AML interview Flashcards
What is Money Laundering?
Money laundering involves taking criminal proceeds and disguising their sources to use the funds to perform legal or illegal activities. simply put, money laundering is a process of making dirty money look clean.
What is AML?
AML controls aim to prevent financial criminals from disguising illegally obtained funds as legitimate funds.
How do Fraud and AML differ?
AML and fraud prevention have different challenges on objectives. Fraud prevention focuses on protecting the financial institution and its customers from financial losses. While the AML focuses on adhering to ethic, legal and regulatory standards of the financial system.
Fraud detection is usually easier and faster than AML detection because fraud can be verified by the customer or transaction data. While ML can be very complex and hidden. Fraud and AML also require different approaches such as risk assessment models, data analysis and reporting system.
Ho do Fraud and AML relate?
Fraud and AML are often connected in criminal and regulatory context because usually where there is a fraud there is ML attempt.
What are the AML stages?
Placement, layering, integration.
Placement?
The physical disposal of cash or other asset derived from criminal activity. During this stage money launderer introduces the illicit proceeds into financial system.
Examples of the placement;
- Blending funds: Commingling illegitimate funds with the legitimate funds, such as placing the cash from illegal narcotics sales into a cash intensive local restaurant.
- Purchasing foreign exchange with illegal funds.
- Dividing cash into small amounts and depositing it into numerous bank accounts to attempt to evade reporting threshold.
- Repayment of the loans using laundered cash.
- Currency smuggling, cross-border movement of the money or other monetary instruments.
Layering?
The separation of the illicit proceed from their source by layers financial of financial transactions intended to conceal legal origin of the proceeds.
The second stage involves converting the illicit proceeds into another form by creating complex layers of financial transactions to obscure the source and ownership of the funds.
Integration
Supplying apparent legitimacy to illicit wealth through the reentry of the funds into the economy in what appears to be normal business or personal transaction.
The third stage entails using laundered proceeds in seemingly normal transactions to create the perception of legitimacy. This stage gives a launderer the opportunity to increase his wealth with the proceeds of crime.
FinCEN and Financial Intelligent Units?
FinCEN, Financial Crimes Enforcement Network is FIU in the US under the US Treasury department. FinCEN’s mission is to safeguard the financial system from illicit activity, counter money laundering and the financing of terrorism through collection analysis and dissemination the financial intelligence.
Suspicious Activity Report
SAR is a document that financial institutions, must file with the FinCEN whenever there is a suspected case of money laundering attempt.
The purpose of the SAR is to report known or suspected violations of law or suspicious activity observed by financial institutions subject to the regulations of the Bank Secrecy Act (BSA).
Currency Transaction Report?
SARs focus on reporting suspicious activities, while CTRs concentrate on large currency transactions.
What is Bank Secrecy Act?
Bank Secrecy Act is US federal law. Then main object of the BSA is the combat with the Money Laundering and other financial crimes by requiring the financial institution to assist the government detecting and preventing such activities.
USA PATRIOT Act
The BSA was amended to incorporate the provisions of the USA PATRIOT Act.
According to FinCEN the purpose of the PATRIOT Act is to deter and punish terrorist activities in the US and around the world to enhance law enforcement investigatory, tools and other purposes included.
- Improve US mechanism preventing, detecting and prosecuting international money laundering and terrorist financing.
- Ensuring that closer scrutiny will take a place for foreign jurisdiction and foreign FI.
- To enhance the procedures to prevent corrupt foreign officials from using US financial system.
Anti Money Laundering Act 2020
The key priorities of the AMLA are to streamline AML/CFT systems, solidify by law a risk-based approach requirement to AML/CFT compliance programs. This includes “…the establishment by financial institutions of reasonably designed risk-based programs to combat money laundering and the financing of terrorism”
One of the key distinctions between the USA PATRIOT Act and the AMLA is that the latter was passed as part of the National Defense Authorization Act (NDAA), which codifies the US budget and expenditures for the Department of Defense.
OFAC
US Department of the Treasury Office of Foreign Assets Control (OFAC).
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions against targeted foreign jurisdictions and regimes, as well as individuals and entities engaging in harmful activity, such as terrorists, international narcotics traffickers.
What is the purpose of transaction Monitoring in AML Compliance?
- Transaction Monitoring is an essential part of AML compliance. It helps financial institutions identify suspicious activity and mitigate the risk associated with the ML and Terrorist Financing. Ensuring Compliance with the relevant regulations.
