AML COMPLIANCE PROGRAM

Question 1

An AML program should be?

Answer 1

An AML program should be risk based, and should be designed to mitigate the money laundering and terrorist financing risks the organization may encounter.

Question 2

Risk based approach.

Answer 2

Governments around the world believe that the risk-based approach is preferable to a more prescriptive approach in the area of anti-money laundering and counter-terrorist financing because it is more:
Flexible — as money laundering and terrorist financing risks vary across jurisdictions, customers, products and delivery channels, and over time.
Effective — as companies are better equipped than legislators to effectively assess and mitigate the particular money laundering and terrorist financing risks they face.
Proportionate — because a risk-based approach promotes a common sense and intelligent approach to fighting money laundering and terrorist financing as opposed to a “check the box” approach. It also allows firms to minimize the adverse impact of anti-money laundering procedures on their low-risk customers.

Question 3

Factors to determine risk?

Answer 3

The risks your organization faces depend on many factors, including the geographical regions involved, your customer types and the products and services offered.

Question 4

Levels of risk are?

Answer 4

Prohibited — The company will not tolerate any dealings of any kind given the risk. Countries subject to economic sanctions or designated as state sponsors of terrorism, such as Sudan or Iran, are prime candidates for prohibited transactions. Prohibited customers would include shell banks.
High-Risk – The risks here are significant, but are not necessarily prohibited. To mitigate the heightened risk presented, the firm should apply more stringent controls to reduce the risk, such as conducting enhanced due diligence and more rigorous transaction monitoring. Countries that are noted for corruption or drug trafficking are generally deemed high risk. High- risk customers may include PEPs; high-risk products and services may include correspondent banking and private banking.
Medium-Risk — Medium risks are more than a low- or standard-risk of money laundering, and merit additional scrutiny, but do not rise to the level of high-risk.
Low- or Standard-Risk — This represents the baseline risk of money laundering; normal business rules apply. FATF member countries and domestic retail customers are frequently, but not always, considered to be standard- or low-risk.

Question 5

Types of customers might be considered high-risk for money laundering?

Answer 5

Casinos, off-shore corporations and banks located in tax/banking havens,leather good stores, currency exchange houses,money remitters, check cashers,car,boat and plane dealerships, used-car and truck-dealers and machine parts manufacturers, travel agencies, brokers/dealers in securities, jewel, gem and precious metals dealers, import/export companies and cash-intensive businesses (restaurant, retail stores, parking).

Question 6

Product or services as a risk?

Answer 6

Does a particular new or current product or service:
Enable significant volumes of transactions to occur rapidly?
Allow the customer to engage in transactions with minimal oversight by the institution?
Afford significant levels of anonymity to the users?
Have an especially high transaction or investment
value?
Allow payments to third parties?
Have unusual complexity?
Require government verification of customer eligibility?

Question 7

Certain specific banking functions or products considered a high-risk.

Answer 7

Private banking
Offshore international activity
Deposit-taking facilities
Wire transfer and cash-management functions
Transactions in which the primary beneficiary is undisclosed
Loan guarantee schemes
Travelers checks
Official bank checks
Money orders
Foreign exchange transactions
Trade- financing transactions with unusual pricing features
Payable Through Accounts (PTAs).

Question 8

The elements of an AML program.

Answer 8

A system of internal policies, procedures and controls;
A designated compliance of officer with day-to-day
oversight over the AML program;
An ongoing employee training program; and
An independent audit function to test the AML program.

Question 9

Internal AML policies and the standard AML operating procedures

Answer 9

Internal AML policies should be established or approved by higher management or the board of directors, and should set the tone for the organization while the standard AML operating procedures are often designed and drafted at a lower level.
Overall, policies and procedures should be in writing, and must be approved by appropriate levels of management. In general, institution-level policies should be approved by the board, while business unit procedures can be approved by business unit management.

Question 10

An AML compliance program should include policies, procedures, and processes that:

Answer 10

Identify high-risk operations (products, services, customers, and geographic locations); provide for periodic updates to the institution’s risk profile; and provide for an AML compliance program tailored to manage risks.
Inform the board of directors (or a committee of
the board) and senior management of compliance initiatives, known compliance deficiencies, suspicious transaction reports led and corrective action taken.
Assign clear accountability to persons for performance of duties under the anti-money laundering program.
Provide for program continuity despite changes in management or employee composition or structure.
Meet all regulatory requirements and recommendations for anti-money laundering compliance.
Provide for periodic review as well as timely updates to implement changes in regulations. Generally, this should be done at least on an annual basis.
Implement risk-based CDD policies, procedures and processes.
Provide sufficient controls and monitoring systems for the timely detection and reporting of suspicious activity. (Institutions should consider centralizing their own review and report- ling functions.)
Provide for dual controls and segregation of duties. Employees who complete the reporting forms should not also be responsible for filing the reports or granting the exemptions.
Comply with all record keeping requirements, including retention and retrieval of records.
Provide sufficient controls and monitoring systems for the timely detection and reporting of activity, such as for large currency or large transaction reporting.
Provide for adequate supervision of employees who handle currency transactions, complete reports,
grant exemptions, monitor for suspicious activity, or engage in any other activity covered by the anti-money laundering laws, including implementing regulations.
Train employees to be aware of their responsibilities under anti-money laundering laws, regulations and internal policy guidelines.
Incorporate anti-money laundering compliance into the job descriptions and performance evaluations of appropriate personnel.
Develop and implement screening programs to ensure high standards when hiring employees. Implement sanctions for employees who consistently fail to perform in accordance with an AML framework.
Develop and implement program testing to assess the effectiveness of the program’s implementation and execution of its requirements. This is separate from the independent audit requirement, but serves a similar purpose — to assess the effectiveness of the program.

Question 11

Compliance Officer

Answer 11

A person should be designated as the anti-money laundering compliance officer. This individual should be responsible for designing and implementing the program, making necessary changes and disseminating information about the program’s successes and failures to key staff members, constructing anti- money laundering-related content for staff training programs and staying current on legal and regulatory developments in the field.

Question 12

Training

Answer 12

WHO TO TRAIN
WHAT TO TRAIN ON 
HOW TO TRAIN
WHEN TO TRAIN
WHERE TO TRAIN

The first step in designing an effective training program is to identify the target audience. Most areas of the institution should receive AML training, and the target audience should include most employees. But each segment should be trained on topics and issues that are relevant to them.

Question 13

Several basic matters should be factored that should be factored into AML training?

Answer 13

Several basic matters should be factored into AML training:
General information: background and history pertaining to money laundering controls, what money laundering and terrorist financing are, why the bad guys do it, and why stopping them is important;
Legal framework: how AML laws apply to institutions and their employees;
Penalties for anti-money laundering violations, including criminal and civil penalties, fines, jail terms, as well as internal sanctions, such as disciplinary action up to and including termination of employment;
How to react when faced with a suspicious client or transaction;
How to respond to customers who want to circumvent reporting requirements;
Internal policies, such as customer identification and verification procedures and CDD policies;

Question 14

Audit

Answer 14

Putting your AML compliance program into motion is not enough. The program must be monitored and evaluated. Institutions should assess their anti-money laundering programs regularly to ensure their effectiveness and to look for new risk factors.
The audit must be independent (i.e., performed by people not involved with the organization’s AML compliance staff), and individuals conducting the audit should report directly to the board of directors or to a designated board committee composed primarily or completely of outside directors. Those performing the audit must be sufficiently qualified to ensure that their findings and conclusions are reliable.

Question 15

Self-assessments or external audits.

Answer 15

Make sure any self-assessments or external audits are accompanied by a written report to management outlining who conducted the assessment, the methods used to assess the program, the results and any suggested changes. The assessments or audits to identify deficiencies may be performed by employees of the institution or business, but not by persons who administer the program.

Question 16

Compliance culture: senior management’s role.

Answer 16

Ultimate responsibility for the AML compliance program rests with the board of directors. Members must set the tone from the top by openly voicing their commitment to the program, ensuring that their commitment flows through all service areas and lines of business, and holding responsible parties accountable for compliance.
The board’s role in AML compliance consists of reviewing and approving the overall AML program and ensuring that there is on-going oversight. That does not mean that board members are expected to become anti-money laundering experts themselves, or that they are responsible for day-to-day program management. Rather, it means that they should formally approve an institution’s AML compliance program and then make sure the program is adequately implemented and maintained by staff.

Question 17

Senior management’s commitment to compliance.

Answer 17

Senior management must show its commitment to compliance by:
Establishing a strong compliance plan that is approved by the board of directors and is fully implemented.
Insisting that it be kept informed of compliance efforts, audit reports and any compliance failures, with corrective measures instituted.
Communicating compliance expectations to the institution personnel.
Including regulatory compliance within the job descriptions and job performance evaluations of institution personnel.
Implementing procedures, processes and controls to ensure compliance with the AML program.
Conditioning employment on regulatory compliance.

Question 18

Customer Due Diligence and the main elements of a CDD program.

Answer 18

Many experts say that a sound Customer Due Diligence (CDD) program is the best way to prevent money laundering.
A sound CDD program should include these 7 elements:
Full identification of customer and business entities, including source of funds and wealth when appropriate.
Development of transaction and activity profiles of each customer’s anticipated activity.
Definition and acceptance of the customer in the context of specific products and services.
Assessment and grading of risks that the customer or the account present.
Account and transaction monitoring based on the risks presented.
Investigation and examination of unusual customer or account activity.
Documentation of findings.

Question 19

Account opening, Customer Identification and Verification

Answer 19

Based on the account opening and customer identification guidelines from the February 2003 General Guide to Account Opening and Customer Identification, an Attachment to the Basel Committee publication Customer Due Diligence for Banks, a guide to good practices related to customer identification.
This document, which was developed by the Working Group on Cross-Border Banking, does not cover every eventuality, but, instead, focuses on some of the mechanisms banks can use in developing effective customer identification programs.

Question 20

Each new customer who opens a personal account should be asked for?

Answer 20

Legal name and any other names used (such as maiden name).
Correct permanent address (the full address should be obtained; a postal box number is usually not sufficient).
Telephone and fax numbers and e-mail address. Date and place of birth.
Nationality.
Occupation, position held and name of employer.
An official personal identification number or other unique identifier contained in an unexpired, official, government-issued document (e.g., passport,identification card, residence permit, driver’s license) that bears a photograph of the customer.
Type of account and nature of the banking relationship.
Signature.
The institution should verify this information by at least one of the following methods:
Confirming the date of birth from an official document (e.g., birth certificate, passport, identity card).
Confirming the permanent address using an official document (e.g., utility bill, tax assessment, bank statement, letter from a public authority).
Contacting the customer by telephone, letter or e-mail to verify the information supplied after an account has been opened (a disconnected phone, returned mail, or incorrect e-mail address should warrant further investigation).
Confirming the validity of the official documentation either by physical verification of the original or through certification by an authorized person (e.g., embassy official).
These examples are not the only possibilities. In some jurisdictions, other documents of an equivalent nature may be offered as satisfactory evidence of a customer’s identity.
When appropriate, institutions should also obtain information about the source of wealth, source of funds and the customer’s line of business, and should investigate the source of funds of large deposits, especially when they are made in cash or are disproportionate to the customer’s declared source of income. Officials should consider the proximity of the customer’s residence or place of business to the branch where the account is opened, and, if it is not close by, determine why the customer is opening an account at that location.
Financial institutions should apply equally effective customer identification procedures for non-face-to-face customers as for those available for interview.

Question 21

Each new customer that is a corporate entity who opens an account should be asked for?

Answer 21

For corporate entities (e.g., corporations and partnerships), the following information should be obtained:
Name of institution.
Principal place of its business operations.
Mailing address.
Names of primary contact people or those authorized to use the account.
Contact people’s telephone and fax numbers.
Some form of official identification number, if available
(e.g., tax identification number).
The original or certified copy of the Certificate of Incorporation, Memorandum and Articles of Association.
The resolution of the Board of Directors to open an account and identification of those who have authority to operate the account, including beneficial owners.
Nature and purpose of business, and its legitimacy. The institution should verify this information by at least one of the following methods:
For established corporate entities, review a copy of the latest report and accounts (audited, if available).
Conduct an inquiry by a business information service, or obtain an undertaking from a reputable rm of lawyers or accountants (or, in some countries, verifying officers) confirming the documents submitted.
Undertake a company search or other commercial inquiries to see that the institution has not been, or is not in the process of being, dissolved or terminated.
Use an independent information verification process, such as by accessing public and private databases.
Obtain prior bank references.
Visit the corporate entity, where practical.
Contact the corporate entity by telephone, mail or e-mail.
The institution should also take reasonable steps to verify the identity and reputation of any agent who opens an account on behalf of a corporate customer, if that agent is not an officer of the customer.

Question 22

A Customer Identification Program (CIP).

Answer 22

A written Customer Identification Program (CIP) must be included within the institution’s AML compliance program and must include, at a minimum, policies, procedures and processes for the following:
identifying information required to be obtained (including name, address, taxpayer identification number and, for individuals, date of birth), and risk- based identity verification procedures (including procedures that address situations in which verification is not possible).
Complying with record keeping requirements.
Checking new accounts against prescribed
government lists, if applicable.
Providing adequate notice about customer identification requirements.
Covering the institution’s reliance on other financial institutions or third parties, if applicable.
Determining whether and when suspicious transaction reports should be led.
Conducting a risk analysis of customers for account opening purposes, which consider the types of accounts offered, methods of account opening, and the institution’s size, location and customer base.
Opening new accounts for existing customers.
Obtaining the approval of the board of directors, either separately for the CIP or as part of the AML compliance program.
Conducting audit and training programs to ensure that the CIP is adequately incorporated.
Verifying that all new accounts are checked on a timely basis against prescribed government lists for suspected terrorists or terrorist organizations.

Question 23

Name Checking Lists

Answer 23

Before a financial institution starts doing business for the first time with a new customer, it should check published lists of known or suspected terrorists for a potential match.
One of the best-known lists is the U.S. Treasury’s Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Persons list. Updated often, it contains hundreds of names of individuals and businesses the U.S. government considers to be terrorists or international narcotics traffickers and others that are covered by U.S. foreign policy and trade sanctions. Many other sanctions are based on United Nations and other international mandates.
The “Corruption Perceptions Index” published by Transparency International, an international non-governmental organization devoted to combating corruption, could be useful in focusing on high-risk jurisdictions. However, not every customer from a country in the top 10 list of perceived corrupt countries is a PEP. Moreover, even a PEP from a low-risk jurisdiction may not be above bribery, extortion and other corruption.

Question 24

Know Your Employee

Answer 24

Background screening of prospective and current employees, especially for criminal history, is essential to keeping out unwanted employees and identifying those to be removed.
The Federal Deposit Insurance Corporation (FDIC), a U.S. regulator, has provided guidance on employee screening in its paper “Pre-Employment Background Screening: Guidance on Developing an Effective Pre-Employment Background Screening Process,” issued in June 2005.

Question 25

Suspicious or unusual Transaction monitoring and reporting.

Answer 25

Many financial institutions create internal reports that can be used to discover possible money laundering and terrorist financing. Some of the reports include:
Daily cash activity in excess of the country’s reporting threshold.
Daily cash activity just below the country’s reporting threshold (to identify possible structuring).
Cash activity aggregated over a period of time (e.g., individual transactions over a certain amount, or totaling more than a certain amount over a 30-day period) to identify possible structuring.
Wire transfer reports/logs (with filters using amount and geographical factors).
Monetary instrument logs/reports.
Check kiting/drawing on uncollected funds (significant
debit/credit flows).
Significant change reports.
New account activity reports.

Question 26

A typical suspicious or unusual transaction reporting process within a financial institution includes:

Answer 26

Procedures to identify potential suspicious transactions or activity.
A formal evaluation of each instance, and continuation, of unusual transactions or activity.
Documentation of the suspicious transaction reporting decision, whether or not filed with the authorities.
Procedures to periodically notify senior management or the board of directors of suspicious transaction filings.
Employee training on detecting suspicious transactions or activity.

Question 27

Red Flags or Indicators of Money Laundering

Answer 27

ATM usage, Moving Customers,Opening Deposits or Investments, Out-of-Market Windfalls, Credit balances, Common Addresses,phone numbers, IP addresses and other data.

Question 28

October 2005 issue of FinCEN’s “SAR Activity Review

— Trends, Tips and Issues,” money laundering indicators in a securities broker-dealer setting were discussed.

Answer 28

The predominant activity reported in this category was funding an account, but allowing the money to remain idle. Because some investment accounts do not bear interest, failure to invest assets is actually considered a loss in most cases. Therefore, lack of activity in an investment account may serve as a red flag to broker-dealers. The decision to file a Suspicious Transaction Report usually is made after long periods of inactivity followed by a sudden liquidation of the account, through check writing, debit card use at ATMs, and outbound fund transfers, without obvious economic benefit. Excessive outbound wire activity was common in Suspicious Transaction Reports (STRs) led by the securities and futures industries. Preliminary indicators are that individuals who engage in this activity within one year of establishing a brokerage account were more likely to send funds abroad. Several filers near the Canadian or Mexican borders reported strong suspicions that funds in idle brokerage accounts were being wired to foreign institutions in Canada and Mexico to evade taxes.

Question 29

Suspicious Customer Behavior

Answer 29

Customer has an unusual or excessively nervous demeanor.
Customer discusses your record-keeping or reporting requirements with the apparent intention of avoiding them.
Customer threatens an employee in an effort to discourage required record keeping or reporting.
Customer is reluctant to proceed with a transaction after being told it must be reported.
Customer suggests paying a gratuity to an employee.
Customer appears to have a hidden agenda or behaves abnormally, such as turning down the chance to obtain a higher interest rate on a large account balance.
Customer, who is a public official, opens account in the name of a family member who begins making large deposits not consistent with the known sources of legitimate family income.
Customer makes large cash deposit without having counted the cash.
Customer frequently exchanges small bills for large bills.
Customer’s cash deposits often contain counterfeit bills or musty or extremely dirty bills.
Customer, who is a student, uncharacteristically transfers or exchanges large sums of money.
Account shows high velocity in the movement of funds, but maintains low beginning and ending daily balances.
Transaction involves offshore institutions whose names resemble those of well-known legitimate financial institutions.
Transaction involves unfamiliar countries or islands that are hard to find on an atlas or map.
Agent, attorney or financial advisor acts for another person without proper documentation, such as a power of attorney.
Customer indulges in foreign exchange transactions/ currency swaps without caring about the margins.
Customer submits account documentation showing an unclear ownership structure.

Question 30

Suspicious Cash Transactions

Answer 30

Customer comes in with another customer and they go to different tellers to conduct currency transactions under the reporting threshold.
Customer makes large cash deposit containing many larger denomination bills.
Customer opens several accounts in one or more names, and then makes several cash deposits under the reporting threshold.
Customer withdraws cash in amounts under the reporting threshold.
Customer withdraws cash from one of his accounts and deposits the cash into another account the customer owns.
Customer conducts unusual cash transactions through night deposit boxes, especially large sums that are not consistent with the customer’s business.
Customer makes frequent deposits or withdrawals of large amounts of currency for no apparent business reason, or for a business that generally does not generate large amounts of cash.
Customer conducts large cash transactions at different branches on the same day, or coordinates others to do so in his behalf.
Customer deposits cash into several accounts in amounts below the reporting threshold and then consolidates the funds into one account and wire transfers them abroad.
Customer attempts to take back a portion of a cash deposit that exceeds the reporting threshold after learning that a currency transaction report will otherwise be led.
Customer conducts several cash deposits below the reporting threshold at ATMs.
Corporate account has deposits or withdrawals primarily in cash, rather than checks.
Customer frequently deposits large sums of cash wrapped in currency straps.
Customer makes frequent purchases of monetary instruments with cash in amounts less than the reporting threshold.
Customer conducts an unusual number of foreign currency exchange transactions.

Question 31

Suspicious Non Cash Deposits

Answer 31

Customer deposits a large number of traveler’s checks, often in the same denominations and in sequence.
Customer deposits large numbers of consecutively numbered money orders.
Customer deposits checks and/or money orders that are not consistent with the stated purpose of the account or nature of business.
Customer deposits a large number of third party checks.
Funds withdrawn from the accounts are not consistent with the normal business or personal activity of the account holder or include transfers to suspicious international jurisdictions.
Funds deposited are moved quickly out of the account via payment methods inconsistent with the established purpose of the account.

Question 32

Suspicious Wire Transfer Transactions

Answer 32

Non-accountholder sends wire transfer with funds that include numerous monetary instruments, each in an amount under the reporting threshold.
An incoming wire transfer has instructions to convert the funds to cashier’s checks and to mail them to a non-accountholder.
A wire transfer directs large sums to secrecy havens.
An incoming wire transfer, followed by an immediate purchase by the beneficiary of monetary instruments for payment to another party.
An increase in international wire transfer activity in an account with no history of such activity or where the stated business of the customer does not warrant it.
Customer frequently shifts purported international profits by wire transfer out of the country.
Customer receives many small incoming wire transfers and then orders a large outgoing wire transfer to another country.
Customer deposits bearer instruments followed by instructions to wire the funds to a third party.
Account in the name of a currency exchange house receives wire transfers or cash deposits under the reporting threshold.

Question 33

Suspicious Safe Deposit Box Activity

Answer 33

Customer spends an unusual amount of time in the safe deposit box area, possibly indicating the safekeeping of large amounts of cash.
Customer often visits the safe deposit box area immediately before making cash deposits of sums under the reporting threshold.
Customer rents multiple safe deposit boxes.

Question 34

Suspicious Activity in Credit Transactions

Answer 34

A customer’s financial statement makes representations that do not conform to accounting principles.
A transaction is made to appear more complicated than it needs to be by use of impressive but nonsensical terms such as emission rate, prime bank notes, standby commitment, arbitrage or hedge contracts.
Customer requests loans either made to offshore companies or secured by obligations of offshore banks.
Customer suddenly pays off a large problem loan with no plausible explanation as to the source of funds.
Customer purchases certificates of deposit and uses them as collateral for a loan.
Customer collateralizes a loan with cash deposits.
Customer uses cash collateral located offshore to
obtain a loan.
Customer’s loan proceeds are unexpectedly transferred offshore.

Question 35

Suspicious Commercial Account Activity

Answer 35

Business customer presents financial statements noticeably different from those of similar businesses.
Large business presents financial statements that are not prepared by an accountant.
Retail business that provides check-cashing services does not make withdrawals of cash against check deposits, possibly indicating that it has another source of cash.
Customer maintains an inordinately large number of accounts for the type of business purportedly being conducted.
Corporate account shows little or no regular, periodic activity.
A transaction includes circumstances that would cause a banker to reject a loan application because of doubts about the collateral.

Question 36

Suspicious Trade Financing Transactions

Answer 36

Customer seeks trade financing on the export or import of commodities whose stated prices are substantially more or less than those in a similar market situation or environment.
Customer makes changes to a letter of credit beneficiary just before payment is to be made.
Customer changes the place of payment in a letter of credit to an account in a country other than the beneficiary’s stated location.
Customer’s standby letter of credit is used as a bid or performance bond without the normal reference to an underlying project or contract, or designates unusual beneficiaries.
Letter of Credit is inconsistent with customer’s business.
Letter of Credit covers goods that have little demand in importer’s country.
Letter of Credit covers goods that are rarely if ever produced in the exporter’s country.
Documents arrive without title documents.
Letter of Credit is received from countries with a high
risk for money laundering.
Commodities are shipped through one or more jurisdictions for no apparent economic or logistical reason.

Question 37

Suspicious Trade Financing Transactions

Answer 37

Customer seeks trade financing on the export or import of commodities whose stated prices are substantially more or less than those in a similar market situation or environment.
Customer makes changes to a letter of credit beneficiary just before payment is to be made.
Customer changes the place of payment in a letter of credit to an account in a country other than the beneficiary’s stated location.
Customer’s standby letter of credit is used as a bid or performance bond without the normal reference to an underlying project or contract, or designates unusual beneficiaries.
Letter of Credit is inconsistent with customer’s business.
Letter of Credit covers goods that have little demand in importer’s country.
Letter of Credit covers goods that are rarely if ever produced in the exporter’s country.
Documents arrive without title documents.
Letter of Credit is received from countries with a high
risk for money laundering.
Commodities are shipped through one or more jurisdictions for no apparent economic or logistical reason.
Transaction involves the use of repeatedly amended or frequently extended letters of credit.
Size of the shipment appears inconsistent with the regular volume of business of the importer or of the exporter.

Question 38

Suspicious Investment Activity

Answer 38

Customer uses an investment account as a pass- through vehicle to wire funds to off-shore locations.
Investor seems uninterested in the usual decisions to be made about investment accounts, such as fees or the suitability of the investment vehicles.
Customer wants to liquidate a large position through a series of small transactions.
Customer deposits cash, money orders, traveler’s checks or cashier’s checks in amounts under the reporting threshold to fund an investment account.
Customer cashes out annuities during the “free look” period or surrenders the annuities early.

Question 39

Suspicious Employee Activity

Answer 39

Employee exaggerates the credentials, background or financial ability and resources of a customer in written reports the bank requires.
Employee is involved in an excessive number of unresolved exceptions.
Employee lives a lavish lifestyle that could not be supported by his or her salary.
Employee frequently overrides internal controls or established approval authority or circumvents policy.
Employee uses company resources to further private interests.
Employee assists transactions where the identity of the ultimate beneficiary or counter party is undisclosed.
Employee avoids taking periodic vacations.

Question 40

Suspicious Activity in A Money Remitter Currency Exchange House Setting

Answer 40

Unusual use of money orders, traveler’s checks or funds transfers.
Two or more persons working together in transactions.
Transaction altered to avoid ling a Currency
Transaction Report (CTR).
Customer comes in frequently to purchase less than $3,000 in instruments each time (or the local threshold).
Transaction altered to avoid completion of record of funds transfer, money order or traveler’s checks of $3,000 or more (or the local threshold).
Same person uses multiple locations in a short time period.
Two or more persons use the same identification.
One person uses multiple identification documents.

Question 41

Suspicious Activity in an Insurance Company Setting

Answer 41

Cash payments on insurance policies.
Refunds requested during a policy’s “legal cancellation
period.”
Policy premiums paid from abroad, especially from an offshore financial center.
A policy calling for the periodic payment of premiums in large amounts.
Changing the named beneficiary of a policy to a person with no clear relationship to the policyholder.
Lack of concern for significant tax or other penalties assessed when canceling a policy.
Redemption of insurance bonds originally subscribed to by an individual in one country by a business entity in another country.

Question 42

Suspicious Activity in a Broker Dealer Setting

Answer 42

The customer appears to be acting as an agent for an undisclosed principal, but declines or is reluctant, without legitimate commercial reasons, to provide information, or is otherwise evasive regarding that person or entity.
For no apparent reason, the customer has multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers.
The customer’s account has unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity.
The customer makes a funds deposit for the purpose of purchasing a long-term investment followed shortly thereafter by a request to liquidate the position and transfer the proceeds from the account.
The customer engages in excessive journal entries between unrelated accounts without any apparent business purpose.
The customer requests that a transaction be processed in such a manner so as to avoid the rm’s normal documentation requirements.
The customer, for no apparent reason or in conjunction with other “red flags,” engages in transactions involving certain types of securities, such as penny stocks, Regulation “S” (Reg S) stocks, and bearer bonds, which, although legitimate, have been used
in connection with fraudulent schemes and money laundering activity. (Such transactions may warrant further due diligence.)
The customer’s account shows an unexplained high level of activity with very low levels of securities transactions.

Question 43

Suspicious Activity Indicators of Black Market Peso Exchange Money Laundering Method

Answer 43

Payment made in cash by a third party with no connection to the underlying transaction.
Payment made by wire transfers from third parties unconnected to the underlying transaction.
Payment made with checks, bank drafts or money orders not drawn on the account of the purchaser.
Structured currency deposits to individual checking accounts with multiple daily deposits to multiple accounts at different branches of the same bank on the same day.
Consumer checking accounts which are used for a period of time and then become dormant.
Personal checking accounts opened by foreign nationals who come to the bank together.
Multiple accounts opened on the same day or held by the same foreign nationals at various banks.
Increases in the frequency or amounts of currency deposits by U.S. business account holders who export to Colombia.

Question 44

Electronic Anti-Money Laundering Solutions

Answer 44

Transaction monitoring: scanning and analyzing data for potential money laundering activity.
Watch list filtering: screening new accounts, existing customers, beneficiaries and transaction counter parties against terrorist, criminal and other blocked-persons watch lists.
Automation of regulatory reporting: filing suspicious transaction reports (STRs), currency transaction reports (CTRs), or other regulatory reports with the government.
A detailed audit trail: demonstrates compliance efforts to regulators.

Question 45

Some ways financial institutions use technology that is already in place to assist them in their AML goals

Answer 45

Profiling system;
Large cash transaction reporting;
Record keeping;
Background checks;
Corporate “hot  file”
Case management tracking system; and 
Incident reporting database.