Anti-Money Laundering (AML)

Question 1

What is Money Laundering?

Answer 1

Money laundering is the process of concealing the origins of illegally obtained money, typically by means of complex financial transactions, to make it appear legitimate.

Question 2

What is the goal of Anti-Money Laundering (AML)?

Answer 2

The goal of AML is to detect, prevent, and report money laundering activities to safeguard the financial system from being exploited for criminal purposes.

Question 3

Fill-in-the-blank: The process of hiding the origin of criminal proceeds to make them appear legitimate is called _____.

Answer 3

Money laundering.

Question 4

What is “placement” in money laundering?

Answer 4

Placement is the initial stage of money laundering where illegal funds are introduced into the financial system.

Question 5

What is the final stage of money laundering called?

Answer 5

Integration, where laundered funds are reintroduced into the legitimate economy as clean money.

Question 5

Define “layering” in the context of money laundering.

Answer 5

Layering is the process of separating illicit money from its source by complex layers of transactions, often across multiple accounts or countries.

Question 6

What is Structuring in money laundering?

Answer 6

Structuring, also known as smurfing, is the practice of breaking large amounts of money into smaller, less suspicious sums to avoid detection by financial institutions.

Question 7

What is the Financial Action Task Force (FATF)?

Answer 7

FATF is an intergovernmental organization that develops policies to combat money laundering and terrorism financing.

Question 8

Fill-in-the-blank: The primary objective of the Financial Action Task Force (FATF) is to combat _____ and _____ financing.

Answer 8

Money laundering; terrorism financing.

Question 9

What does the Bank Secrecy Act (BSA) require financial institutions to do?

Answer 9

The BSA requires financial institutions to maintain records and file reports that may assist in identifying suspicious activity and money laundering.

Question 10

Which regulation focuses on preventing money laundering in the European Union?

Answer 10

The EU Anti-Money Laundering Directives (AMLD).

Question 11

What is the USA PATRIOT Act and how does it relate to AML?

Answer 11

The USA PATRIOT Act is legislation that strengthens AML regulations by requiring financial institutions to implement stronger compliance measures to prevent money laundering and terrorism financing.

Question 12

What is Know Your Customer (KYC)?

Answer 12

KYC is the process by which financial institutions verify the identity of their customers to prevent money laundering and fraud.

Question 13

Fill-in-the-blank: KYC stands for _____.

Answer 13

Know Your Customer.

Question 14

What is Enhanced Due Diligence (EDD)?

Answer 14

EDD is an additional level of scrutiny applied to high-risk customers or transactions, typically involving more detailed background checks and ongoing monitoring.

Question 15

What is a Suspicious Activity Report (SAR)?

Answer 15

A SAR is a report filed by financial institutions when there is suspected money laundering or other suspicious activity.

Question 16

Why is Customer Due Diligence (CDD) important in AML?

Answer 16

CDD is important because it helps financial institutions understand the nature of their customers’ activities and detect any unusual or suspicious transactions.

Question 17

What is Ongoing Monitoring in the context of AML?

Answer 17

Ongoing Monitoring is the continuous assessment of customer transactions and activities to identify and report any suspicious behavior over time.

Question 18

What is a common red flag indicating possible money laundering?

Answer 18

Frequent large cash deposits that are inconsistent with a customer’s known income or business activities.

Question 18

What role does Risk Assessment play in AML compliance?

Answer 18

Risk Assessment helps financial institutions determine which customers, products, and transactions pose a higher risk for money laundering, allowing for the implementation of appropriate monitoring measures.

Question 19

Fill-in-the-blank: One red flag of money laundering is _____ deposits with no clear source.

Answer 19

Large cash.

Question 20

Why is structuring (or “smurfing”) considered suspicious?

Answer 20

Structuring is the act of breaking down large transactions into smaller amounts to avoid reporting thresholds, which can indicate an attempt to launder money.

Question 20

What are Politically Exposed Persons (PEPs), and why are they considered high-risk?

Answer 20

PEPs are individuals who hold a prominent public position and may be at higher risk for involvement in bribery or corruption, making them a high-risk group for money laundering.

Question 20

What is Terrorist Financing?

Answer 20

Terrorist financing is the provision of funds to support terrorist activities, often using methods similar to money laundering to conceal the sources of the funds.

Question 20

What is the purpose of transaction monitoring systems in AML?

Answer 20

To automatically detect patterns or anomalies that could indicate money laundering or suspicious activity.

Question 21

What is a red flag involving the use of multiple bank accounts?

Answer 21

The rapid movement of funds between multiple bank accounts without an apparent business purpose can be a red flag for money laundering.

Question 21

Fill-in-the-blank: The process of providing financial support for terrorism is called _____.

Answer 21

Terrorist financing.

Question 22

How does money laundering impact the economy?

Answer 22

Money laundering can distort economic data, reduce government revenue, and undermine financial stability by encouraging illegal activities.

Question 23

What is a shell company and how is it used in money laundering?

Answer 23

A shell company is an entity without significant operations used to conceal the ownership of money, often as part of the layering process in money laundering.

Question 24

What is Trade-Based Money Laundering (TBML)?

Answer 24

TBML involves using trade transactions to disguise the origins of money, often by over- or under-invoicing goods and services to move illicit funds.

Question 25

What is the difference between Money Laundering and Terrorist Financing?

Answer 25

Money laundering involves concealing illegally obtained funds to make them appear legitimate, while terrorist financing involves collecting and using funds for terrorist activities, regardless of whether the funds are of legal or illegal origin.

Question 26

How does Hawala work in the context of money laundering?

Answer 26

awala is an informal method of transferring money without physical movement of cash, often used to bypass traditional financial systems and potentially facilitate money laundering or terrorist financing.

Question 26

How is Artificial Intelligence (AI) used in AML?

Answer 26

AI is used in AML to analyze vast amounts of data, identify patterns, and detect unusual activity that may indicate money laundering more accurately and efficiently than traditional methods.

Question 27

What is Transaction Monitoring in AML?

Answer 27

Transaction Monitoring is a technique used by financial institutions to identify suspicious transactions by analyzing customer behavior and flagging anomalies in real-time or retrospectively.

Question 28

What is the role of Pattern Recognition in AML?

Answer 28

Pattern Recognition is used to identify recurring behaviors or suspicious transaction patterns that might indicate money laundering activities.

Question 28

What is the purpose of Customer Risk Profiling in AML?

Answer 28

Customer Risk Profiling is used to assess the risk level of each customer based on factors like location, transaction type, and customer history, allowing institutions to apply the appropriate level of due diligence.

Question 28

How are Geographic Risk Assessments used in AML?

Answer 28

Geographic Risk Assessments involve identifying countries or regions that pose a higher risk for money laundering and adjusting due diligence measures for transactions involving these areas accordingly.

Question 29

How does Negative News Screening help in AML?

Answer 29

Negative News Screening involves scanning media sources for any adverse information about customers or transactions, which can help identify potential money laundering risks.

Question 29

What is the “Risk-Based Approach” in AML?

Answer 29

The Risk-Based Approach involves allocating resources and controls in proportion to the risk level of customers or transactions, focusing more on higher-risk areas to maximize efficiency in preventing money laundering.