organization, or partnership designated to inspect and/or receive someone’s confidential information verbally or in writing for the type of tax and the years or periods listed on Form 8821.
What is Short Sale ?
The sale of a stock that the investor does not own. To do so, a securities intermediary ‘loans’ the stock to an investor which comes from the intermediary’s own inventory, another client’s margin account or another intermediary.
What does the 4th European Directives on Prevention of the use of Financial system for the purpose of money laundering and terrorist Financing state ?
It states that the intent and knowledge required to prove the offence of money laundering includes the concept that such a mental state may be inferred from Objective factual Circumstances. This means, the
criminal liability may be proven if the objective factual circumstances indicate that the perpetrator has the ‘knowledge’ to commit the crime. Thus, it could be
assumed that the laundering offences might be committed while the defendant either knew or reasonably ought to have known that the proceeds were derived from specified unlawful activities. This kind of liability is called ‘willful blindness’. The defendant may be required to prove his own diligence at trial in order to avoid a conviction.
What is Insider Trading ?
Buying or selling of a security by someone who has access to material nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still nonpublic; trading while having special knowledge is unfair to other investors who don’t have access to such knowledge. Using, disguising, converting, possessing the funds obtained from insider trading (or any item into which those funds have been converted to obtain property/asset) is considered ‘money laundering’.
What are the penalties for violations of AML laws under 4th EUMLD ?
Penalties are at least € 5 Million or 10% of the total annual turnover for entities . Findings of risk assessment of ML and TF have to be submitted every 2 years (all 28 EU member countries have to conduct review every 2 years).
What is Embezzlement ?
Embezzlement is a type of financial fraud, e.g. a lawyer might embezzle funds from the trust accounts of their clients; a financial advisor might embezzle the funds of investors; and a husband or a wife might embezzle funds from a bank account jointly held with the spouse.
What are the Money Laundering indicators related to Organ Trafficking ? Or what are the Red Flags for ML through Organ Trafficking ?
Wire transfers to entities in high-risk jurisdictions with names that include a variation of medical terms (e.g ‘Medicus’); Methods of payment such as wires payment, email money transfer, and bulk cash withdrawal; Payments between charities and medical tourism sites; Credit card payments to travel agencies, airlines or hotels, prior to movement of money and travel; First-line banking staff’s indication of potentially ill customers moving large amounts of funds to numbered companies or charities prior to travel.
What is Divestment Sanction ?
Sanctions laws, which are designed to prohibit state procurement as well as investment with companies doing business with certain countries or other entities that are under the scrutiny of sanctions by the US government.
What is FATCA (Foreign Asset Tax Compliance Act) ?
FATCA was introduced by the US Department of Treasury and Internal Revenue Service (IRS) in 2010 to encourage better tax compliance by preventing US persons from using banks and other financial organisations to avoid taxation on their global income and assets. Individuals filing with any status other than a married, joint filing have a reporting threshold of $50,000 if they reside in the United States and a reporting threshold of $200,000 if residing outside of the United States.
Which areas are covered in Wolfsberg Principles ?
Wolfsberg Principles primarily focus on standards and policies for KYC, AML and terrorist financing . Other areas covered are Risk-Based Approach for Managing Money Laundering Risks; Private Banking; Correspondent Banking; Prohibition of concentration accounts; Enhanced customer due diligence for money services businesses. Wolfsberg Principles hold NO force of law.
The internal audit, during an investigation, found that, the MLRO (Money Laundering Reporting Officer) of the FI approved/overlooked a case which had significant deficiencies.If the audit has to submit a report on this to the Board of Directors, what recommendation can the Audit make ?
The first thing is to identify the root cause such as; Do they have any documented policy/procedure in place ? If no, then the recommendation is to develop one. If the policy is in place: Are the roles and responsibilities documented properly ? If no, then the policy/ procedure needs to be reviewed to make the roles and responsibility clearer; if yes; then it needs to be ensured that the responsibilities have been communicated and understood by the respective officer and he has received appropriate training to resolve such issues. If the policies are in place, roles and responsibilities are clear and communicated, and the staff is fully trained, then the Audit should get the staff’s opinion on why there are deficiencies and report their opinion to management, recommending any appropriate action; However, recommendations may be generic, such as the staff needs more training or the FI needs to check the effectiveness of its training. The Audit can also discuss the issue with the management and conclude their recommendation. The senior management or Board will have to come up with their own disciplinary measures.
What is Palermo convention ?
It is the United Nation 2000 convention Against Transactional Organised Crime. Countries should criminalize money laundering on the basis of the Palermo Convention. Countries should consider adopting measures that allow such proceeds or instrumentalities to be confiscated without requiring a criminal conviction (non-conviction based confiscation).
What is FATF’s first recommendation on Money Laundering ?
Countries should criminalize money laundering and apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences. Predicate offences may be described by reference to all offences, or to a threshold linked either to a category of serious offences or to the penalty of imprisonment applicable to the predicate offence (threshold approach), or to a list of predicate offences, or a combination of these approaches.
What are the criminal activities that lead to money laundering (i.e., predicate crimes) ?
Illegal arms sales, narcotics/human/organ trafficking, contraband (imported/exported illegally) smuggling and other activities related to organized crime, embezzlement, insider trading, bribery, influence peddling, tax crimes, Moonshine (US term) i.e taking goods into or out of a country illegally, computer fraud schemes, hush payments ( e.g. payments by US President Donald Trump to porn star Stormy Daniels to settle previous scandals). Money laundering consists of the conversion or transfer of property or of assisting any person who is involved in the commission of the crime. Green or environmental crime has been included as a predicate offence under the 6th EU Anti-Money Laundering Directive (6AMLD).
What does Section 311 of USA PATRIOT (Acronym for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) Act say regarding designating a country/FI as a primary ML concern ?
By designating a country or a financial institution as a primary money laundering concern, the US government can force US banks to halt many of their financial dealings with the designee. US government can also ensure the inclusion of that country onto FATF’S non-cooperative country and territory list. US Treasury Department has used Section 311 to go after the banks and front companies that help North Korea evade sanctions, to go after Iran’s nuclear program and terrorism financing, to isolate Syria, to pressure off-shore havens, like the Pacific island of Nauru, to pressure Shell Companies in Seychelles (East African country), Delaware (US State), British Virgin Islands or Belize that the US believes are complicit in money laundering. Belize, British Virgin Islands, USA, UK, Cayman Islands, Haiti, Venezuela, Bahamas, Curacao, Afghanistan, Mexico, Latvia, Russia are among the countries of primary ML concern.
Is it possible to link the customer of a numbered account with a possible ML crime ?
Yes. Numbered (yet, anonymous) accounts are intrinsically linked to their owners, if at least one transaction performed using this anonymous account can be traced to a real person (for example, if the owner is a frequent cocaine buyer but had a gross mistake of paying for the air ticket or hotel room from this same account) one can associate this account (as well as payments that were and will be made through it) with its owner. Numbered accounts should not be prohibited but be subjected to exactly the same KYC procedures as other customer accounts.Numbered accountholders’ name should be known to essential people of the bank, NOT everyone.
What was the motivation behind creation of Bitcoin/ Cryptocurrency (Digital Cash that is operated under Blockchain technology) ?
Desire to solve the double-spending problem of electronic funds transfers necessitated the intervention of financial institutions to allow for online payments. With this solution, Nakamoto (inventor of the idea) claimed that, online payments can be sent directly from one party to another without going through a financial institution. Numbered (yet, anonymous) private keys (used for cryptocurrency transaction) are intrinsically linked to their owners, if at least one transaction performed using this anonymous private key can be traced to a real person (for example, if the owner is a frequent cocaine buyer but had a gross mistake of paying for the air ticket or hotel room from this same private key) one can associate this private key (as well as payments that were and will be made through it) with its owner. In the ML cycle, cryptocurrencies would fall primarily into the placement stage. Cryptocurrency transactions are final and non-reversible.
A cultural property has been smuggled or brought into the USA, contrary to law, from Venezuela. Then the seller of that cultural property sends the proceeds of that sale to a foreign location. What is the Red Flag issue associated with this transaction ?
USA, China and the UK are three of the largest destination countries for both licit and illicit cultural property (painting/sculpture). It stands to reason that someone trading in international cultural property may send the proceeds of those transactions internationally, if only, as noted above, to continue to further their activities. The funds may also be used to pay brokers working in specific countries to transport goods from conflict zones across transit countries to reach a dealer and eventual buyer in the USA, in China or in the UK. A red flag in this case may be that the artifacts are from a conflict zone, Venezuela.
What are the ML indicators for trading of Cultural properties/ artifacts ?
Commodities are over or under-valued; Artifacts are shipped from areas of conflict and civil unrest (e.g. South Sudan, Syria, Yemen, Angola); Payments are made to a vendor by an unrelated third party; Commodities are being traded that do not match the vendor involved; and there is a sudden change in company name and ownership yet the business model remains the same
What are the characteristics of Credit Unions ?
Credit Unions are owned by its own members. Credit Unions do not participate in trade based financing, correspondent banking relationships, large corporate relationships e.g. international banking.
What are the operational challenges with compliance of CDD (5th pillar of AML Program) requirements ?
Implementation of Foreign Accounts Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) along with the current EU Directives; Identification of a politically exposed person and their close associates and establishing source of wealth; Processes are manual and tend to be document intensive; Customer on-boarding can be a fairly long process due to multiple touch points; Increased KYC cost compared to return on investments.
What is TBML (Trade-based Money Laundering) ?
TBML involves a number of schemes in order to complicate the documentation of legitimate trade transactions; such actions may include moving illicit goods, falsifying documents, misrepresenting financial transactions, and under- or over-invoicing/multiple invoicing the value of goods. Examples of Red Flags in TBML: Payments to a vendor by unrelated third parties;
False reporting, such as wrong classification of commodities, commodity over or under-valuation; Repeated importation and exportation of the same high-value commodity, known as carousel transactions; Commodities being traded that do not match the business involved; Unusual shipping routes or transshipment points; Packaging inconsistent with the commodity or shipping method; Double/ multiple invoicing. In addition, 80 percent of trade activity is open account trade, which is not documentary-based, thus offering no banking documentation to help make determinations. Mexican Cartels control 90% of the cocaine that enters the US and in turn they smuggle
the proceeds to countries where placement into the financial system is less scrutinized. The rugs (illegal money is often funneled through various antique rug shops) and clothing appear to be an example of TBML.
What is ‘Dual-use Good (DUG)’ in relation to Terrorism ?
A “dual-use” item is one that has civil applications as well as terrorism and military or weapons of mass destruction (WMD)-related applications. Dual-use items are goods, software, technology, documents and diagrams which can be used for both civil and military applications. They can range from raw materials to components and complete systems, such as aluminium alloys, bearings, or lasers. At the micro level, this can be the terrorist groups smuggling chemical fertilisers such as ammonium nitrate to be used as explosives. The same materials used in agriculture or industrial manufacturing can be extracted and repurposed in biological or chemical weapons of mass destruction. Even the lyophilizer used in coffee processing can also be found in biological weapons. Hydrogen peroxide, used to bleach paper, is also a missile propellant. If a vessel carrying one of these dual-use goods (DUGs) from Colombia to China, makes a half-way stop in Chabahar, Iran, there is likelihood that the Taliban militants further East are making missiles (or perhaps not). But today it’s peroxide, tomorrow it’ll be the tungsten needed to make bullets. Banks face issues when they identify dual-use goods specifically involve generic descriptions/multiple descriptions of goods.
What are the factors to be considered in determining the risk of the client relationship while establishing correspondent banking relationship ?
Geographic risk; AML program of the parent company should be considered, particularly whether or not the parent company’s program is extended to the client or if the client acts fairly autonomously from the parent company; Correspondent banking client’s ownership and management structures; Country of domicile and the reputation of the owners (if any politically exposed person in executive management or ownership structure); All significant controlling interests, the ultimate beneficial owners, sources of wealth and background, including their reputation in the marketplace (particularly related to negative news); Regulatory status and history of the client; AML controls of the client.
What efforts should be made by correspondent banks while having downstream correspondent banking relationship (Nesting) ?
Nested correspondent banking refers to the use of a bank’s correspondent relationship by a number of
respondent banks through their relationships with the bank’s direct respondent bank to conduct
transactions and obtain access to other financial services. When the client engages in downstream correspondent banking, which increases the risk by exposing the correspondent banks to their customers’ customers, efforts should be made to understand the nature of the relationships with downstream clients, including (as appropriate) the types, number, scale of services and geographic distribution of clients; identified issues with the downstream correspondent; the degree to which the client examines the AML controls of its downstream clients and whether this activity presents elevated risk.
A Colombian Drug Trafficking Organization (DTO) uses drug proceeds, in US dollars, to purchase goods, such as electronics, toys or appliances, in the United States, which are then exported to Colombia. Once in Colombia, the imported goods are sold at a large discount, in Colombian pesos, and the DTO recoups/reimburses its proceeds. Which ML technique is used here ?
Black Market Peso Exchange (BMPE). The term was invented for Colombian importers for buying US dollars on black market to avoid official taxes and duties. This is where money brokers are used by drug traffickers to convert US dollars or euros to pesos through the sale of commodities, such as clothing or electronic equipment. If someone earns money in USA and have US Dollars and want to move this money to Peso based country, say Colombia, through a certain process by using Peso Exchange broker, that certain process is now referred to as BMPE.
How Peer-to-Peer Lending or Micro Lending is vulnerable to Money Laundering ?
Peer-to-peer lending, also known as Microlending enables borrowers to build businesses and create sustainable income within underbanked and economically restricted geographies. The reasons of its vulnerabilities to ML are: Transfers to, from, and between high risk geographies (and adjacent areas) with little oversight;The minimal due diligence required for microloan donors and recipients; Assuming a legitimate business purpose as a mitigating factor for transaction review; The nature of microloans i.e. small amounts transactions that inherently fall below reporting thresholds; No collateral backing required for loan transactions creates high default rates, an appealing prospect for terrorist financiers; Potential for diversion of funds once they reach the destination; False representation of loan recipients; Use of correspondent banks with complex, non-transparent ownership structures in high risk geographies to disburse funds.
A person residing in Dallas (USA) funded a personal bank account with checks and cash deposits from foreign businesses and unidentified individuals then uses the money to invest in a fictional project or service collecting donations via an online site. Funds have been used to finance US President Donald Trump’s election campaign and terrorism as well. What technique has been applied here ?
Crowdfunding has been used which is the procedure of raising expansive amounts of cash, funding or financing from numerous people who are interacting via internet in online consumer communities. It became one of the main avenues for individuals around the world to raise capital online for various ideas and projects and to finance terrorism. To minimize the risk in crowdfunding involvement, FIs need to know more about the customer who participates in crowdfunding. FIs can also encourage peer-grouping.
What are the stages of ML ?
Money laundering is a three-step process: placement, layering and integration. When money is raised and moved, this is the placement stage of money laundering. When money is moved and stored, it is the layering stage of money laundering. Illicit proceeds are separated from their source by a series of complex financial transactions designed to disguise the audit trail and provide anonymity. When the money flows from being stored to spent, it represents the integration stage of money laundering. This is where funding is accessed as being seemingly legitimate in furtherance of nefarious purposes. Recently, Association of Certified Anti Money Laundering Specialists (ACAMS) developed a four-stage model of ML: predicate offense, placement, layering and integration. As per their logic, without existence of any Predicate Offence, the rest 3 stages do not make sense.
As per FATF Special Recommendation IX, which can be a major method of financing terrorist activities ?
Cash Courier. FIs should form Strategic and Tactical Response (STR) teams to deal with a Bank Secrecy Act/anti-money laundering (BSA/AML) response to situations they designate as emergency response situations, such as terrorist attacks. The STR team should be comprised of specially trained BSA/AML investigators and/or analysts as conducive to the size and capacity of the financial institution.
Why Wire Stripping/ Payment Stripping is vulnerable to ML ?
Wire stripping is the deliberate act of changing or removing material (sanction related) information from wire payments or instructions, thereby making it difficult to identify and restrict payments to and from sanctioned parties or countries. Wire-stripping is done when a bank alters bank codes to hide the origin of a transaction. This is usually done by changing the code that identifies the beneficiary’s bank. The risks attached to it, are: If the information regarding sender is hidden/altered, beneficial owner unknown, source of wealth may not be verified, there is a risk that money is earned from illegal sources and placed in the financial system for laundering purpose; If the information regarding sender is hidden/altered: payment could be made to a sanctioned party.
A New York criminal owes a London criminal $9,000, and a London merchant owes a New York supplier $9,000. The London merchant goes to London Bank and deposits $9,000 with instructions to transfer the money to the New York supplier’s bank. The London banker, working with the New York criminal, instructs the New York criminal to deposit $9,000 in the New York supplier’s bank account. The London banker then transfers $9,000 from the London merchant’s account to the London criminal’s account. The London merchant and the New York supplier do not know the funds were never directly transferred; all they know is the London merchant paid $9,000 and the New York supplier received $9,000. Which ML technique was used here ?
ML was done here through Cuckoo Smurfing. To combat cuckoo smurfing, FATF recommends that banks have controls in place to identify depositors who pay cash into third-party accounts. Also, banks should monitor for unusual cash deposits that are structured or placed in branches other than where the customer’s account is held. Cuckoo Smurfing requires an insider in an FI (here comes the issue of KYE i.e. Know Your Employee or Know the Enemy within).
What were the major changes brought in 2012 Revision of FATF Recommendations ?
Merging the 9 terrorist financing recommendations with the 40 Recommendations ; Applying Risk-based approach to all AML/CFT efforts; Targeted Financial sanctions related to proliferation of Weapons of Mass Destruction (WMD); Risk assessment of new products prior to launch; Implementing Enterprise/Group-wide AML/CFT programs and procedures; Inclusion of tax crimes within scope of designated categories of offenses of ML; More focus on Domestic PEPs; Focus on REPs ( Reputationally Exposed Persons) involved in international organizations; Transparency of beneficial ownership of legal persons. FATF advanced its core work on virtual assets, beneficial ownership transparency, and illicit finance risks. Among other things, the FATF: (i) approved an updated version of its Guidance on a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers for publication; (ii) proposed changes to beneficial ownership standards; (iii) approved the commencement of a study on Illicit Proceeds Generated from the Fentanyl and Related Synthetic Opioids Supply Chain; (iv) adopted an update to its 2016 confidential report on terrorist financing risk indicators; and (v) issued a statement regarding Afghanistan that reaffirmed the “United Nations Security Council Resolutions that Afghanistan should not be used to plan or finance terrorist acts, emphasizing] the importance of supporting the work of non-governmental organizations in the country and maintaining the flow of humanitarian assistance to the Afghan people, and for governments to facilitate information sharing with their financial institutions on any emerging illicit finance risks related to Afghanistan.”
What is the membership criteria of FATF ?
Has to be strategically important; Has to be an observer first; Country should be active member of relevant FATF-Style Regional Body (FSRB) and should agree to implement all of FAFT recommendations within 3 years; Level of AML/CFT risks faced and efforts to combat those risks; Participation in other relevant international organizations; Size of GDP, banking sector and population; FATF’s geographic balance should be enhanced i.e that region/country’s impact on global financial system; Regional prominence in AML/CFT efforts and level of commitment to AML/CFT efforts; Level of adherence to financial sector standards; Degree of openness of financial sector.
What are the specific risk issues related to identification of higher risk customers ?
4 risks are associated with customer identification: Reputational, Operational (risk of direct or indirect loss resulting from inadequate or failed internal processes, people, and systems, or from external events), Legal (Possibility that lawsuits, adverse judgments or contracts that turn out to be unenforceable can disrupt or negatively affect the operations or condition of a bank) and Concentration risks (Assets side of the balance sheet).
What are the Line of Defenses in terms of compliance ?
1st Line of defense- Business Line; 2nd Line of defense-Compliance and internal control functions (contact point for internal and external authorities and responsible for reporting suspicious transactions); 3rd Line- Internal Audit. AML functions should have a centralized aspect to ensure consistency.
Who is a PEP ?
PEPs are natural persons holding or, as appropriate, having held, senior, prominent government or quasi-public positions with substantial authority over policy, operations or the use or allocation of government-owned resources, such as senior government officials, senior executives of government corporations, senior politicians, important political party officials as well as their close family (family member must include the spouses/civil partners of PEPs, the biological/adopted children of PEPs (and their spouse or civil partner) and the parents of PEPs, siblings) and close associates (family members also equal to close associates) /publicly known relationships. PEPs are NOT PEPs after 1 year of not being in a prominent position. Examples of PEPs include Head of state/government, Ambassador /counselor of an ambassador, Military rank of general, CEO/senior executives of state-owned company/bank, Head of International Organization, Federal Judge, Head of Crown Corporation (in Canada e.g. Bank of Canada, Canada Post, Canadian Broadcasting Corporation (CBC), Ontario Lottery and Gaming Corporation (OLG), VIA Rail, Liquor Control Board of Ontario (LCBO), Leader of political party). PEP relationships should be approved by senior management who understand both the financial crime risk and their responsibility within the FI’s AML control environment. The primary risk in dealing with a PEP is that the source of funds from PEP may be from corruption.
As per 4th EU AMLD, how frequently EU must submit a report on the findings of risk assessment of ML and TF affecting the internal market (among member states) ?
Every 2 years. Tax crimes relating to direct and indirect taxes are included in the broad definition of ‘Criminal Activity’. EU AMLD has force of law (no need for approval of national parliaments of various member states). EU law prevails over national laws in case of directives.
What are the main goals of Egmont Group (informal organization of FIUs) ?
To provide a forum for FIUs around the world to improve cooperation in the field against ML and TF and to foster the implementation of domestic programs in this field; Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges to improve expertise; Promoting the establishment and operational autonomy of FIUs; Fostering better and secure communication among FIUs through application of technology such as the Egmont Secure Web (ESW). Egmont Group has 5 subgroups : IT, Training, Operational, Outreach and Legal.
What are the most frequent ML indicators as per Egmont Group ?
Large cash transaction; Atypical/uneconomical fund transfers to/from a foreign jurisdiction; Unusual business activity; Large and/or rapid movements of funds; Unrealistic wealth compared to client profile; Defensive stance to questioning/providing information.
What are the major recommendations of Wolfsberg Group regarding Private Banking ?
The Wolfsburg group is an association of banks and is concerned with managing banking policy. One of its major recommendations is : At least one person other than the private banker should approve all new clients and accounts. Wolfsberg Group’s first guidance addressed Private Banking. Private banking account is an account with a minimum deposit of $1 million for one/more Non-US persons (i.e. Private Banking client cannot be citizen/resident of the country where the account is maintained) and assigned to the FI’s one employee acting as a liaison with the non-US person.
What does Section 319 (b) of USA PATRIOT Act mention about record keeping/producing requirement ?
It allows the appropriate Federal Banking Agency to require a financial institution to produce within 5 days (120 hours) records or information related to the FI’s AML Compliance or related to a customer or any account opened/managed in USA. FIs must reply within 1 week to law enforcement request.
How travel agencies are vulnerable to ML risk ? OR What are the indicators of ML through travel agencies ?
Structuring of wire transfer; Establishment of tour operator networks and false booking/documentation; Refund on expensive airline ticket/ hotel booking; Paying for travel tours with multiple wires just under the reporting threshold. Travel agents are inherently high risk customers but the industry (Tourism Industry) itself does not represent AML risk.
Why insurance industry is vulnerable to ML risk ?
Transactions made by intermediaries e.g. agents /independent brokers; Premium can be paid through cross-border transactions; Sales/Commission driven objectives; Decentralized oversight. If a customer purchases products with termination features without concern for the product’s investment performance, a customer purchases insurance products using a single, large-premium payment, particularly when payment is made through unusual methods such as currency or currency equivalents, a customer purchases a product that appears outside the customer’s normal range of financial wealth or estate planning needs, these are Red Flags.
What are the major ML risks related to RDC (Remote Deposit Capture) ?
Used to hide the actual operating person; Used to facilitate violations of sanctions requirements; Vulnerable to fraud. RDC is feasible in correspondent banking.
What are the 3 ways that yield international cooperation and sharing of information ?
Mutual Legal Assistance Treaty (MLAT); Supervisory agencies for information exchange; Financial Intelligence Units. The supervisory channel of sharing information refers to sharing between Financial regulators. With regard to banking, information from supervisory agencies is normally of a general character and is designed to monitor the financial soundness of a banking group. Increasingly, however, inquiries relate more to specific assets or accounts because of concerns about reputational and legal risks.
What are the group names of FATF 40 Recommendations ?
AML/CFT Policies and Coordination; Money Laundering and Confiscation; Terrorist Financing and Financing of Proliferation; Financial and non-Financial preventative measures; Transparency and beneficial ownership of legal persons and arrangements; Powers and responsibilities of competent authorities and other institutional measures; International Cooperation.
Which is the main objective of OFAC ?
OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries /territories/international narcotics traffickers and those engaged in activities related to proliferation of Weapons of Mass Destruction (WMD). OFAC applies to all US citizens, no matter where they are located, all people (permanent resident aliens) in the USA, all US-incorporated/domiciled entities and their foreign branches, all foreign-based entities that have US customers. OFAC has the power to impose controls on transactions and to freeze foreign assets under US jurisdiction.
What are the key effects of ML on a country ?
Loss of reputation in the global market; Being forced into adverse fiscal (tax and budget) policy; Loss of tax revenue; Loosing control of monetary policies; Weakening the financial institutions; Loss of foreign direct investments; Increased risk to privatization efforts; Legitimate businesses are hurt from competition with front companies.
Which functions are mostly performed by gatekeepers (lawyers, accountants, notaries, auditors, Investment Advisers, Trust and Company Service Providers) those are vulnerable to ML risks ?
Creating and managing corporate vehicles or other complex legal arrangements e.g. LLC, Inc, Trusts, LLP ; Buying/selling property as a cover for transfers of illegal funds; Performing financial transactions, including making deposits, withdrawing funds, engaging in foreign exchange operations, buying or selling stock and sending international wires; Undertaking certain litigation; Setting up and managing a charity; Providing financial and tax advice; Providing introductions to financial institutions. Primary concern with regard to the use of gatekeepers is the fact that they can be used to enhance secrecy and to hide the beneficial owner of an account or transaction.
What is Omnibus Account ?
Account that is held under a Futures Commission Merchant (FCM) for another merchant. The latter’s identity remains unknown to the holding FCM.
Why do government entities around the world believe that a risk-based approach (RBA) to AML/CFT compliance is a preferable prescriptive measure ?
A risk-based approach allows an institution to focus on its highest risks. Moreover it is flexible (RBA fits all jurisdictions/ geographical areas, customers, products and delivery channels), effective (as companies know better than regulators how to mitigate risk) and proportionate (as it allows a common sense and intelligent approach rather than check-box approach). The motivation is not to save costs, or for the FATF to specify the risks faced by a specific institution or jurisdiction. The motivation behind adopting Risk-based approach is to make more effective use of resources to identify the beneficial owners. An institution cannot be expected to uncover all instances of money laundering and fraud. A risk-based approach can take into consideration the particular situation and circumstances of the institution.
What is Reverse Flip ML technique in Real Estate ?
A technique where an asset is apparently acquired for less than the normal price. This is paid for partly in clean money and partly in dirty money.
What is a Payable Through Account (PTA) ?
Account in which respondent bank’s customers are allowed to conduct transactions without first clearing the transactions through the respondent bank. In a PTA relationship/payment, there may be a numeric code (or no numeric code) to identify the sub account in correspondent banking. Both the PTA holders and its sub account holders have the deposit and withdrawal privileges.
What is a Concentration Account ?
Concentration accounts are internal non-client accounts established for the purpose of facilitating the processing and settlement of multiple/individual customer transactions within the bank usually on the same day. Frequently used to facilitate transaction for private banking, trust and custody accounts, fund transfers and international affiliates. The primary money laundering risk pertaining to the use of concentration accounts is the fact that the customer-identifying information (name, transaction amount and account number) may not be included in transaction details, making the audit trail difficult or impossible to follow ; Accounts may be also be subject to misuse or improper administration.
To what rationale, is Private Banking (PB) considered highly vulnerable to ML ?
PB clients usually come with a lot of family estate planning purposes; High profitability is associated with PB; Relationship Managers are prone to protect their clients (they become clients’ advocates); High level of confidentiality is maintained for PB clients. To curb the ML risks, all nominees and Beneficial Owners must be identified. Source of fund, purpose and expected use of the account need to be checked/verified.
How Personal or PICs (Private Investment Companies) are vulnerable to ML risks ?
PICs are usually used to maintain client’s confidentiality for tax purposes, these accounts are used to affiliate Trust companies in offshore secrecy havens. The most common risk with PICs is, they are usually established in financial secrecy havens. Switzerland, the United States, the Cayman Islands, Kenya, Taiwan are the world’s biggest contributors to financial secrecy.
How Securities and Futures Brokers/Dealers are prone to ML/TF risks ?
The Securities industry runs on electronic transfers, NOT cash (Deposits normally in form of wire transfers, Credit Cards), so is usually part of the integration or layering stages. This industry is attractive to Money Launderers because of high speed, international nature; Ease of converting to cash without loss or penalty; Competitive, commission driven culture, meaning salespeople can overlook the source of funds; Practice of brokerage firms of maintaining securities accounts as nominees or trustees, concealing identity of true beneficiary; Use of cash trading accounts which are not subject to the AML controls of banks. Primary opportunity for laundering is in the derivatives market (Forward contacts, Futures, Options).
Which are among the Financial Action Task Force criteria for defining non-cooperative countries and territories?
Factors are inadequate rules for the licensing and creation of financial institutions, including assessing
backgrounds of managers and beneficial owners; Loopholes in financial system/regulation; Obstacles raised by other regulatory requirements; Obstacles to international cooperation; Inadequate resources for preventing and detecting money laundering activities. The FATF identifies jurisdictions with weak measures to combat money laundering and terrorist financing (AML/CFT) in two FATF public documents that are issued three times a year. The FATF’s process to publicly list countries with weak AML/CFT regimes has proved effective. As of October 2018, the FATF has reviewed over 80 countries and publicly identified 68 of them.
Name some clients those are inherently with higher risks.
Trust, nominee and fiduciary accounts; Corporate vehicles particularly companies with nominee shareholders or entities with shares in bearer (Bearer Shares are not forbidden but AML controls should be in place) form; Introduced businesses; PEPs; Non face-to-face customers; Private ATM Operators; Correspondent Banking clients; Accounts opened by professional intermediaries such as ‘Pooled’ accounts on behalf of Mutual Funds, Private Banking clients; Pension Funds/ Money Funds; New customer having account relationship for less than 90 days; Nonresident alien/ NRA (not a lawful permanent resident of a specific country during the calendar year); Cash-intensive businesses (Gas Station, Convenience Store, restaurants, pizza parlors, taxi firms, coin-operated machines or car washes); Non-governmental organizations and charities (foreign and domestic); Professional service providers (Lawyers, Doctors, Accountants), car dealers, embassies, MSBs, banks, casinos.
What are the factors to be considered while conducting Due Diligence/ CDD for Correspondent Banking ?
Factors are : Geographic risk; Ownership and Management structure of the correspondent banking client; Clients’ products and services; Clients’ AML controls; Visiting the clients’ businesses (alternative means can include telephone discussions with the client and their AML staff); Clients’ dealings with shell banks.
What are the guidances regarding PEPs as mentioned clearly in FATF Recommendation ?
Financial institutions should be required, in relation to foreign/domestic politically exposed persons (PEPs) (whether as customer or beneficial owner), in addition to performing normal customer due diligence measures, to: have appropriate risk-management systems to determine whether the customer or the beneficial owner is a politically exposed person; Obtain senior management approval for establishing (or continuing, for existing customers) such business relationships; Take reasonable measures to establish the source of wealth and source of funds; Institutions that do business with these individuals must do Enhanced Due Diligence to detect if funds may involve proceeds of foreign corruption including assets or
property obtained through theft, embezzlement of public funds, unlawful conversion of property by government, bribery, extortion etc.
What are the Ultimate Beneficial Owner (UBO) requirements, as set out in the 4AMLD (Fourth EU AML Directive) ?
Companies and other legal entities must obtain and hold adequate, accurate and current information on their beneficial owners, including the name, date of birth, place of residence, and nature and extent of beneficial ownership; Information on beneficial ownership will be held on central registers in the relevant country and must be adequate, accurate and current; Information on the central registers will be accessible to competent authorities, financial intelligence units, entities required to undertake customer due diligence and any person that can demonstrate a “legitimate interest.”
What are the privacy rights/rules associated with transparency of Ultimate Beneficial Owners (UBO) ?
Fundamental rights of data and the data protection legislation in the EU allows making information available to the public when it is legitimate, necessary and proportionate. Therefore, necessary safeguards, including adequate policies and procedures, must be in place to ensure that public beneficial ownership information of companies and trusts is in conformity with data protection legislation and privacy rights. The directive requires member states to provide access to information on the beneficial ownership of companies and to enable tax authorities to access that information in monitoring the proper application of rules on the automatic exchange of tax information. Transparency is desirable and imperative. However, there are also good reasons for protecting private interests, which do not only serve to conceal illegal transactions. It is the task of the legislator to create an appropriate balance, which on the one hand serves to combat actual risks but on the other hand does not disproportionately burden or impair the economy.
What are the areas covered in Wolfsberg AML Principles for Correspondent Banking ?
The guidance is focused on traditional correspondent banking, such as establishing nostro and vostro relationships, cash clearing, liquidity management and short-term borrowing or investment needs. It may be applicable to SWIFT Relationship Management Application (RMA) relationships as well. When dealing with corporate clients, the AML program of the parent should be considered, particularly whether or not the parent’s program is extended to the client or if the client acts fairly autonomously from the parent. When dealing with an affiliate that is not substantively or effectively controlled by the parent, both the parent and the client should be reviewed.
What does Section 314(b) of the USA PATRIOT Act (signed into law by President George W. Bush on October 26, 2001) mention about information sharing between FIs and Safe Harbor ?
Section 314(b) permitted two or more FIs to voluntarily share information with each other regarding individuals, entities, organizations and countries suspected of possible terrorist or money laundering activities. It afforded FIs that participated in this information sharing initiative with safe harbor from liability for sharing information. The safe harbor affords a financial institution total immunity, even if it maliciously files a false SAR. Federal law provides civil liability protection to persons filing SARs, regardless of whether such reports are filed pursuant to SAR instructions or are filed voluntarily, this means that financial institutions and their employees involved in SAR reporting are protected from civil lawsuits.That does not exonerate (release from) a filing institution from complying with applicable legal requirements on customer financial privacy. Section 314(a) allows financial institutions to share financial information with law enforcement as well as with other FIs.
What should be the standard language of a subpoena request ?
'’In compliance with this subpoena request, please provide all transactional activity, including but not limited to transactions recorded outside the core system. This activity should include Cash activity, including deposits and withdrawals; Cash advances; Credit and debit memos; Deposit slips, items deposited; Currency exchanges (foreign and domestic); Cashed third-party and cashed on-us checks; Wires originated online and in branch; Foreign, domestic and foreign exchange (FX) wires; Monetary instrument purchases or encashments performed by or on behalf of the customer; Checks negotiated against the customer’s account and all check deposits; Account transfers including the receiving/sending account numbers; Payment 2 Payment (P2P) details; Automated Clearing House (ACH) debits and credits, including International ACH transactions (IAT)”.
What are the main functions performed by FATF ?
FATF is an inter-governmental body founded by G-7 countries and first chaired by France. FATF spreads the AML message worldwide; Monitors members’ progress in adopting recommendations (through annual self assessment and Peer or mutual evaluations); Reviews money laundering trends. FATF cannot impose fines or apply other direct sanctions but it may issue a statement that calls for FIs to give special attention to business relations and transactions with persons, companies and FIs domiciled in a non-complying country (FATF did it for Turkey) .
In which situations EDD is required ?
Cross Border Correspondent Banking; Money or Value Transfer Services (MVTS); New technologies and new products; In any occasional transaction or business relationship with a person established in a high-risk third country; if a business has determined that a client or potential client is a PEP, or a family member or known close associate of a PEP; In any case where a client has provided false or stolen identification documentation or information while establishing a business relationship; In any case where a transaction is complex and unusually large or there is an unusual pattern of transactions which have no apparent economic or legal purpose; In any other case which by its nature can present a higher risk of ML.
What makes Superannuation and pension products and services sector vulnerable to ML/TF and predicate crimes ?
Low levels of member engagement; Voluntary contributions to accumulation accounts by members, where the source of money is difficult to verify; Payments to members and outgoing rollovers that are vulnerable to fraud and illegal early release; A growing reliance on online delivery of products and services, resulting in less face-to face interaction with customers; Use of third parties and intermediaries.
What are the red flags associated with Securities Dealers ?
The amount of securities deposited into the account do not correspond with the client profile; The individual only sold securities from the account, while making no purchases; The sale of shares is structured; The funds were withdrawn rapidly from the brokerage account; The settlement is requested by way of certified cheque.
A customer has held an account at a local credit institution for 10 years. The account has received deposits twice weekly for the same amount and has never shown signs of suspect behavior. Monitoring software indicates that in the past few months the account has received several large deposits that were not in line with the account history. When asked, the customer states she recently sold a piece of property, which is supported with a proof of sale. What should the compliance officer do next ?
Document reasons for not filing an STR as the unusual large deposits pertains to sale of property and customer has also provided documentary evidence to support these transactions, so no STR needs to be filed in this scenario if the documents are ok. If the documents seem suspicious, compliance officer should file an STR with the competent authorities.
Which statement about US Specified Unlawful Activities (SUA) is true?
SUAs include virtually every US crime that produces economic advantage. At least one SUA must be proven in order to pursue a money laundering conviction. Knowingly using, converting, handling, retaining the proceeds (cash/dirty money) obtained through selling drugs or any predicate offence, is money laundering. In order to successfully convict a person for an offence of money laundering, it is not necessary for the prosecutor to prove that the offender knew the exact source of the ‘cash/dirty money’, they only have to prove that it came from ‘some form’ of criminal activity. Willful blindness is also synonymous to knowledge.
What are the four key areas identified by FATF to further strengthen counter-terrorism financing efforts ?
Action to address jurisdictional issues including safe havens and failed states; Outreach to the private sector to ensure the availability of information (in the form of Suspicious Transactions Reports) to detect terrorist financing; Building a better understanding across public and private sectors; Enhancing financial intelligence.
What are the risk factors associated with CDD ?
FATF Recommendation 10 on Customer Due Diligence underlines four categories of risk factors such as product, service and transactions; customer risk factors; country and geography related risk factors; and distribution channel risks. According to FATF Recommendation 10, both identification data as well as transaction records should be maintained for at least 5 years. Examples of the necessary components of transaction records include: customer’s (and beneficiary’s) name, address (or other identifying information normally recorded by the intermediary), the nature and date of the transaction, the type and amount of currency involved, and the type and identifying number of any account involved in the transaction. For products and services that rely on the internet, the internet protocol address (IP address) should be part of the identification data collected and retained by the provider.
Why is the Mutual Legal Assistance Treaty (MLAT) a gateway for international cooperation ?
MLAT provides a legal basis for transmitting evidence that can be used for prosecution and judicial proceedings. MLAT facilitates law enforcement agent obtaining evidence from authorities in a foreign country relating to criminal activity.
What is STR (Suspicious Transaction Report) ?
A Suspicious Transaction Report (STR) or a Suspicious Activity Report (SAR) is filed by a financial institution or, by a concerned citizen, to the local Financial Intelligence Unit if they have reasonable grounds to believe that a transaction is related to criminal activity. Once a financial institution has reported suspicious transactions on a customer, it should cooperate with competent authorities by providing the supporting documentation to competent authorities upon request.
What is FIU ?
Financial intelligence unit (FIU) serves as a national centre for the receipt and analysis of (a) suspicious transaction reports; and (b) other information relevant to money laundering, associated predicate offences and financing of terrorism, and for the dissemination of the results of that analysis. The FIU should be able to obtain additional information from reporting entities and should have access on a timely basis to the financial, administrative and law enforcement information that it requires to undertake its functions properly. FIUs have to maintain close links with police and customs officials. There are four models of FIUs: Judicial, Law Enforcement, Administrative, and Hybrid.
What is ‘Chinese Wall’ with regards to data/information secrecy ?
Chinese Wall, sometimes referred to as China Wall, is a barrier to prevent the communication of information for the purposes of avoiding conflicts of interest. For example, a Chinese Wall is put up to prevent sensitive corporate information from leaking, or prevent insider trading. For political reasons, a country may have a Chinese Wall, which may hinder international money laundering investigations.
What is ‘Tipping Off’ ?
An act by any person who discloses to any other person, information or any other matter, which is likely to prejudice (i.e. make biased) an investigation. Tipping off a money launderer can include: changing the way the company handles the account informing other people not related to the investigation of the suspicions and directly alerting them of a suspicion.
What is Regulatory Arbitrage ?
Regulatory arbitrage is a practice where firms exploit the regulatory difference between different markets in order to circumvent unfavourable regulation. This can be achieved by conducting business, managing products and services in locations that have lower regulatory standards. To close down regulatory arbitrage, the Financial Action Task Force (FATF) encourages its member countries to apply the FATF recommendations consistently and effectively.
Why escrow account is vulnerable to Money Laundering ?
Escrow accounts are used in real estate transactions so that the buyer can perform due diligence on a potential acquisition while assuring the seller of his capacity to close on the purchase. For example, an escrow account can be used for the sale of a house. These accounts are vulnerable to ML because there are no regulatory obligations imposed on title or escrow providers (or on attorneys handling transactions in non-escrow states) to validate the origin of funds coming through a direct wire from an offshore banking account. The size and volume of routine escrow account activities smooth out the spikes (sudden ups and downs in the account).
What is SAR ?
The Suspicious Activity Report (SAR) is a tool provided under the Bank Secrecy Act (BSA) for monitoring suspicious activities that would not ordinarily be flagged under other reports (such as the currency transaction report). In USA, SAR is filed with FinCEN i.e. Financial Crimes Enforcement Network (in Canada, it is filed with FINTRAC ) who will then investigate the incident and reporting can be done electronically by attaching CSV (Comma Separated Value) file. A financial institution is allowed to file SAR within 30 days regarding any account activity that deems to be suspicious or out of the ordinary. FinCEN (also Federal law) requires FIs to keep SAR data for 5 years from the date of filing. The BSA and other privacy laws require that SARs be kept confidential and shared only with other law enforcement agencies.
What are the Money Laundering risks associated with stored-value products ?
Absence of ownership records; Lack of reasonable transaction value caps and time period limits.
What actions should be taken after receiving a search warrant ?
Review the warrant ASAP to understand its scope; Ask for and obtain a copy/affidavit that supports the warrant; Call the appropriate in-house legal counsel immediately; Write down the names and agency affiliations of the lead agents who conducted the search; Remain present while the agents record the inventory of all items they seized and intend to remove from the premise; Ask for a copy of the agent’s inventory of what they seized; Keep track of the records taken by the agents.
What should be done to mitigate risks in correspondent banking with regards to Relationship Management Application (RMA) ?
RMAs are ‘digital handshakes’ between financial institutions that specify whether transactions can be exchanged. Without an RMA in place, institutions cannot receive SWIFT messages from counterparts. Using RMA, banks can exercise further control by specifying which particular types of messages they wish to exchange over the network and with whom. Therefore, RMA enables banks to curb risk by avoiding the sending and receiving of unwanted messages and reducing the risk that someone within either institution initiates unauthorized transactions. RMA requests should be segregated between customer relationships and non-customer RMAs. Due diligence on the RMA holder should consider the message types used by the RMA holder and the risk associated with the activity conducted.
What is OFAC’s 50 percent rule of ownership stakes by blocked/sanctioned person ?
OFAC’s 50 Percent Rule applies to entities owned 50 percent or more in the aggregate by one or more blocked persons. Accordingly, if Blocked Person X owns 25 percent of Entity A, and Blocked Person Y owns another 25 percent of Entity A, Entity A is considered to be blocked. This is so because Entity A is owned 50 percent or more in the aggregate by one or more blocked persons. For the purpose of calculating aggregate ownership, the ownership interests of persons blocked under different OFAC sanctions programs are aggregated.
What is the main objective of Geographic Targeting Order (GTO) ?
GTOs broadly apply to any purchases made using currency or a cashier’s check, a certified check, a traveler’s check, a personal check, a business check, a money order in any form, a funds transfer, or virtual currency. The purpose of the GTOs is to help FinCEN and other federal agencies identify potential money laundering in certain real estate transactions. The GTOs require that title insurance underwriters and their agents report information about certain residential real estate transactions. GTOs require US title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing and the monetary threshold has been reduced significantly to $300,000.
What is the main role played by name screening in AML/KYC Compliance process ?
Name Screening helps to manage the complexity of sanctions requirements and rapidly changing lists by automatically screening databases of individuals and entities (e.g. companies and organisations) against sanctions, Politically Exposed Persons (PEP), Relatives and Close Associates (RCA), Sanctions Ownership Research and private lists, as part of business as usual processes. Name Screening also supports web-based screening of single names to support customer onboarding and due diligence.
What is Cuckoo Smurfing ?
A form of ML (first originated in investigations in the UK) linked to Alternative Remittance System (ARS), in which criminal funds are transferred through accounts of unwitting (i.e. unaware) persons who are expecting genuine funds or payments from overseas. Cuckoo Smurfing requires an unwitting bank account owner, an insider in a financial institution and an accomplice in a foreign country who deposits cash. In Cuckoo Smurfing, third parties who hold the bank accounts being used are not aware of the fact that illicit money is being deposited into their accounts. To combat Cuckoo Smurfing, banks should identify depositors (who pay cash into third party accounts) and insiders within the FI.
The Wolfsberg Principles for Private Banking list circumstances that would require additional due
diligence, including activities that involve which three ?
High Risk Countries, including those identified by credible sources as having inadequate Anti-
Money Laundering standards; High Risk activities, involving clients and beneficial owners whose source of wealth originates from activities known to be vulnerable to money laundering; Public officials, including those individuals who have or had positions of public trust.
Which transactions are prohibited by targeted sanctions ?
Transactions with specified industries, entities /individuals listed on OFAC’s Specially Designated Nationals (SDN) and Blocked Parties list. These sanctions often include the freezing of assets and travel bans where possible. The US Treasury Department of Foreign Asset Control issues a series of periodically updated lists which prohibit transactions and require the blocking of assets of persons and organizations that are found on those lists.
Are Postal Service and Open/closed loop credit cards considered MSB (Money Service Business) ?
Yes, as MSB includes any person doing business, whether or not on a regular basis or as an organized business concern as a Money Transmitter, dealer in foreign exchange/check casher/Postal Service/Open and Closed loop credit cards (as these cards are prepaid cards and money can be moved through these).
What is meant by ‘Power of Forfeiture from US Correspondent Account’ under the PATRIOT Act ?
If funds have been deposited with a foreign bank, it permits US government to seize funds for the same amount from a correspondent bank account in the USA that has been opened and maintained for the foreign bank.
What are factors a financial institution should examine with regard to a new customer who is opening up a new account ?
The type and size of the business the customer runs; The legal structure of the customer’s business; The country or location where the customer is from or does business.
You are appointed as a new and first Head of Financial Crime Compliance/MLRO of a Bank that operates in different jurisdiction. You have been told by the CEO that you are appointed as result of the regulator’s inspection that has highlighted few concerns e.g. there is no individual appointed as a person responsible for money laundering in the bank; Though the bank is trying to comply with money laundering regulations , there is no separate compliance monitoring activity that provide assurance to management, shareholders and the regulator that effective money laundering controls are in place; The staffs are unaware of the concept of Suspicious Activity Reporting. You have been asked to provide information to management on quarterly basis by a presentation; what topics you could include to provide management an update ?
Updates on Compliance Monitoring Plan; How many reviews have been completed, how many in progress; Any high or medium risk issue identified, their action/treatment plan and updates on action plan.
How can FIs use technology to mitigate/reduce the time taken by the KYC Process ?
FIs may prompt clients to take a picture of a government-issued identification on their mobile device. When a client takes a picture from their mobile device, the financial institution will also receive the client’s location, device identification number and type of device operating system. Financial institutions can then automatically authenticate that identification. Client may also be prompted to take a selfie on their mobile device. Financial institutions can then automatically validate that the selfie matches the picture on the government-issued identification initially provided. Client may be prompted to connect social media account(s) e.g. linkedin, twitter, meetup. Financial institutions will be able to understand clients’ interests, sentiments, personalities, social connections and interactions, and life events.
What is the goal/objective of BASEL Committee on Banking Supervision ?
To set global standard-setter for the prudential regulation of banks and provide a forum for cooperation on banking supervisory matters. The Basel paper published in 1997 (covering Core Principles for Effective Banking) covered KYC, the use of high ethical standards in the fight against criminals using the banking system, and urged the adoption of the FATF 40 recommendations.
What is the ‘Top-Down’ and ‘Bottom-Up’ Approach to determine the UBO (Ultimate Beneficial Owner)/ People with Significant Control ?
Under a “Top down” approach, the ultimate beneficial owner is the person who owns/controls 25% plus one share or more of the customer; and under a “bottom
up” approach, the ultimate beneficial owner is the person who owns/controls 25% plus one share or more in the customer or any entity that owns at least 25% plus one share of the customer.
Why Prepaid cards are vulnerable to ML ?
Anonymous card holders; Anonymous funding; No or high value limits; Global access to cash through ATMs; Lax offshore jurisdictions issuing the cards; and the cards being a substitute for bulk-cash smuggling. Where additional “twin cards” or “partner cards” are issued that are specifically designed and advertised for being passed on to third parties to allow remittances,these third parties/beneficial owners are often not identified; Large number of bank accounts held by the same prepaid card company (sometimes in different countries) are apparently used as flow-through accounts (may be indicative of layering activity); Prepaid card company located in one country but holding accounts in other countries (unexplained business rationale which could be suspicious); Back and forth movement of funds between bank accounts held by different prepaid cards companies located in different countries (may be indicative of layering activity as it does not fit the business model).
Who are the main users of Cash Vouchers with regards to New Payment Methods (NPM) ?
Cash vouchers can be bought anonymously at retailers, petrol stations etc. and are usually sold in units ranging from as low as 10 EUR up to 500 GBP (approx. 750 EUR). Cash vouchers are originally designed for person-to-business (P2B) payments on the Internet, but can also be used for Peer-to-Peer (P2P) transactions where they are accepted as a funding method by other NPM service providers (e.g., prepaid card issuers or digital currency exchangers), or where they can be used for online gambling.
What are the common risks of New Payment Methods (NPM) ?
Absence of credit risk (because funds for use with NPM are generally prepaid), speed of transactions, non face-to-face business relationship. Absence of face to face contact is particularly common among IPS (Internet Payment Services) providers who generally conduct most of their business activities online. Using dynamic codes which change with each single transaction or access to an IPS, or checking of biometric data (such as fingerprint and voice recognition systems, Iris/Eye Scans), can help prevent a single customer from opening multiple accounts unnoticed.
For how long communications data should/must be retained in EU countries ?
As per EU Data Retention Directive, communications data must be retained in EU countries for at least 6 months but not more than 24 months. This should allow law enforcement access to communications data, such as logs for email, phone calls, text messages and IP addresses, which have since been classified as personal data under EU and UK data protection regulations.
When an institution files an STR with regard to a particular account, what steps should the institution take involving that account?
In respect of the financial institution’s policies, closing the account may be an option but doing so may frustrate any investigation later undertaken by the Law Enforcement Agency (LEA). If any request is received from LEA to close it, the FI should consult its counsel and AML Compliance Officer whether the account may be closed in accordance with the FI’s account closing procedures. Actually what happens to an account after an STR, depends upon the circumstances that led to the disclosure and each situation must be judged on its own merits.
How Wire Stripping (U-Turn Payment) works ?
Wire/Payment stripping is the practice of removing material information about sanctioned entities and individuals from a SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment to camouflage the true applicant or beneficiary, sending bank or receiving bank, or any combination thereof. A wire-stripping or U-Turn payment starts with a foreign entity such as an Iranian oil company which needs to purchase goods from the United States. The transaction originates with the oil company using an Iranian bank to send funds to an intermediary bank, such as in the United Kingdom, which in turn transfers the funds to the United States. When the UK bank transfers the money to the US bank the “scrub” occurs, i.e. the wire details are removed from the transfer to the US bank so as to avoid OFAC filter detection. The US bank then forwards the currency to the US based goods supplier, and the U-Turn is complete.
What are the red flags linked with foreign PEPs ?
Use of third parties in situations where that is unusual;
Use of third parties to mask the identity of a PEP;
Use of a PEP’s family member or colleague as a legal owner; Use of shell companies and legal arrangements to mask ownership, industries, or countries related to the transaction; The PEP or facilitator provides information that appears to be untrue; The PEP or facilitator attempts engage a financial institution or a designated non-financial business or profession (DNFBP), such as a real estate agent, dealer in precious metals, attorney, accountant or company formation agent, that would normally not provide services to a PEP; The PEP or facilitator repeatedly moves money to and from countries other than his or her own; The PEP or facilitator has access to state funds; The PEP or facilitator has significant control over the financial institution or DNFBP that is a party or a correspondent in a transaction; The transaction involves government contracts that do not appear to make sense, such as “payments for construction projects directed to textile merchants”;Transactions involving government contracts that are coming from or going to shell companies; Suspicious documentation, such as invoices with inflated prices or that lack pricing information; Payments for government contracts that originate from non-governmental entities; and Transactions involving property or assets expropriated or otherwise taken over by corrupt regimes, including individual senior foreign officials or their cronies (close friends/companions).
What are the areas in insurance sectors where Simplified CDD may be applied ?
Simplified CDD is acceptable for life insurance policies where the annual premium is no more than USD/EUR 1,000 or a single premium of no more than USD/EUR 2,500; Insurance policies for pension schemes if there is no surrender clause and the policy cannot be used as collateral; A pension that provides retirement benefits to ex-employees.
What are the red flag indicators for Funnel Accounts (an individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals) ?
Accounts with multiple deposits which are shortly transferred to other accounts; Accounts with multiple deposits from multiple locations outside the banking area from multiple sources (e.g., cash, ATM deposits, checks, wire transfers); Accounts opened in the USA, by individuals temporarily within the USA who are bearing immigration identity documents (such as border crossing cards), then used to wire transfer funds back to Mexico; Accounts with an unusually high number of charge-backs (a charge that is returned to a payment card after a customer successfully disputes an item on his account transactions report); Anonymous cash deposits made in destination states [interior states] followed by rapid cash withdrawals made in source states [border states].
What are the steps/parts of CDD ?
Identify/determine whether the account is being opened by a nominee or “straw man” on behalf of or to be used by a third party; The identity of all individuals must be established by a single piece of original, valid and current (unexpired) government-issued (or issued by acceptable private organization) photo identification; Build a Profile or develop dear descriptions of acceptable customers; Complete a Customer Risk Rating (CRR); Conduct Enhanced Due Diligence (EDD), if required.
What are the red flag indicators for Trade-based transactions ?
The commodity is shipped to (or from) a country or jurisdiction designated as “higher risk” for ML/TF activities; Significant discrepancies appear between the description of the commodity on the bill of lading and the invoice; Significant discrepancies appear between the description of the goods on the bill of lading (or invoice) and the actual goods shipped; The type of commodity shipped is designated as “higher risk” for ML/TF activities; The method of payment appears inconsistent with the risk characteristics of the transaction; The transaction involves the use of repeatedly amended or frequently extended letters of credit; The transaction involves the use of front (or shell) companies.
What is the threshold for conducting CDD on convertible Virtual Currency (VC) transactions ?
Convertible VC exchangers are required to conduct customer due diligence when exchanging VC for fiat currency or vice versa in a one-off transaction greater than the designated threshold of USD/EUR 15,000
What are the three consequences/penalties a Chief Compliance Officer of an FI or the FI itself may have to face for non compliance of AML regulations ?
The Chief Compliance Officer may be bared (exposed) to : Laid off; Forbidden to work and/ or barred from banking in the financial services industry in the future. Banks and individuals may incur criminal and civil liability for violating AML and terrorist financing laws.
Banks risk losing their charters. In September 2012, HSBC Holdings PLC agreed to pay a record $1.92 billion in fines to US authorities for failing to maintain an effective program against money laundering, specifically their failure to identify High Risk customers, conduct Enhanced Due Diligence (EDD) and monitor adequately. In 2017, Deutsche Bank (Germany’s biggest bank) was fined $630m (£504m) by US and UK regulators in connection with a Russian money laundering plan. Under the scheme, clients illegally moved $10bn out of Russia via shares bought and sold through the bank’s Moscow, London and New York offices.
What is Loan Sharking ?
Loansharking (also known as usury) is defined as lending money at an interest rate that exceeds the allowable legal limit. In Canada, loan-sharking is officially designated as a criminal offence if the effective rate (including fees and penalty payments) exceeds 60% per annum.
What is ‘Bureau de Change’ (also known as ‘Casa de Cambio’ in Mexico) and why it is vulnerable to money laundering ?
‘Bureau de Change’ (Exchange House) buys/sells foreign currencies; Consolidates small denomination bank notes into larger ones; Exchanges financial instruments e.g. Traveler’s Checks, Money Orders and personal checks; Offers telegraphic transfer facilities. They are attractive to money launderers as they are not as heavily regulated as traditional FIs and most customers are occasional, as such KYC is harder. Casas de cambio direct the remittance of funds via multiple funds transfers to jurisdictions outside of the jurisdiction that bear no apparent business relationship with the casas de cambio. Funds transfer recipients may include individuals, businesses, and other entities in free trade zones. Casas de cambio deposit numerous third-party items, including sequentially numbered monetary instruments, to their accounts at US banks.
Who is the Beneficial Owner as per FATF 40 Recommendations ?
Natural persons who ultimately owns/controls a customer; Person on whose behalf a transaction is being conducted; Person (s) who exercise effective/significant control over a legal person/arrangement. Each individual, public body or public traded company that owns or controls directly or indirectly at least 25% (or less if required by local law) of a corporation or other legal entity, is a Beneficial Owner.
What is AMLID (AML International Database) ?
AMLID is a secure, multi-lingual database which acts as an important reference tool for law enforcement agencies involved in cross-jurisdictional work. (web address : IMOLIN.org)
Which article of the European Union Treaty states about sanctions ?
Article 7 is designed to protect the European Union’s fundamental values. It sets out ways various EU bodies can act if they believe those values are at risk, or have been seriously breached. These values are founded on respect for: human dignity, freedom, democracy, equality, the rule of law, respect for human rights, including the rights of persons belonging to minorities. Violation of these core values may lead to sanctions against a country. Hungary is in the latest sanction list in EU.
What are the CDD steps for non-personal customers ?
Customer Due Diligence (CDD) steps for non-personal customers include: Establishing the identity/existence of the customer; Verifying the existence and good standing of the customer; Determining the purpose or intended use of the account; Determining the source of initial funds and ongoing funding; Determining the expected activity of the account; Determining the beneficial owner(s) and verifying their identity; Confirming that all funds in the account will be beneficially owned by the account holder(s) and will not be used for the benefit of someone other than the individuals named as the beneficial owners (“Third Party Determination”); Confirming whether any beneficial owner(s) is a Politically Exposed Person (PEP).
What is sanction compliance requirement in the USA ?
At its core, sanctions compliance requirements in the US, other than those imposed by bank examiners and similar regulatory oversight (or New York banking law, which is pretty prescriptive), are fairly basic: Do not conduct business which contravenes the spectrum of published regulation and guidance, or there will be an investigation. How one accomplishes that goal, by implementing appropriate controls, is up to the individual firm.
What is Cross-Selling ?
Cross-selling is a practice whereby multiple products of the organisation are sold to existing customers. It is aimed at earning increased revenue from the existing customers. For instance, if a customer has an auto loan account and deposit account in the same bank then he is more likely to take up a credit card also in that bank–resulting in more revenue for the bank. FATF Recommendations have laid down the rules that no account in fictitious names will be opened and that information obtained from Customers will not be used for cross selling purposes. This recommendation all financial institutions have to comply with. In 2016, Wells Fargo was found guilty of the violation of this recommendation. The bank was accused in a law suit in early 2018 of putting pressure on employees to open accounts for people who don’t exist and charging customers for products without permission.
Who is ‘Money Mule’ ?
Money mules are individuals who, often unwittingly (unaware), have been recruited by criminal organisations as money laundering agents to hide the origin of ill-gotten money. Tricked by the promise of easy money, mules transfer stolen funds between accounts, often in different states/countries, on behalf of others and are usually offered a share of the funds that pass through their own accounts. The term, “mule” actually comes from the narcotics trade. Criminals dupe innocent victims into laundering money by pretending to offer legitimate jobs via newspapers, chatrooms, job websites or ‘work-at-home advertisements’. They target vulnerable groups such as migrant workers or university students, newcomers to a State, the unemployed and people in economic distress who are tempted to earn some extra cash for receiving money from a victim’s account and transferring it to the criminal using a payment service.
What are the red flags related to willful blind eyes of employees within an organisation ?
A few of indicative abnormal employee behaviour patterns of willful blindness are: Quick and sudden change of an employee’s lifestyle quality, for example owning a high-priced sports car; Reluctance of the employee to go on vacation for a long time (or avoids taking periodic vacations); Employee’s spending habits become noticeably unrealistic in line with his/her known income levels; Employee getting too close to a certain client or group of clients; Employee refusing or avoiding getting transferred from a certain branch or function; Overrides internal controls or circumvents policy (employee overrides a hold placed on an account identified as suspicious so that transactions can occur in the account); Certain customers or suppliers dealt with exclusively by one employee and guarded jealously; Certain apparently mundane/dull tasks retained when they could be delegated; Entering into unnecessarily complex transactions; Transactions or structures created with no clear purpose; Evasive or excessively complicated answers to routine queries; Employee becoming too protective and defensive of a client’s relationship details; Employee’s sacrificing raises and promotion for the sake of keeping the same position/work location; Employee involved in excessive number of unresolved exceptions; Employee exaggerates the resources of a customer.
In relationship to life insurance business, the third European Directive states that Member States may allow the identity verification of the beneficiary under the policy after the business relationship has been established, but before which events?
At or before the time of payout or before the beneficiary intends to exercise rights vested under the policy.
A check casher makes $9,000 cash deposits every day. The deposited items are primarily $10 and $20 bills. Does it require the filing of a Suspicious Activity Report (SAR) with the national FIU?
Yes, because a check casher is a consumer of cash, not a depositor, unless there is another substantial cash generating activity going on at the business, which was not presented in the scenario.
A busy around the clock gas station / convenience store, located at a major intersection, makes three deposits each calendar day, utilizing tellers, night drops and ATMs. The total cash deposited on weekdays often comes near the currency reporting threshold. Monday deposits require the bank to file Currency Transaction Reports due to the aggregation of the weekend deposits - however, this is done in the back office without the customer’s knowledge. Does it require the filing of a Suspicious Activity Report (SAR) with the national FIU?
No, because it is already stated that the store operates 24 / 7 and that it makes 3 deposits every calendar day. Many multi-shift businesses make it a point to have a deposit made for every shift, so, the three daily deposits would likely not be a case of structuring, but that of a valid business decision. Also, just because the bank files the CTRs without the customer’s knowledge, it is not suspicious. Indeed, it can and does happen every day in the real world.
A grocery store makes multiple ATM deposits each day at around the same time. The deposits are a combination of checks and cash - mostly smaller bills. In total, there are usually 400-500 items deposited each day. Does it require the filing of a Suspicious Activity Report (SAR) with the national FIU ?
No, because there are multiple ATM deposits made at the same time each day, but the key element here is the statement that there are 400-500 items total in the daily deposits. Very few ATM machines can handle an envelope that thick. Therefore financial institution’s machines force the customer to split the deposits into multiple envelopes. All that being said, AML Analyst should not view this as suspicious.
In determining what risks a customer poses, which consideration should NOT be a major factor for CDD ?
The customer’s ethnic heritage, sexual orientation and political beliefs are more discriminatory factors, and while they may help frame the context of certain transactions, they should not be a major factor in assessing risk. But the size of financial institution is a critical element in determining the level of sensitivity to risks for certain customers. Other factors to be considered are : Where the customer resides or where the business is headquartered; What occupation or type of business does the customer derive their income from ?
Which would be satisfactory elements of an Anti-Money Laundering Program ?
The AML program should include development of internal policies, procedures and controls, including appropriate compliance management and must be approved by the Board of Directors; An ongoing AML training program for all personnel (including contractors); The review of the bank’s Financial Intelligence Department, as part of the audit of the AML program, to be performed by an independent (and knowledgeable) party; A Compliance Officer (MLRO) appointed by the Board of Directors (or upper management with the Board’s approval).
When an institute becomes aware that a particular employee is under investigation by law enforcement as a result of a subpoena or warrant, what action should be taken ?
The employee can and should be interviewed, as well as notified of the investigation to demonstrate the seriousness of the issue/offence and to get the employee’s full attention and cooperation.
What is the primary action a financial institution should take before formulating its anti-money laundering program?
It should perform a comprehensive risk analysis.
What is a Numbered Account ?
Numbered or alternate name accounts will only be accepted if the bank has established the identity of the client and the beneficial owner. These accounts must be open to a level of scrutiny by the bank’s appropriate control layers equal to the level of scrutiny applicable to other client accounts. Wire transfers from these accounts must reflect the true name of the accountholder.
What are three potential issues for foreign financial institutions maintaining correspondent accounts with US banks under the Patriot Act ?
Cancellation of correspondent banking relationships; Forfeiture of funds in a US interbank account; Prohibition of correspondent accounts for shell banks.
What is the Certification requirement for banks maintaining correspondent accounts for foreign banks under the USA PATRIOT Act ?
A bank that maintains a correspondent account in the United States for a foreign bank must obtain a completed certification form from the foreign bank and receives a recertification on or before the three-year anniversary of the execution of the initial or previous certification. Banks must obtain certifications (or recertification) or otherwise obtain the required information within 30 calendar days after the date an account is established and at least once every three years thereafter. If the bank is unable to obtain the required information, it must close all correspondent accounts with the foreign bank within a commercially reasonable time.
What is the document retention requirement for correspondent accounts under the USA PATRIOT Act ?
A bank must retain the original of any document provided by a foreign bank, and retain the original or a copy of any document otherwise relied on for the purposes of the regulation, for at least five years after the date that the bank no longer maintains any correspondent account for the foreign bank.
What happens if, after receiving subpoena, a bank fails to provide records of its correspondent account ?
Under section 319(b) of the USA PATRIOT Act, the Secretary of the Treasury or the U.S. Attorney General may issue a subpoena or summons to any foreign bank that maintains a correspondent account in the United States to obtain records relating to that account, including records maintained abroad, or to obtain records relating to the deposit of funds into the foreign bank. If the foreign bank fails to comply with the subpoena or fails to initiate proceedings to contest that subpoena, the Secretary of the Treasury or the U.S. Attorney General (after consultations with each other) may, by written notice, direct a bank to terminate its relationship with a foreign correspondent bank. If a bank fails to terminate the correspondent relationship within ten days of receipt of notice, it could be subject to a civil money penalty of up to $10,000 per day until the correspondent relationship is terminated.
To guard against acquisition or control of a financial institution by money launderers or their associates, what should supervisory agencies require?
Thorough due diligence on prospective owners
Which action should an FIU consider taking when it has information that might be useful to another FIU ?
Supply the information to the other FIU spontaneously as soon as the relevance of sharing the information is identified.
What does designating a country as “prime money laundering concern” allow the US government to do ?
Close some or all correspondent or payable-through accounts relating to that country.
What are three elements of a sound Customer Due Diligence Program?
Determination of what type of customer the financial institution will accept; Training as to how and to what extent to identify prospective customers; Obtaining date of birth and address of a prospective customer.
A junior account manager within an international private bank in Country A was asked by one of his valued customers, who has held an account for several years in the institution, about depositing a large sum of cash into her account. The junior account manager informed his customer that his bank does not accept cash. The junior account manager later reviewed a customer activity report and noticed a number of smaller dollar wires from banks in neighboring Country B, which has lax currency controls, that totaled about as much as the customer intended to deposit. What should the junior account manager do ?
File a suspicious transaction report with the Financial Intelligence Unit.
Which three criteria does a shell bank meet according to the Wolfsberg Principles on Correspondent Banking?
Shell bank does not conduct business at a fixed address in a jurisdiction in which it is authorized to conduct business; It does not employ one or more individuals at its fixed address where it is authorized to conduct business or maintain operating records at that address; It is not subject to AML laws that require it to implement an AML program. Shell bank is subject to inspection by the banking authority that licensed it to conduct banking activities.
What are the best practices banks should do while training their employees and monitoring compliance ?
Arrange bank-wide employee training; Regularly monitor staff performance and adherence to KYC procedures; Use standard identification procedures for non face-to-face customers; Develop clear and concise descriptions of acceptable customers; Take appropriate action against employees who fail to follow KYC procedures.
A customer runs an export business for agricultural products. There has been steady growth over the years from sales to the Caribbean region. A sudden increase is noted in this customer’s account balances during the last month. It has also been revealed, the customer has changed address. Travelers checks were purchased using the account for trips to Non-Cooperative Countries and Territories. On what grounds should an anti-money laundering specialist prepare a suspicious transaction report ?
The client changed his address without advising the institution.
A bank in an offshore jurisdiction approaches an institution about opening a new correspondent banking relationship. Prior to opening the account, the new account representative obtains copies of the offshore bank’s anti-money laundering policies and procedures, and all appropriate legal documentation for the bank; ascertains no third parties will be able to access the accounts; and determines the owners of the bank, the bank’s primary business activities, and the business address of the bank. Which steps does the Basel Committee on Banking Supervision’s Customer Due Diligence for Banks Paper recommend the banker take prior to opening this correspondent account ?
Verify the bank has a physical presence in the country where it is incorporated i.e. it is not a shell bank; Confirm the bank is subject to regulatory supervision with adequate anti-money laundering laws. Basel Committee on Banking Supervision’s Customer Due Diligence for Banks Paper covers generally accepted terms issued by big international banks.
A financial institution in a jurisdiction with currency reporting thresholds is undergoing a branch office compliance review. A large number of currency transactions in amounts exceeding a reporting threshold were discovered without a currency transaction report (CTR) being filed. The transactions were handled by the same teller (cashier). This teller (cashier) was recently hired and has not received anti-money laundering training yet. The branch manager received daily exception reports of all large currency transactions as well as a report of all CTR filings. What should the compliance officer recommend as the initial action ?
The branch manager should be formally reprimanded (strong official criticism) for failing to ensure proper instruction was given. Under the BSA, in the USA, a financial institution must report to FinCEN single or structured currency transactions that exceed $10,000 using a Currency Transaction Report (CTR). Currency transactions include “any deposit, withdrawal, exchange or other payment or transfer” that involves currency. CTR must be filed within 15 days following the day on which the reportable transaction occurred (25 days if filed electronically).
The Board of Directors for a small private bank has asked the management to no longer apply the identity requirements for high net worth individuals to protect their privacy. Which Financial Action Task Force 40 Recommendations should cause an anti-money laundering specialist the most concern ?
Financial institutions should not keep anonymous accounts.
Under requirements for correspondent accounts in the USA PATRIOT Act, the word “certification” refers to a written representation by which party ?
Correspondent bank, certifying that they do not open correspondent accounts for Alternative Remittance Companies (ARS). This Certification should be completed by any foreign bank that maintains a correspondent account with any US bank or broker-dealer in securities. A branch or office of a US bank outside the United States is a foreign bank. Such a branch or office is not required to complete this Certification with respect to Correspondent Accounts with US branches and offices of the same US bank.
What is the main difference between ML and Terrorist Financing ?
For ML, origin of funds is from criminal proceeds whereas for TF, funds may not be derived from criminal proceeds. In case of ML, individuals responsible for the illegal activity are usually the ultimate beneficiaries of the laundered funds. In case of TF, individuals responsible for raising the funds are not the beneficiaries of the funds. In other words, the money trail for money laundering is circular with money eventually ending up with the person who generated it. On the other hand, the money trail for terrorist financing is linear with the money generated being used to propagate terrorist groups and activities. In ML, the motivation is purely for profit; in TF, the motivation tends to be ideological. In ML, the detection focus tends to be on suspicious transactions; in TF, the tendency is a focus on suspicious relationships.
Jane Jackson owns a small online website that has journalists from around the world who contribute travel blogs to this site. Ms. Jackson is a bank client where she goes once a month to make payments to 4 of her staff members who are located in Guadeloupe, France, Greece and the US. Are these transactions Red-Flagged ?
No, because Jane has a legitimate reason for conducting these transactions.
Jings Auto Parts, a bank client, requests a transfer of funds to a commercial account. This account is in the name of Tong’s Jewels, a wholesale jewelry supplier. Is this a Red-Flag transaction ?
Yes, because there is no logical relationship or connection between the sender (an auto parts company) and the ultimate beneficiary of the fund (jewelry supplier).
What are the criteria for communication between FIUs ?
Free exchange of information based on reciprocity;
Exchange of information should be informal and rapid; Communication between FIUs should be direct without intermediaries. Communication between FIUs is based on an MOU and FIUs use MLATs (Mutual Legal Assistance Treaties) to obtain intelligence that may lead to evidence.
What could trigger the need for an Internal
Investigation ?
Receipt of a government subpoena or search warrant; Learning that government investigators are asking questions about institution’s employees, business associates, customers or even competitors; Information from employees or a company hotline; Information from third parties, such as customers; A report of examination from the regulators; Information derived from surveillance or monitoring systems; Filing of civil law suit against the FI.
What are the information Correspondent banks should collect about their respondent banks ?
Information about the respondent bank’s management (whether anyone in management chain is a PEP), major business activities, location and money-laundering prevention and detection efforts; Purpose of the account; Identity of any third party entities that will use the account; Condition of bank regulation and supervision in the respondent’s country.
What should be the roles of Senior Management in ensuring/embedding a Compliance Culture ? OR
The Board of Directors and the senior management of a financial institution should ensure that certain things are established and followed with regard to an effective AML program. What are those ?
Devote adequate resources to compliance function and communicate compliance expectations to staffs; Ensure a strong compliance program and Senior Management is informed of compliance efforts/all major AML issues; Establish and oversee compliance program, including procedures, processes and controls; Include regulatory compliance in all relevant job descriptions and performance appraisals; Incorporating compliance with the institution’s AML policy into the annual evaluation process; Ensure that, risks are not compromised by revenue interests; Management must understand the purpose of its AML/CFT efforts and how its STR reporting is used; A numerical summary of all the STRs filed (including additional detail on significant cases) and a summary of key STRs, including PEPs, key employees should be provided to the Board of Directors; Relevant information from various departments within the organization must be shared with Compliance/AML staff to further AML/CFT efforts.
In which money laundering stage(s) are credit cards most likely to be used and what could be an example of money laundering through the use of credit cards ?
Credit cards are not likely to be used in the initial placement of money laundering. They are more likely to be used in the layering or integration stages of money laundering. One example of using credit cards for money laundering purposes is frequently overpaying a credit card balance and then asking for a refund. Receiving a check from the reputable credit card company makes it look like the funds received are legitimate.
What are Red Flags related to Investment Accounts ?
Use of investment account as a pass-through vehicle for offshore wires; Customer not interested in usual decisions around fees or investment vehicles; Deposits of cash, money orders, travelers cheques, or cashiers cheques under the reporting threshold in order to fund the account; Customer cashes out investments such as annuities or life insurance early.
How Money Laundering is done through Internet Casinos or Online Gambling ?
Transactions are primarily made using debit or credit cards, and the casinos are located in unregulated off-shore locations so prosecuting individuals is difficult. Credit card transactions are identified by codes which enable such transactions to be blocked by banks and credit card companies; Online gambling is not used for cash movement as there is no physical presence to pay in cash.
What is Wash Trading with regards to money laundering through securities markets ?
Wash trading is where two opposite transactions (Buying a Put and Call on the same stock in two
different accounts) are placed – for example dirty money could be introduced into a brokerage, and a long and a short position could be taken on the same security or future in different brokerages. No matter which way the market moves, the principal is safe, as losses on one side are offset by gains on the other side. If the market moves so that the dirty money is lost, then the gains in the other brokerage account can be withdrawn which look like legitimate investment returns.
What are the Red Flags related to Terrorist Financing ?
Account holder’s name on a list of suspected terrorists; Frequent large cash deposits in a non-profit organization’s account; High volume of transactions; Lack of clear relationship between activity and account holder’s business; Large cash deposits followed by frequent withdrawals until the funds are depleted; A dormant, low sum account suddenly receive wire transfer deposits followed by daily cash withdrawals that continue until transferred sum is removed and lack of cooperation by the client in providing information.
Why and how Front Companies are used for Money Laundering Purposes ?
Front Companies are companies that actually carry on business where illegal profits can be co-mingled with revenues derived from legitimate undertakings. Money Launderers use legitimate businesses that offer a service, and commingle illicit funds with legitimate proceeds from the business. Such criminally controlled companies often use nominee owners or directors to hide beneficial ownership. Selling these criminal companies is a way to create legitimate funds for the launderer, and they often get high prices as the turnover appears artificially high. The most obvious business front seems to be a casino (arbitrary amounts of anonymous cash comes in, arbitrary amounts similarly paid out). Another idea is something like diamond mining (assuming rough diamonds may be bought easily and anonymously for cash), but this is less preferable because it takes a large upfront investment. Laundromats, Car Wash businesses, Medicare companies, Mattress Stores, Payday Loan organizations are also used as Front Companies.
What is the Wire Transfer record keeping requirement with regards to prevention of ML ?
Wire Transfer record keeping requirement mandates that all information must be collected for wire transfers of $3,000 or more, regardless of payment method.
What is Willful Blindness/Non-Compliance ?
This occurs when a bank employee fails to collect or verify any CIP (Customer Identification Program)information, neglects to complete a CTR when necessary, neglects to complete an SAR, or completes a wire transfer or sale of negotiable instruments when either transaction involves $3,000 without collecting and verifying the customer and transaction information. An individual employee in violation of the BSA (including those who willfully “look the other way”) may face employment termination; be barred from the financial services industry; and/or be subject to up to 10 years in prison and/or fines in an amount up to $500,000.
What is double invoicing?
Double invoicing is where a subsidiary purchases goods from a parent at too high a price, or a parent purchases from a subsidiary at too low a price.
What are the key features of Asia Pacific Group (APG) ?
APG is voluntary and cooperative in nature; APG and FATF have reciprocal rights of attendance; APG encourages jurisdictions to implement AML/CFT initiatives with more effective mutual legal assistance.
What are the main functions performed by EurAsian (EAG) Group ?
Based on FATF Recommendations, EAG conducts mutual evaluation of members; Coordinates international cooperation and technical assistance programs; Analyzes ML and TF trends.
What should be the degree of training for Senior Management and the Board of Directors as compared to 1st, 2nd or 3rd Line of Defense ?
Senior Management and Board of Directors do not need the same training as compared to Front Line officers, Internal Compliance and Internal Audit employees. Their training should focus on AML/CFT regulatory requirements, penalties for non-compliance and personal liability.
What are the things/factors to be focused on AML/CFT Training ?
Legal framework on which AML/CFT laws apply; Penalties for violating AML/CFT laws; Internal Policies e.g customer identification and verification procedures; Review of the internal AML/CFT and sanctions compliance related risks; Legal record keeping procedures; Actions needed once suspicious client/activity is identified; Duties of employees.
What is sanction ? Which organizations impose sanctions ?
Sanctions are restrictions and obligations that must be respected by countries, non-state entities, companies, organizations and individuals. It is an international tool used to impose a change in a country or a regime or to isolate specific targets (like companies, persons, vehicles, aircrafts). United Nations (UN), European Union (EU) and individual countries can impose sanctions.
How Government Subpoena or Search Warrant can be handled ?
Legally fulfill the requirement of the subpoena/warrant; Determine whether the customer identified, requires filing of STR. A search warrant is not open-ended and does not compel any testimony.
With which ML Stage (s) Real Estate is most often associated with ?
Property is often used to disguise the source of funds, making it useful in the layering phase e.g. investing in a condo/house. It can also be used in the integration phase where an asset such as condo, house or a holiday complex can be purchased, adding to the air of legitimacy. Because real estate is costly, it is not usually a good candidate for placement, which would require very large sums of cash, or structuring, which requires multiple small sums of cash to avoid reporting thresholds.
For which purpose under valuing exports are used in Trade-Based ML ?
Fraudulent transfer pricing schemes are most often associated with the undervaluing of exports. They can be used in conjunction with the Black Market Peso Exchange (BMPE); however they are not necessary for the BMPE to work.
What should banks do in order to mitigate the risk of companies with bearer shares ?
There is no requirement to refuse to do business with such entitles, however there is no register of owners to check. Banks cannot insist that the shares be handed over, as possession equates to ownership. Bank should satisfy itself as to the beneficial owners of the entity. Financial institutions are not obligated to verify the identity of the presenter of a bearer check unless the transaction exceeds a particular threshold.
What should a financial institution do if served with a summons or subpoena to produce documents ?
The officers of the FI should not act on the legal process until they have contact with the agent and learn what the agent is investigating. Senior Management/Counsel of the FI should be informed and they should review the subpoena /summons. FI should provide all the documents completely and timely if there is no ground for contesting the subpoena and should not notify the customer who is being investigated.
Can the Government order an FI to maintain (NOT closing) an account that is being investigated ?
Yes, they can, but it requires a written request under proper letterhead and authority from the Government.
What things should be considered while using internet (Open Source Search) for financial investigation ?
The information is reliable and verifiable; If it is customer’s reputation related information, it has to be ensured that the research has been done using news/quasi-news websites; Using metasearch and/or multiple search engines; Using country specific local search engines.
When an institution conducts an internal investigation into an account following a law enforcement
inquiry, it should consider a number of factors to independently determine if the account should be
closed. Which three considerations should be made when making the determination about closing an
account ?
The institution’s policies and procedures for closing an account; The legal basis for closing the account; Reputation risk for the FI if the account is maintained (NOT closed); Seriousness of the underlying conduct of the account; Signed written requests by a law enforcement agency or prosecutor on official letterhead for the account to remain open.
What factors need to be considered before prosecuting an FI for violation of AML rules ?
Criminal history of the FI ; Cooperation history of the FI; Whether the FI has discovered and self reported the ML related issue/ violations; Whether the FI has any comprehensive and effective AML/CFT Programme in place; Whether the FI has taken any timely and effective remedial action; Whether any civil remedies are available that can serve as punishment; Whether the FI is deterring wrongdoing by others; Intent of the institution when it undertook the action in question (i.e. violated AML rules).
What should an FI do when it is being investigated ?
The FI should respond quickly and completely to all request; FI should inform its Senior Management; FI needs to retain qualified experienced legal counsel; Conduct an inquiry of its own to determine the underlying facts; All information should be centralized which can serve as a single point of contact.
What are the inherent risks when a Personal Account is opened through a Power of Attorney ?
The representative could actually be the beneficiary owner of the account opened in the name of the grantor; The representative could be a trustworthy person that might deceive the bank from conducting enough Customer Due Diligence on the grantor;
Powers of Attorney do not always mention a specific Bank where the representative is allowed to open the bank account – thus, there is the risk that the same Power of Attorney can be used at several banks to open accounts and be used for the personal use of the representative (abuse of the Power of Attorney);
Banks do not generally monitor that the accounts opened through specific Powers of Attorneys are used exclusively for operations linked to that specific purpose – there is the risk that the account may be used for other transactions ; Most Powers of Attorney give the representative the power to open and manage bank accounts, but not the power to close them after the specific purpose was achieved.
What are suspicious indications associated with Safe Deposit Boxes ?
Large number of visits of the safe deposit box in a given period compared to other customers (especially if the customer profile doesn’t justify it); The safe deposit box is visited only/mainly by the empowered person /delegate of the customer (hint that the customer is just a front man and the beneficiary owner of the safe deposit box is actually the empowered person/delegate who for some reason wants to hide this ownership); A person already having a current account opened with the bank, doesn’t have a safe deposit box on his name but frequently uses the safe deposit box of another customer as empowered person/delegate; The customer is always brought by / comes with someone else to visit the safe deposit box ;Discrepancy between the customer profile and his need for a safe deposit box (eg. students, low income customers, customers that reside in a different area or town than where the safe deposit box is – hint that they may be used as front men); The customer remains a long time in the safe deposit box area (hint that he may have large amounts to number / order or that he may even engage in illegal activities in the safe deposit box area, like drug packaging).
A customer applied for a loan from a bank, brought dirty money as cash collateral, knowing that the bank is too focused on analyzing the loan itself to pay enough attention to the source of money. The loan money is used legally for personal needs, for real-estate investments or even in a company’s activity. Then, one day, the customer decides that he no longer wants to pay the installments “because it is too difficult, too stressful, too tiresome to remember, etc.” and decides to use the cash collateral to reimburse the entire loan. Which ML stage has been used here ?
Placement and Integration.
Why KYE (Know Your Employee) is so important with regards to Wire/ Payment Stripping ?
Wire stripping occurs when a bank willfully decides to weed out, tamper, or even alter the payment details of a Swift message be it an MT 103, 202, or 700 especially, with regard to ordering/beneficiary client details (country, address, name), origin of goods and sea ports involved. Such a premeditated practice is usually done to override sanctions filters (to circumvent restrictions imposed by economic sanctions) and make a non-compliant payment look compliant so that it will not be rejected or flagged by the correspondent. What makes stripping so problematic is that it’s an evasion strategy coming from within the financial institution itself and here arises the importance of KYE. These cases involved staff inside the institution itself who, for whatever reason, formulated strategies to strip payment messages of customer information for which the institution’s sanction screening tool would have raised an alert. The real risk in these types of cases is that stripping requires a level of knowledge and intent by the individuals involved. To mitigate this risk, where payments are linked to other payments, discrepancies between these payment pairs may indicate that wire stripping has occurred.
What is Isolation/ Cut-off Company ?
‘Isolation’ or “cut-off” companies are used to obscure or conceal the activities which another company or legal entity may engage in. These can be both “shell” and “shelf” companies.
What is the extended scope under 5th EU AML Directive
regarding the Beneficial Owners ?
The 5th EU AML Directive (MLD5) reinforces the obligations regarding the Beneficial Owners to corporate vehicles and trustees, not only to obliged entities. The European Banking Authority would be able to directly force individual banks to take measures against money laundering “as a last resort” if national authorities do not act. EU Member States have until 10 January 2020 to implement MLD5 into their national legislation.
A corrupt overseas money remitter takes an honest client’s money and instead of using it to purchase Australian dollars for the client’s intended recipient, they give it to a criminal gang. But the honest client’s recipient still gets paid into their Australian account: in dirty cash deposits made by local criminals linked to the overseas gang. Which ML technique has been applied here ?
Cuckoo Smurfing because in relation to money laundering, it involved criminals, without the knowledge or consent of an account holder, depositing money from crime in their account. While legal or clean money, the customer was expecting to receive, usually from offshore, is hijacked and given to offshore based crime groups.
What is Structuring ?
Structuring is the money laundering process by which individuals or criminal syndicates are able to bypass this recognition of money transfers by breaking up cash amounts into sums lower than the threshold so that they’re not picked up by banks and therefore reported. Structuring can take different ways [of being executed], for example, a person can go around and individually deposit those small amounts at different locations or ATMs or bank branches and do the manual labour himself. As such, Structuring is making cash deposits or withdrawals at dollar values of $10,000 or less, making them at multiple teller windows on a single banking day, or making them at multiple branch locations or by multiple individuals into a single account on a single day. The most effective tool used to detect structured transactions is verification of the source of funds.
What is Regulation 847/2015 ?
Regulation 847/2015 is a good way to identify the parties of cross-border transactions and help Authorities in their ML/CFT investigations. It does place a burden on EU banks and especially on the EU customers that find themselves “innocent victims”, with their money blocked due to the fact that the SWIFT message doesn’t contain the address of the ordering party from outside the EU. it applies to all transactions that are performed within the European Union, all incoming transfers that are received by European Union banks from banks outside the European Union. It is also a good way to educate non-EU banks to send the mandatory information through SWIFT message, even though they are not bound by EU Regulation 847/2015. The mandatory information are name of the payer; The payer’s account number; The payer’s address or official personal document number or customer identification number or date and place of birth (it is mandatory only for transactions that come from banks outside the European Union.
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.
Identify and describe the three sections of the USA Patriot Act concerning due diligence US financial institutions need to perform for relationships with foreign correspondent banking customers.
Section 312 requires institutions must set up risk based due diligence to mitigate the money laundering risks posed by foreign financial institutions; Section 313 prohibits US financial institutions from opening or maintaining correspondent accounts for foreign shell banks and requires them to take “reasonable steps” to ensure that a correspondent account of a foreign bank is not being used indirectly to provide banking services to a shell bank; Section 319 requires US financial institutions to maintain records with the names and address of the owners of foreign banks for which they maintain correspondent accounts.
Describe several ways commodity futures and options accounts may be susceptible to money laundering.
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; Movement of funds to disguise their origin.
