AML Expert Flashcards
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Which of the following is not an example of layering
a) Using cash deposited in a bank account to purchase an asset
b) Exchanging cash for a monetary instrument
c) Using an inbound wire transfer to purchase an asset
d) Using an inbound wire transfer to purchase a monetary instrument
The correct answer is B
This answer uses physical cash to purchase an asset, and is a feature of placement. All other answers use money that is already in the financial system and are thus examples of layering.
What are key effects of money laundering on countries? Choose three.
i) Reputation risk
ii) Losing control of regulatory policy
iii) Being forced into adverse fiscal policies
iv) Losing control of monetary policy
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is A
Counties can suffer reputational risk if they are known as a haven for money laundering, they may be forced to make adverse fiscal (tax and budget) policy to compensate for the tax revenue lost to criminal laundering, and they may lose control of monetary policy as currency flows are directed by launderers out of the country. The country should use regulatory policy to enforce anti-money laundering.
Which of the following are most vulnerable to the placement stage of money laundering? Choose two.
i) Purchasing diamonds
ii) Overpaying a credit card balance
iii) Obtaining cashiers cheques
iv) Internet casinos
A) i, ii
B) i, iii
C) i, iv
D) ii, iii
The correct answer is B
Gem stones and cashiers cheques can be purchased using cash, making them vulnerable to placement.
Credit cards and internet casinos do not usually allow cash payments, and so are less likely to be used as part of the placement phase.
Which of the following describes a payable through account.
a) A numbered account where the customer is unknown
b) A correspondent account that can be used directly by the respondent’s customers without the respondent’s oversight
c) Internal bank accounts used to assist in the settlement and processing of customer
transactions. Also known as omnibus, settlement, or collection account.
d) A system where a bank offers accounts to another bank to enable it to perform transactions in a location where it does not have a physical presence
The correct answer is B
C describes a concentration account,
D is a correspondent account,
A is numbered account
What is a risk of concentration accounts?
a) the underlying customer identification can be lost
b) co-mingling of clean and dirty funds can occur
c) customers may be unaware they are using them
d) confidentiality and secrecy between client and banker
The correct answer is A
The internal accounts used by the bank may be set up so that the audit trail is lost when they are used.
The other answers are not relevant risks to the use of concentration accounts
What are two risks associated with private banking?
i) The area was not covered by the Wolfsburg group
ii) politically exposed persons
iii) Private investment companies
iv) Lack of competition
A) i, ii
B) i, iv
C) ii, iii
D) ii, iv
The correct answer is C
Politically exposed persons (PEPs) use private banking, and may have access to funds derived from embezzlement or bribes.
Wealthy users of private banking often use private investment companies (PICs) to manage their wealth which may hide the beneficial owners.
The Wolfsburg group did cover private banking, and there is intense competition in private banking, making those answers incorrect.
Which of the following is a correct statement?
a) smurfs travel from bank to bank withdrawing cash from ATMs
b) smurfing is a way to avoid triggering a currency reporting threshold
c) smurfs are dead people who’s accounts have been taken over by money launderers
d) smurfing requires an insider at a financial institution
The correct answer is B; Smurfing is used to deposit cash at a financial institution below the reporting threshold.
A is incorrect because smurfs deposit cash, rather than withdrawing it.
C is incorrect, smurfs often use accounts set up using dead peoples identities, but the term does not refer to them.
D is incorrect because this is relates to cuckoo smurfing.
Which one of the following might indicate microstructuring?
a) converting $800 of travellers cheques to a wire transfer
b) using counter deposit slips
c) large cash deposits
d) using cash to purchase a gold ingot
The correct answer is B; Microstructurers often use counter deposit slips as they make many small cash deposits and will have insufficient pre-printed paying in slips.
A is incorrect as there is no cash involved,
C&D both mention either large cash amounts, or expensive items which would not indicate microstructuring, which uses small amounts of cash, typically under $1000.
Cuckoo smurfing features which three of the following?
i. An unwitting bank account owner
ii. An insider in a financial institution
iii. An accomplice in a foreign country who deposits cash
iv. Concentration of funds
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is D
Although the remitter is expecting funds to be sent via an international wire transfer, in a cuckoo smurfing situation, an insider in a financial institution diverts it elsewhere. The funds are instead deposited as dirty cash by an accomplice in a foreign country into the unwitting recipient’s bank account. There is no concentration of funds as this would cause a discrepancy between the remittance and receipt which would raise the alarm.
What is the best way to guard against the risk of money laundering by bank staff?
a. Ensure that key staff are registered with the regulator
b. Ensure segregation of duties for all tasks
c. Conduct initial and ongoing criminal background checks
d. Ensure managers review staff work periodically
The correct answer is C
All of these are methods to guard against money laundering risks, however not all of them are effective. Registering staff with the regulator is not possible in all jurisdictions, and may only cover senior roles not all roles that might be at risk of money laundering,
Risks of correspondent banking include the following.
Choose three.
i) The effectiveness of the regulatory regime may be unknown
ii) The ultimate customers are at arms length
iii) The USA Patriot Act did not address correspondent banking risks
iv) The volumes of transactions are high
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is C
While the regulatory regime may be known, the effectiveness of that regime on any one institution may be difficult to assess beyond standard checklists. The arms-length nature
of correspondent banking means that customer due diligence of the ultimate customer is difficult or impossible, and the transaction volumes are high, so suspicious transactions
are hidden in the noise. The USA Patriot act contained specific provisions concerning correspondent banking in sections 312, 313, 319a & b.
What is the best way to guard against the risk of money laundering by bank staff?
a. Ensure that key staff are registered with the regulator
b. Ensure segregation of duties for all tasks
c. Conduct initial and ongoing criminal background checks
d. Ensure managers review staff work periodically
The correct answer is C
All of these are methods to guard against money laundering risks, however not all of them are effective. Registering staff with the regulator is not possible in all jurisdictions, and may only cover senior roles not all roles that might be at risk of money laundering.
Why are credit unions (building societies) vulnerable to money laundering?
a) They are small in size
b) They have high levels of cash transactions
c) They offer complex products
d) They are not regulated
The correct answer is B
These financial institutions are low risk because they are small, but they are vulnerable because of the level of cash transactions. They do not usually offer complex products, and they are regulated
At which stages of money laundering are credit cards used? Choose two. i) Layering ii) Structuring iii) Integration iv) Placement A) i, ii B) i, iii C) i, iv D) ii, iii
The correct answer is B
Structuring and placement are methods of disposing of cash, which many credit cards do not permit. They are used for structuring and integration.
Which of the following are money laundering risks at insurance companies? Choose two:
i) Early cancellation capabilities of car insurance
ii) Salesmen are incentivised
iii) Underpaying insurance and requesting refunds
iv) Cancelling life policies during the ‘free look’ period
A) i, ii
B) i, iii
C) i, iv
D) ii, iv
The correct answer is D
Salesmen that are incentivised may overlook their suspicions, and cancelling life
insurance during the free look period enables the launderer to obtain a refund of clean
money.
Underpaying insurance does not lead to an excess cash balance and cancelling
car insurance early would not lead to a large refund so is not a significant risk of money
laundering.
What is wash trading?
a. The ability to launder funds using nominee accounts
b. The inherent anonymity granted by many broker-dealers
c. The use of offsetting trades to launder funds
d. The trading of commodities
The correct answer is C
The use of two offsetting trades means that the market can move in either direction and the principle is safe. The loss of dirty money in one account is compensated by the creation of legitimate gains in another trading account. None of the other descriptions matches that of a wash trade.
Securities dealers are attractive to money launderers for the following reasons.
Choose three:
i. They have information that can be used for insider trading
ii. They use high speed wire transfers
iii. They have a competitive, commission-driven culture
iv. They use cash accounts that are not subject to banking AML controls
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is B
Broker dealers are not party to insider information. They do use wire transfers, which are useful to money launderers, the commission driven culture could cause sales staff to overlook the source of funds, and their cash accounts are not subject to the same level of AML oversight at banking accounts.
Casinos and other gaming venues are attractive to money launderers for the
following reasons.
Choose three:
i. They offer a plausible source of recently acquired wealth
ii. Gambles can be placed so that there is very little risk to capital
iii. The variety of gambling opportunities are useful at the integration stage
iv. Funds can be made available in different jurisdictions
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is C
Explanation:
C is incorrect because gaming venues offer a means to place cash, rather than integrate it. All of the other answers are correct.
Which two of the following makes gold the most attractive to money launderers?
i. It has high demand due to religious or cultural reasons
ii. It can be used in the placement phase
iii. It can be easily melted down
iv. It can be used in the layering phase
A) i, ii
B) i, iii
C) i, iv
D) ii, iv
The correct answer is D
Gold can be purchased for dirty cash, meaning it is useful in the placement phase. It can also be exchanged for cash or other items or physically handed to another person with little or no audit trail, making it useful in the integration phase. Although gold is in high demand and can be easily melted down, these are not the most useful features of gold to money launderers.
Why are travel agents vulnerable to money launderers? Choose one.
A. They sell hotel rooms in high risk destinations
B. Hotels are frequented by politically exposed persons
C. Refunds can be made to third parties
D. They are listed in the FATF 40 recommendations
The correct answer is C
Expensive flights and hotels can be purchased for a third party, who can then request a refund of the cost.
Vehicle sellers are susceptible to money laundering because of the following reasons. Choose three: i. They allow third party payments ii. They sell high value items iii. They allow down trading iv. They allow partial down payments A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii
The correct answer is A
They allow third party payments which can obscure the link between the asset and the source of the funds. They do sell high value items, but this in and of itself does not make the vehicle seller susceptible, so this is not a correct answer. They do allow down trading, with the difference available as a cheque made out from the dealer. They allow partial down payments which could be used for structuring.
Lawyers are more useful in money laundering than company formation agents
because of the following reason:
a. They have a client-attorney privilege
b. They can represent the launderer in court
c. They can create complex vehicles such as private investment companies
d. They can act as nominee shareholders, directors and secretaries
The correct answer is A
The attorney-client privilege means that some information cannot be released to law enforcement. While a lawyer does represent a client in court, this is not part of the money laundering process. Both lawyers and company formation agents can create complex vehicles and act as nominee, so these factors do not make lawyers more useful.
Real estate is most often associated with which two of the following:
i. Layering
ii. Placement
iii. Integration
iv. Structuring
A) i, ii
B) i, iii
C) i, iv
D) ii, iii
The correct answer is B
Property is often used to disguise the source of funds, making it useful in the layering phase. It can also be used in the integration phase where an asset such as 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.
Under valuing exports are used to:
a. Move money using nominee accounts
b. Enable the black market peso exchange
c. Create fraudulent transfer pricing schemes
d. Add an air of legitimacy to letters of credit
The correct answer is C
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; however they are not necessary for the BMPE to work. They are not used to move money using nominee accounts. Letters of credit be used to add an air of legitimacy to undervalued exports, but not the other way around.
What three features of prepaid cards make them most attractive to money launderers:
i. Anonymity
ii. Widely accepted at merchants
iii. High value limits
iv. ATM access
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is A
The ability to use the cards at a wide range of merchants is a benefit to a normal retail
customer more than it is a benefit to a money launderer.
The global ATM access allows
the transfer of money out of the country, the high value limits make them useful as an alternative to smuggling cash, and the anonymity reduced the audit trail that can be linked to the launderer.
Front companies are useful to the launderer for the following three reasons:
i. They generate legitimate cash which can be comingled with dirty money
ii. They provide a source of employment
iii. They have low overheads
iv. They can be sold for high profits
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is C
III is incorrect because although criminally controlled front companies do have lower
overheads (as they are not subject to commercial pressures such as bank financing costs) these commercial considerations are not the primary reason the enterprise is used by the
launderer.
The generation of cash with which to comingle funds is a key driver, as is the
need to have legitimate employment to avoid suspicion. The high profits that they
generate when sold, due to their artificially high turn over is another attraction.
Why would a money launderer purchase a company that he already owned?
a. To avoid tax
b. To hide money
c. To repatriate wealth
d. To appear successful
The correct answer is C
The money launderer uses offshore wealth to purchase the company that he already
owns, thus repatriating the cash and maintaining his ownership of the company.
What is double invoicing?
a. The raising of two invoices payable by the same party against the same goods
b. The raising of two invoices payable by different parties against the same goods
c. A subsidiary purchasing goods from a parent at too high a price
d. The creation of an invoice where the goods are non-existent
The correct answer is C
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 is a settlor?
a. A beneficiary of a trust
b. A lawyer
c. A third party
d. A person who sets up a trust
The correct answer is D
A settlor is the person who creates the trust which defines how the assets of the trust are to be distributed to the beneficiaries. The settlor may be a lawyer, or other legal professional a third party, or even the beneficiary of a trust, however this is not required.
What should banks do in order to mitigate the risk of companies with bearer shares?
Choose one.
a. Refuse to do business with such firms
b. Insist that the shares are handed over to the bank for safe keeping
c. Inspect the register of owners
d. Enquire as to the beneficial owners of the company
The correct answer is D
There is no requirement to refuse to do business with such entitles, however there is no register of owners to check. The bank cannot insist that the shares be handed over, as possession equates to ownership. The bank should satisfy itself as to the beneficial owners of the entity.
What are the main differences between terrorist financing and money laundering?
a. Only one of these is covered by the Wolfsburg group
b. Terrorist financing can involve the use of legitimate funds
c. Layering is used in money laundering, not terrorist financing
d. All of the above
The correct answer is B; Terrorist financing can involve the use of legitimate funds for illegitimate purposes.
The Wolfsburg group included terrorist financing in the 2002 revisions.
Layering is used by both money launderers and terrorist financers to disguise the source of funds
Which of the following statements is true?
a. An alternative remittance system is usually more expensive than a bank transfer
b. Informal value transfer systems settle balances through the normal process of trade
c. Hawala is illegal
d. Informal remittance systems are only used in the placement phase of money
laundering
The correct answer is B
alternative remittance systems usually settle their balances in the normal process of international trade.
Hawala is illegal in most, but not all, countries, alternative remittance systems are usually less expensive than bank transfers, and these systems can be used in any phase of money laundering, not just the placement phase.
How can charities ensure they are less attractive to money launderers? Choose
three.
i. Ensure strict oversight and regulation
ii. Use standard bank accounts
iii. Use full accounting for all expenditure
iv. Conduct field audits
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is B
Charities are not subject to strict oversight or regulation, so this would not be possible.
The charity can ensure that normal bank accounts are used, so that bank AML controls are in place. Accounting for all expenditure ensures a clear audit trail, and field audits can ensure that expenditure is appropriate.
Which of the following compliance criteria is not a requirement for membership of
FATF?
a. Freezing and confiscation of funds
b. Payment of FATF penalties
c. Customer due diligence
d. International cooperation
The correct answer is B
FATF cannot impose fines or apply other direct sanctions.
What are the three objectives of FATF?
i. Monitoring implementation of recommendations by members
ii. Promoting AML messages worldwide
iii. Encouraging the use of risk based methods
iv. Monitoring money laundering trends and countermeasures
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is C
Although FATF does recommend risk based measures in its guidance, it’s not a specific
stated objective.
What three of the following items did the 2003 revision to the FATF recommendations include: i. Transparency of legal persons ii. Terrorist financing iii. Predicate offences for money laundering iv. Prohibition of shell banks A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii
The correct answer is B
The transparency of legal persons was already in the original FATF recommendations
What three of the following items did the 2012 revision to the FATF
recommendations include:
i. Merging the 9 terrorist financing recommendations
ii. Domestic politically exposed persons
iii. Setting up financial intelligence units
iv. Tax crimes
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii
The correct answer is C
Setting up an FIU was a function of the IMF and World Bank, further codified by the
Egmont Group.
Why does FATF recommend a risk-based approach
a. More effective use of resources
b. More cost effective approach
c. Because FATF better understands risk
d. All of the above
The correct answer is A
It is recognised that a budget will always be limited, and the risk based approached
allows the best use of this budget. The motivation is not to save costs, or for the FATF to specify the risks faced by a specific institution or jurisdiction.
In what situations does FATF recommend heightened customer due diligence? Choose three: i. Wire transfers ii. Politically exposed persons iii. New technologies iv. Counter transactions A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii
The correct answer is D
Counter transactions should be subject to currency reporting thresholds and suspicious
transaction reporting, but not enhanced customer due diligence.
FATF recommendations specify which of the following would encounter a FATF
designated threshold of €15,000:
a. Bank customers carrying out regular cash transactions
b. Internet casinos
c. Cash dealers of precious stones
d. Car dealers
The correct answer is C
Dealers of precious metals and stones are subject to a $/€15,000 threshold for reporting when dealing in cash. The same threshold also applies to financial institutions, but only for occasional customer transactions. Internet casinos are subject to a $/€3,000 limit. Car dealers are not covered by the reporting thresholds.
Non-Cooperative Countries are measured by the FATF using which criteria? Choose three: i. Loopholes in financial regulations ii. Obstacles raised by regulatory requirements iii. Inadequate AML resources iv. Geographic location A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii
The correct answer is D
The geographic location is not a measure of cooperation
