cams Flashcards

1
Q

MONEY LAUNDERING

What is money laundering?

A

Money laundering is the taking of criminal proceeds and disguising their illegal sources in order to use the funds to perform legal or illegal acts.

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2
Q

THREE STAGES IN THE MONEY LAUNDERING CYCLE

Give an example of the second stage of money laundering.

A

Electronically moving funds from one country to another; moving funds from one financial institution to another; and converting the cash placed into the system into monetary instruments

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3
Q

THREE STAGES IN THE MONEY LAUNDERING CYCLE

Give an example of the third stage of money laundering.

A

Purchasing luxury assets like property, artwork, jewelry or high-end automobiles; and investing in business enterprises.

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4
Q

THREE STAGES IN THE MONEY LAUNDERING CYCLE

Give an example of the first stage of money laundering.

A

Co-mingling illegitimate funds with legitimate ones; making foreign exchange transactions with illegal funds; and depositing small amounts of cash into various accounts.

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5
Q

INDIVIDUAL ACCOUNTABILITY

What does the Yates memo say?

A

The Yates memo, issued by then-Deputy Attorney General Sally Yates of the Department of Justice, reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.

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6
Q

ELECTRONIC TRANSFERS OF MONEY

What are some indicators of money laundering using electronic transfers of funds?

A
  • Funds transfers to or from a financial secrecy haven;
  • Large, incoming fund transfers from a foreign client with little or no explanation or apparent reason;
  • Fund transfers that have no apparent link to legitimate business.
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7
Q

REMOTE DEPOSIT CAPTURE

What is remote deposit capture and what risk is associated with it?

A

Remote deposit capture is a product offered by
banks that allows customers to scan a check and transmit an electronic image to the bank for deposit. The risk associated with it is that it enables a money launderer to deposit checks without having to visit the bank and risk detection.

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8
Q

PAYABLE THROUGH ACCOUNTS

What are some of the money laundering risks pertaining to the use of payable through accounts (PTAs)?

A
  • PTAs with foreign institutions licensed in offshore centers with each bank supervision;
  • PTAs where the respondent bank (the foreign bank) fails to conduct adequate customer due diligence;
  • PTAs where the sub-account holders have currency deposit and withdrawal privileges.
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9
Q

CONCENTRATION ACCOUNTS

What is a money laundering risk pertaining to the use of concentration accounts?

A

The primary money laundering risk pertaining to the use of concentration accounts is the fact that the customer- identifying information may not be included, making the audit trail difficult or impossible to follow.

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10
Q

PEPS
What is a PEP and what is the primary risk in dealing with a PEP?

What are the FATF recommendations on CDD re PEPs?

A

A PEP is a “politically exposed person,” meaning a person who has or has had a prominent government or quasi-public position in a country. The primary risk in dealing with a PEP is that the source of funds from a PEP may be from corruption. PEPs are typically individuals who are or have been entrusted w/ prominent public functions by a gov, for ex heads of state or gov, sr. politicians, sr. judicial or military officials, sr. executives of state-owned corporations, important political party officials.

FATF 40 recommendations state that some customer types pose heightened risks, and recommend add’l CDD on specific customers and activities. Re PEPs, approp steps must be taken to identify PEPs, including obtaining sr. management approval of such biz relationships, taking measures to establish the sources of wealth and funds, and conducting ongoing monitoring.

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11
Q

STRUCTURING

What is structuring?

A

Structuring involves taking a large cash deposit and breaking it into smaller amounts to be deposited into separate banks, separate accounts or on separate days in order to avoid currency transaction reports.

Designing a transaction to evade triggering a reporting or record keeping requirement by the financial institution is called “structuring.

Structuring is possibly the most commonly known ML method.

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12
Q

CREDIT CARDS
Which money laundering stage(s) are credit cards most likely to be used and what is an example of money laundering through the use of credit cards?

A

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 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.

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13
Q

THIRD-PARTY PAYMENT PROCESSORS

What are some of the risks posed by Third-Party Payment Processors (TPPPs)?

A
  • Multiple financial institution relationships whereby
    the TPPP’s suspicious activity cannot be seen in its entirety by one institution;
  • Engaging in ACH transactions from overseas whereby the suspicious transactions get hidden by the large number of other transactions the TPPP engages in; and
  • the possibility of the return rates stemming from unauthorized transactions are higher than average.
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14
Q

MONEY SERVICES BUSINESSES

What are some ways Money Services Businesses can be used for money laundering?

A

Cashing checks without obtaining adequate proof of identity; failing to file Currency Transaction Reports when required; and transmitting funds overseas without sufficient due diligence.

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15
Q

SECURITIES BROKER-DEALERS

What are some of the aspects associated with securities broker- dealers that increase the risk of money laundering?

A
  • Its international nature;
  • the speed of their transactions;
  • the ease of converting holdings into cash without significant loss of principal;
  • the large volume of wires used;
  • the competitive, commission-driven environment;
  • the practice of maintaining securities accounts in the name of nominees or trusts; and
  • weak AML programs.
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16
Q

CASINOS

What are some red flags associated with casinos and gambling?

A
  • Paying off gambling debts in cash just under the reporting requirements;
  • purchasing chips, but engaging in minimal gambling and then cashing the chips back in;
  • using the gambling house for banking-like financial services, including wiring funds overseas;
  • betting on both “red” and “black” spaces in roulette; and
  • purchasing chips with cash just under the reporting requirements.
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17
Q

DEALERS IN HIGH-VALUE ITEMS
What were two of the key findings by FATF in its report on “Money Laundering/Terrorist Financing Risks and Vulnerabilities Associated With Gold,” issued in July, 2015?

A
  • High intrinsic value, relatively compact and easy to transport;
  • Holds its value regardless of the form it takes;
  • Can be bought and sold easily and often with anonymity for currency in most areas of the world
  • More readily accepted than precious stones, esp. since it can be melted down into many diff forms;
  • Holds its value regardless of the form it takes ;
  • Often sought after as a way of facilitating the transfer of wealth;
  • Carries an important cultural or religious significance that adds to its demand.
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18
Q

TRAVEL AGENCIES

List ways in which a travel agency could be used to launder money.

A
  • Purchasing an expensive airline ticket and then asking for a refund;
  • Paying for travel tours with multiple wires just under the reporting threshold; and
  • Creating false bookings through tour operator networks to justify significant payments from foreign travel groups.
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19
Q

GATEKEEPERS
Name various ways that a gatekeeper - an attorney, notary, accountant or auditor - could assist in a money laundering scheme.

A

Creating and managing corporate vehicles or other complex legal arrangements; buying or 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; and setting up or managing a charity.

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20
Q

GATEKEEPERS

What is the primary concern with regard to the use of gatekeepers?

A

The primary concern with regard to the use of gatekeepers – attorneys, notaries, accountants and auditors – is the fact that they can be used to enhance secrecy and to keep hidden the beneficial owner of an account or transaction.

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21
Q

REAL ESTATE
List reasons why real estate can be an attractive method of money laundering, according to the 2015 report by the Australian Transaction Reports and Analysis Centre (AUSTRAC).

What are some ML strategies that criminals use?

A
  • It can be purchased with cash (placement);
  • The ultimate beneficial owner can be disguised;
  • It is a relatively stable and reliable investment;
  • The value can be increased through renovations and improvements.
  • Can be sold for a profit or retained for residential, investment or vacation purposes (integration).

Some ML strategies:

  • Escrow accounts
  • –> Escrow accounts are designed to hold funds entrusted to someone for protection and proper disbursement. They are attractive to money launderers bc of the large # of diverse transactions that can pass thro them in any deal; escrow accounts can facilitate the movement of funds by cashier’s checks, wire transfers or company checks to seemingly legitimate individuals or companies.
  • Reverse flip
  • –> A money launderer might find a cooperative property seller who agrees to a reported purchase price well below the actual value of the property and then accepts the difference under the table.
  • Loan back
  • –> A criminal provides an associate with a specific amount of illegitimate money. The associate then provides a “loan or mortgage” back to the criminal for the same amount with all the necessary loan and/or mortgage documentation. This creates an illusion that the criminal’s funds are legitimate. The scheme is reinforced through legitimately scheduled payments made on the loan by the criminal.
  • All cash
    Transactions that don’t involve traditional financing (not necessarily physical cash).
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22
Q

TRADE-BASED MONEY LAUNDERING
What are two of the most common money laundering techniques involved with trade-based money laundering?

Explain trade-based Money Laundering.

A

Most common: Over and under invoicing.

Trade-based money laundering (TBML) is the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize the use of trade transactions in an attempt to legitimize their illicit origins.

This can be achieved through the misrepresentation of the price, quantity, or quality of imports or exports. There are 6 main tactics:

  1. Over-invoicing or under-invoicing
    - –> Over-invoicing: By invoicing the goods or service @ a price above the FMV, the seller is able to receive value from the buyer.

—> Under-invoicing: By invoicing the goods or services at a price below the FMV, the seller is able to transfer value to the buyer.

  1. Over-shipping or short-shipping
    - –> The diff in the invoiced quantity of goods and the quantity of goods that are shipped whereby the buyer or seller gains excess value based on the payment made.
  2. Ghost shipping
    - –> Fictitious trades where a buyer/seller collude to prepare all the documentation indicating goods were sold, shipped and payments were made, but no goods were actually shipped.
  3. Shell companies
    - –> Used to reduce the transparency of ownership in the transaction.
  4. Multiple invoicing
    - –> Numerous invoices are issued for the same shipment of goods, thus allowing the money launderer the opportunity to make numerous payments and justify them with the invoices.
  5. Black market trades
    Commonly referred to as the Black Market Peso Exchange whereby a domestic transfer of funds is used to pay for goods by a foreign importer.
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23
Q

BLACK MARKET PESO EXCHANGE

In summary form, how does the black market peso exchange (BMPE) work in laundering money?

A

As an example, the drug trafficker sells drugs for US dollars in the US and - in order to avoid smuggling the US dollars back to Mexico – the trafficker gives the proceeds to a “peso broker.” The broker finds businesses in Mexico that want to buy goods in the US. Then the broker buys the US goods with US dollars and has the goods shipped to Mexico. The business in Mexico pays the broker in Mexico in pesos and the broker then gives the pesos – minus a fee – to the drug traffickers.

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24
Q

NEW PRODUCTS AND SERVICES
What are some of the money laundering risks pertaining to the use of pre-paid bank cards or reasons why they are attractive to money launderers?

A
  • Anonymous card holders;
  • Anonymous funding;
  • High value limits;
  • Global access to cash through ATMs
  • Lax offshore jurisdictions issuing the cards;
  • The cards being a substitute for bulk-cash smuggling;
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25
Q

NEW PRODUCTS AND SERVICES
What are some of the risks listed by FATF in its 2010 report titled “Guidance For A Risk-Based Approach Prepaid Cards, Mobile Payments And Internet- Based Payment Services”?

A
  • Anonymity;
  • Geographic reach;
  • Alternative to physical cross-border transportation;
  • Easy access to cash;
  • Global access to cash through ATMs (fund in one country and withdrawal cash in another)
  • Segmentation of services: The fact that several entities are required to issue prepaid cards – the program manager, issuer, acquirer, payment network, distributor and agents – that may be hard to all supervise or monitor.
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26
Q

VIRTUAL CURRENCY
What is one of the primary concerns with regard to the use of virtual currencies?

What’s the diff btwn a user, exchanger and administrator?

A

Beneficial ownership information may be difficult to obtain.

User:
Person that obtains VC to purchase goods or services.

Exchanger:
Person engaged as a biz in the exchange of VC for real currency, funds, or other VC.

Administrator:
Person engaged as a biz in issuing a VC and has authority to redeem VC.

Note: Admins and Exchangers of VC may be identified as MSBs engaging in money transmission. However, the reg environment for VC activity in many JDs remains in development. If operating as an MSB, they must comply with any registration or license, reporting, recordkeeping, and other regs applicable to money transmitters, such as maintaining a compliant AML/CFT program.

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27
Q

TERRORIST FINANCING

What are some emerging risk for Terrorist Financing?

A

Self-funding by foreign terrorist fighters; terrorists raising funds through the use of social media; new payment products and services; and exploitation of natural resources;

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28
Q

MONEY LAUNDERING

What is the concept of willful blindness?

A

The “deliberate avoidance of knowledge of the facts” or “purposeful indifference,” and is the equivalent of actual knowledge.

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29
Q

CORRESPONDENT BANKING
What are the two main reasons correspondent banking is vulnerable to money laundering?

What does FATF 40 Recommendations say about correspondent banking?

A

• By their nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution. This indirect relationship means that the correspondent bank provides services for individuals or entities for which it has neither verified the identities nor obtained any first-hand knowledge, and
• The amount of money that flows through correspondent accounts can pose a significant threat to financial institutions, as they process large volumes of transactions for their customers’ customers.
This makes it more difficult to identify the suspect transactions, as the financial institution generally does not have the information on the actual
parties conducting the transaction to know
whether they are unusual.

FATF 40 Recommendation:
Approp steps must be taken to understand the respondent institution’s biz, reputation, supervision and AML controls.

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30
Q

CONCENTRATION ACCOUNTS

What is a concentration account?

A

Concentration accounts are internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day.

These accounts are also known as special-use, omnibus, settlement, suspense, intraday, sweep or collection accounts.

Concentration accounts are frequently used to facilitate transactions for private banking, trust and custody accounts, funds transfers and international affiliates.

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31
Q

STRUCTURING

Describe microstructuring.

A

Designing a transaction to evade triggering a reporting or recordkeeping requirement is called “structuring.” Microstructuring is essentially the same as structuring, except that it is done at a much smaller level. Instead of taking $18,000 and breaking it into two deposits,
the microstructurer might break it into 20 deposits of approximately $900 each. This level of structuring makes it extremely difficult to detect.

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32
Q

INSURANCE

How can the early redemption method on insurance policies be used to launder money?

A

One indicator of possible money laundering is when
a potential policyholder is more interested in the cancellation terms of a policy than the benefits of the policy. The launderer buys a policy with illicit money and then tells the insurance company that he has changed his mind and does not need the policy. After paying a penalty, the launderer redeems the policy and receives a clean check from a respected insurer.

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33
Q

DEALERS IN HIGH VALUE ITEMS

How can art and antiques dealers and auctioneers mitigate their money laundering risks?

A

• Require all art vendors to provide names and addresses. Ask that they sign and date a form that states that the item was not stolen and that they are authorized to sell it.
• Verify the identities and addresses of new vendors and customers.
• If there is reason to believe an item might be stolen, immediately contact the Art Loss Register
(www. artloss.com), the world’s largest private database of stolen art.
• Look critically when a customer asks to pay in cash.
• Be aware of money laundering regulations.
• Appoint a senior staff member to whom employees can report suspicious activities.

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34
Q

INVESTMENT AND COMMODITY ADVISERS

Describe several ways commodity futures and options accounts may be susceptible to money laundering.

A

• 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, and
• Movement of funds to disguise their origin.

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35
Q

TRUST AND COMPANY SERVICE PROVIDERS
Describe the type of services to third parties that any person or business provides on a professional basis to participate in the creation, administration, or management of corporate vehicles.

A

Trust and company service providers (TCSP) include
those persons and entities that, on a professional basis, participate in the creation, administration or management of corporate vehicles. They refer to any person or business that provides any of the following services to third parties:

• Acting as a formation agent of legal persons,
• Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons,
• Providing a registered office, business address or correspondence for a company, a partnership or any other legal person or arrangement,
• Acting as (or arranging for another person to act as) a trustee of an express trust, and
• Acting as (or arranging for another person to
act as) a nominee shareholder for another person.

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36
Q

SHELL COMPANIES
According to a 2001 report,
“Money Laundering in Canada:
An Analysis of RCMP Cases,” what are the four related reasons to establish or control a shell company for money laundering purposes?

What are Shelf companies?

A

SHELL
• Shell companies accomplish the objective of converting the cash proceeds of crime into alternative assets,
• Through the use of shell companies, the launderer can create the perception that illicit funds have been generated from a legitimate source,
• Once a shell company is established, a wide range of legitimate and/or bogus business transactions can be used to further the laundering process, and
• Shell companies can also be effective in concealing criminal ownership. Nominees can be used as owners, directors, officers or shareholders.

SHELF
Shelf companies are companies that have no activity. They are created and “put on a shelf”. The company is then later sold to someone who prefers a previously registered corp over a new one.

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37
Q

TRUSTS
What is a trust?

What is the significance of a trust account, whether offshore or onshore, in the context of money laundering?

A

Trusts are private fiduciary arrangements that allow a grantor, or settlor, to place assets for future distribution to beneficiaries. They are often seen as separate legal entities from the grantor, and are often useful for estate planning and asset protection.

Types of trusts: (i) revocable, and (ii) irrevocable.

How it can be used for ML-
• It can be used as part of the first step in converting illicit cash into less suspicious assets;
• It can help hide criminal ownership of funds or other assets; and
• It is often an essential link between different money laundering vehicles and techniques, such as real estate, shell and active companies, nominees and the deposit and transfer of criminal proceeds.

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38
Q

BEARER BONDS

Why are bearer bonds and bearer stock certificates prime vehicles for money laundering?

A

Bearer bonds and bearer stock certificates, or “bearer shares,” are prime money laundering vehicles because they belong, on the surface, to the “bearer.”

When bearer securities are transferred, because there is no registry of owners, the transfer takes place by physically handing over the bonds or share certificates. Bearer shares offer lots of opportunities to disguise their legitimate ownership.

Basically, the person who holds the bonds or shares gets to claim ownership.

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39
Q

TERRORIST FINANCING

What is the most basic difference between terrorist financing and money laundering?

A

The most basic difference between terrorist financing and money laundering involves the origin of the funds. Terrorist financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be used legally.

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40
Q

TERRORIST FINANCING
What general characteristics of terrorist financing can a financial institution look at to avoid becoming conduits for terrorist financing?

A

FATF’s report entitled “Guidance for Financial Institutions in Detecting Terrorist Financing” published 2002 describes general characteristics of terrorist financing that a financial institution can look at to avoid becoming conduits for terrorist financing, including:

(a) Use of an account as a front for a person with suspected terrorist links,
(b) Appearance of an accountholder’s name on a list of suspected terrorists,
(c) Frequent large cash deposits in accounts of non-profit organizations,
(d) High volume of transactions in the account, and
(e) Lack of a clear relationship between the banking activity and the nature of the accountholder’s business.

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41
Q

HAWALA AND OTHER INFORMAL VALUE TRANSFER SYSTEMS

Why are hawalas attractive to terrorist financiers?

A

Unlike formal financial institutions, they are not subject to formal government oversight and do not keep detailed records in a standard form. Although some hawaladars do keep ledgers, their records are often written in idiosyncratic shorthand and are maintained only briefly.

Reasons for legitimate use of Hawala and other IVTS (informal value transfer system):

  • Cheaper and faster money transmission
  • Lack of banking access in the remittance receiving country
  • Cultural preference and lack of trust in the formal banking system.
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42
Q

CHARITIES OR NON-PROFIT ORGANIZATIONS
What characteristics of charities or non-profit organizations make them particularly vulnerable to misuse for terrorist financing?

A
  • Enjoying the public trust,
  • Having access to considerable sources of funds,
  • Cash-intensive,
  • Frequently having a global presence, often in or next to those areas that are exposed to terrorist activity, and
  • Often being subject to little or no regulation and/or having few obstacles to their creation.
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43
Q

ECONOMIC AND SOCIAL CONSEQUENCES OF MONEY LAUNDERING

Describe four types of risk associated with money laundering faced by a financial institution.

A
  • Reputational risk / loss of public confidence in the integrity of the organization.
  • Operational risk: loss resulting from inadequate internal processes, personnel or systems or from external events.
  • Legal risk: lawsuits, adverse judgments, unenforceable contracts, fines and penalties generating losses, increased expenses for an organization, or even the closure of the organization.
  • Concentration risk is the potential for loss resulting from too much credit or loan exposure to one borrower or group of borrowers.
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44
Q

THREE STAGES IN THE MONEY LAUNDERING CYCLE

Describe the three phases of money laundering.

A
  • Placement is the physical disposal of cash or other assets derived from criminal activity.
  • Layering is the separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds.
  • Integration is supplying apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transactions.
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45
Q

CORRESPONDENT BANKING
Identify and describe the three sections of the USA Patriot Act concerning due diligence U.S. financial institutions need to perform for relationships with foreign correspondent banking customers.

A

Section 312, which requires institutions to set up risk based due diligence to mitigate the money laundering risks posed by foreign financial institutions.

Section 313, which prohibits U.S. 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(b), which requires U.S. financial institutions to maintain records of the identity of the owners of foreign banks for which they maintain correspondent accounts.

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46
Q

PRIVATE BANKING
What is private banking?

What factors may contribute to the vulnerabilities of private banking with regard to money laundering?

A

Private banking is an extremely lucrative, competitive and global industry. It provides highly personalized and confidential products and services to wealthy clients at fees that are often based on “assets under management.” Private banking often operates semi-autonomously from other parts of a bank.

In offshore or international financial centers, private banking customers are often non-residents, meaning they conduct their banking in a country outside the one in which they reside. Their assets may move overseas where they are held in the name of corporate vehicles like private investment companies (PICs) established in secrecy havens. PICs are corporations established by individual bank customers and others in offshore JDs to hold assets.

Factors contributing to the vulnerabilities of private banking:
• Perceived high profitability,
• Intense competition,
• Powerful clientele,
• The high level of confidentiality associated with private banking,
• The close relationship of trust developed between relationship managers and their clients,
• Commission-based compensation for relationship managers,
• A culture of secrecy and discretion developed by the relationship managers for their clients, and
• The relationship managers becoming client advocates to protect their clients.

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47
Q

MONEY REMITTERS AND MONEY EXCHANGE HOUSES
What is one of the most important aspects of due diligence for a bank when establishing a relationship with a money remitter?

A

Ensuring the money remitter is properly licensed.

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48
Q

INSURANCE

How can the free-look period be used to launder money?

A

A free-look period is a feature that allows investors,
for a short period of time after the policy is signed
and the premium paid, to back out of a policy without penalty. This process allows the money launderer to get an insurance check, which represents cleaned funds.

However, as more insurance companies are subject
to AML program requirements, this type of money laundering is more readily detected and reported.

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49
Q

TRUSTS
How does having a lawyer as a trustee on an account at a financial institution create vulnerabilities to money laundering at an institution?

A

Lawyers often serve as trustees by holding money or assets “in trust” for clients. This enables lawyers to conduct transactions and to administer the affairs of a client. Sometimes, the illicit money is placed in a law firm’s general trust account in a file set up in the name of the client, a nominee, or a company controlled by the client.

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50
Q

VEHICLE SELLERS

Identify three ways money laundering can occur through vehicle sellers.

A

The industry defined as “vehicle sellers” includes sellers and brokers of new vehicles, such as automobiles, trucks, and motorcycles; new aircraft, including fixed-wing airplanes and helicopters; new boats and ships, and used vehicles.

Laundering risks and ways laundering can occur through vehicle sellers include:
• Structuring cash deposits below the reporting threshold, or purchasing vehicles with sequentially numbered checks or money orders,
• Trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce complex layers of transactions,
• Accepting third-party payments, particularly from jurisdictions with ineffective money laundering controls.

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51
Q

ECONOMIC AND SOCIAL CONSEQUENCES OF MONEY LAUNDERING

What are the economic effects of money laundering?

A
  • Loss of control of, or mistakes in, decisions regarding economic policy,
  • Weakening financial institutions
  • Economic distortion and instability,
  • Loss of tax revenue,
  • Risks to privatization efforts,
  • Reputation risk for the country / dampening effect on foreign investments.
  • Undermining private sector
  • Increased exposure to organized crime and corruption (successful ML enhances the profitable aspects of criminal activity)
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52
Q

FATF

Identify the three important tasks that FATF focuses on.

A
  • Spreading the anti-money laundering message worldwide,
  • Monitoring implementation of the FATF Recommendations among FATF members, and
  • Reviewing money laundering trends and counter measures.
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53
Q

FATF
According to the FATF 40 Recommendations, the complete set of countermeasures against money laundering and terrorist financing covers what 5 elements?

A
  • The identification of risks and development of appropriate policies,
  • The criminal justice system and law enforcement,
  • The financial system and its regulation,
  • The transparency of legal persons and arrangements, and
  • International cooperation.
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54
Q

FATF

Describe FATF’s Recommendation 15 (2012) on new technologies.

A

Countries and financial institutions should assess the risks associated with developments of new products, business practices, delivery mechanisms and technology.

Financial institutions should assess these risks prior to launching new products; they should also take appropriate measures to mitigate the risks identified.

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55
Q

THE BASEL COMMITTEE ON BANKING SUPERVISION
What are six principles set forth in
the Basel Committee’s Statement
of Principles called “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering”?

A

In 1988, the Basel Committee issued a Statement of Principles called “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering” in recognition of the vulnerability of the financial sector to misuse by criminals. This was a step toward preventing the use of the banking sector for money laundering, and it set out principles with respect to:

  • Customer identification,
  • Compliance with laws,
  • Conformity with high ethical standards and local laws and regulations,
  • Full cooperation with national law enforcement to the extent permitted without breaching customer confidentiality,
  • Staff training, and
  • Record keeping and audits.
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56
Q

THE BASEL COMMITTEE ON BANKING SUPERVISION
What are the four key elements
of Know Your Customer (KYC) as identified in the Basel Committee’s October 2001 paper called “Customer Due Diligence for Banks?”

A
  • Customer identification,
  • Risk management,
  • Customer acceptance, and
  • Monitoring.
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57
Q

THE BASEL COMMITTEE ON BANKING SUPERVISION
Describe the elements that should be addressed in a global approach to KYC identified in the Basel Committee’s October 2004 paper called “Consolidated KYC Risk Management.”

A

The Basel Committee’s October 2004 paper called “Consolidated KYC Risk Management” addresses the need for banks to adopt a global approach and to apply the elements necessary for a sound KYC program to both the parent bank or head office and all of its branches and subsidiaries. These elements consist of:
• Risk management,
• Customer acceptance and identification policies, and
• Ongoing monitoring of higher-risk accounts.

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58
Q

EUROPEAN UNION DIRECTIVES ON MONEY LAUNDERING
How does the scope of the European Union’s Third Money Laundering Directive differ from the Second Money Laundering Directive?

A

• It specifically includes the category of trust and company service providers,
• It covers all dealers trading in goods who trade in cash over 15,000 Euros, and
• The definition of financial institution includes certain insurance intermediaries.
* Details a risk-based approach to CDD.
* Defining “money laundering” and “terrorist financing” as separate crimes.
* Requires all financial institutions to identify and verify the “beneficial owner” of all accounts held by legal entities or persons. “Beneficial owner” refers to the natural person who directly or indirectly controls >25% of a legal entity or person.

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59
Q

USA PATRIOT ACT

How is a private banking account defined under Section 312 of the USA Patriot Act?

A

Under Section 312 of the USA Patriot Act, a private banking account is defined as an account with a minimum aggregate deposit of $1 million for one or more non-U.S. persons and which is assigned to a bank employee acting as a liaison with the non-U.S. person.

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60
Q

FATF
According to FATF’s Recommendations (2012), what are the designated thresholds for transactions under Recommendations 10, 22, and 23?

A

FATF also designated specific thresholds that trigger AML scrutiny. For example, the threshold that financial institutions should monitor for:

  • occasional customers is €15,000 [Recommendation 10];
  • for casinos, including Internet casinos, it is €3,000 [Recommendation 22]; and
  • for dealers in precious metals, when engaged in any cash transaction, it is €15,000 [Recommendation 22-23].
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61
Q

FATF

Describe FATF’s Recommendations 20-21 (2012) on suspicious transaction reporting and liability.

A

The Recommendations say that financial institutions
must report to the Financial Intelligence Unit where they suspect or have reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to terrorist financing. The financial institutions and the employees reporting such suspicions should be protected from liability for reporting and should be prohibited from disclosing that they have reported such activity.

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62
Q

THE WOLFSBERG GROUP
According to the Wolfsberg Anti- Money Laundering Principles for Private Banking (2000), what are situations for private banking that require further due diligence?

A
  • Public officials, including individuals holding, or having held, positions of public trust, as well as their families and close associates,
  • High-risk countries, including countries “identified by credible sources as having inadequate anti-money laundering standards or representing high-risk for crime and corruption, ” and
  • High-risk activities, involving clients and beneficial owners whose source of wealth “emanates from activities known to be susceptible to money laundering.
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63
Q

FATF

Identify the seven topics of international standards incorporated into the FATF 40 Recommendations (2012).

A

• AML/CFT policies and procedures [Recommendations 1-2],

  • —> Assessing risks and applying a risk-based approach
  • —> National cooperation and coordination

• Money laundering and confiscation [Recommendations 3-4],

  • —> ML offenses
  • —> Confiscation and provisional measures

• Terrorist financing and financing of proliferation [Recommendations 5-8],

  • —> Terrorist financing offenses
  • —> Targeted fin sanctions related to terrorism and proliferation
  • —> Non-profit orgs

• Financial and non-financial institution preventative measures [Recommendations 9-23],

  • —> Financial secrecy laws
  • —> Customer DD and recordkeeping
  • —> Additional measures for specific customers and activities
  • —> Reliance, controls and financial groups
  • —> Reporting of suspicious transactions
  • —> Designated non-financial businesses and professions
  • Transparency and beneficial ownership of legal persons and arrangements [Recommendations 24-25],
  • Powers and responsibilities of competent authorities and other institutional measures [Recommendations 26-35], and
  • —> Regulation and supervision
  • —> Operational and law enforcement

• International cooperation [Recommendations 36-40].

  • —> Mutual legal assistance / freezing and confiscation
  • —> Extradition
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64
Q

FATF

Describe FATF’s Recommendation 1 (2012) on the risk-based approach.

A

Countries should start by identifying, assessing and understanding the money laundering and terrorist financing risks they face. Then they should take appropriate measures to mitigate the identified risks.

The risk-based approach allows countries to allocate their limited resources in a targeted manner to their own particular circumstances, thereby increasing the efficiency of the preventative measures. Financial institutions should also use the risk-based approach to identify and mitigate the risks they face.

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65
Q

NON-COOPERATIVE COUNTRIES
In 2009, FATF began to publicly identify high risk jurisdictions.
What made the named jurisdictions high risk?

A

The named countries had strategic deficiencies in their AML/CFT regimes.

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66
Q

FATF MEMBERS AND OBSERVERS

At a high level, what are the criteria for becoming a FATF Member?

A
  • The jurisdiction should be strategically important based on quantitative and qualitative indicators and additional considerations.
  • FATF’s geographic balance should be enhanced by the jurisdiction becoming a member.
  • The country should provide a written commitment at the political/ministerial level.
  • Within a maximum of three years after being invited to participate in FATF as an observer the mutual evaluation process for the country should be launched.
  • Membership is granted if the mutual evaluation is satisfactory.
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67
Q

HISTORY OF THE BASEL COMMITTEE

Does the Basel Committee prohibit the use of numbered accounts?

A

No, numbered accounts should not be prohibited but be subjected to exactly the same KYC procedures as other customer accounts. KYC tests may be carried out by select staff, but the identity of customers must be known to an adequate number of staff if the bank is to be sufficiently diligent. “Such accounts should in no circumstances be used to hide the customer identity from a bank’s compliance function or from the supervisors.”

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68
Q

EU DIRECTIVES ON MONEY LAUNDERING

What must EU member countries do with the EU Directives?

A

EU members must transpose the Directives into law.

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69
Q

FIRST DIRECTIVE

What was considered a predicate offense for money laundering under the First EU Money Laundering Directive?

A

The First Directive of 1991 confined predicate offenses for money laundering to drug trafficking as defined in the 1988 Vienna Convention. However, member states were encouraged to extend the predicate offenses to other crimes.

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70
Q

FOURTH DIRECTIVE

What is the revised threshold for reporting suspicious transactions under the Fourth EU Money Laundering Directive?

A

The threshold for entities obliged to report suspicious transactions (i.e., persons trading in goods or carrying out transactions) decreased from EUR 15,000 to EUR 10,000.

CDD is to be applied for transfers of funds >1,000 euro

Enhanced DD should be applied to every PEP whether the individual is a domestic or third-country citizen. The risk these persons pose was extended to 12 months and measures they are subject to must also be applied to their fam members and known close associates.

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71
Q

FATF-STYLE REGIONAL BODIES

What are three high-level principles that apply to both FATF and FATF-Style Regional Bodies?

A

The following high-level principles apply for both FATF and FSRBs:

  • Role: FSRBs play an essential role in identifying and addressing AML/CFT technical assistance needs for their individual members. In those FSRBs that carry out this co-ordination work, technical assistance necessarily complements mutual evaluation and follow-up processes by helping jurisdictions to implement FATF standards.
  • Autonomy: FATF and FSRBs are free-standing organizations that share the common goals of combating money laundering and the financing of terrorism and proliferation and of fostering effective AML/CFT systems.

• Reciprocity: FATF and FSRBs operate on the basis
of (mutual or joint or common) recognition of their work, which implies that FSRBs and FATF put in place similar mechanisms for effective participation and involvement in each other’s activities.

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72
Q

FATF-STYLE REGIONAL BODIES

What are the nine FATF-Style Regional Bodies?

A

• Asia/Pacific Group on Money Laundering (APG).
• Caribbean Financial Action Task Force (CFATF)
• Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL, formerly PC-R-EV)
• Eurasian Group (EAG)
• Eastern and Southern Africa Anti-Money Laundering
Group (ESAAMLG)
• Financial Action Task Force of Latin America (GAFILAT) (formerly known as Financial Action Task Force on Money Laundering in South America (GAFISUD)
• Intergovernmental Action Group against Money- Laundering in West Africa (GIABA)
• Middle East and North Africa Financial Action Task Force (MENAFATF)
• Task Force on Money Laundering in Central Africa (GABAC)

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73
Q

FATF-STYLE REGIONAL BODIES AND FATF ASSOCIATE MEMBERS

Which of the FATF-Style Regional Bodies issued its own set of 19 recommendations, which were specific to the region?

A

The Caribbean Financial Action Task Force (CFATF), in 1990.

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74
Q

OAS CICAD

What international organization developed the first model legislation specifically designed to combat money laundering?

A

In May 1992, the Organization of American States (OAS), via the Inter-American Drug Abuse Control Commission, an OAS entity that goes by the acronym CICAD (Comisión Interamericana para el Control del Abuso de Drogas), became the first permanent international body to reach an agreement on model legislation aimed specifically at dealing with money laundering.

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75
Q

What is the organization that provides a forum for financial intelligence units around the world to improve the cooperation in the fight against money laundering and financing of terrorism?

What are its principles?

A

The Egmont Group of Financial Intelligence Units.

Principles:

  • Expand and systemize cooperation in the reciprocal exchange of info;
  • Increase effectiveness of FIUs by offering training and promoting personnel exchanges to improve the expertise and capabilities of personnel employed by FIUs.
  • Fostering better and secure comms among FIUs through tech, such as the Egmont Secure Web (ESW)
  • Promoting the operational autonomy of FIUs
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76
Q

KEY EXTRATERRITORIAL ASPECTS OF US LAWS

What is the extraterritorial aspect of section 319(b) of the Patriot Act?

A

The section also allows the Secretary of the Treasury or the Attorney General to subpoena records of a foreign bank that maintains a correspondent account in the United States. The subpoena can request any records relating to the account, including records located outside the United States. If the foreign bank fails to comply with or fails to contest the subpoena, the Secretary or the Attorney General can order the US financial institution to close the correspondent account within ten days of receipt of such order.

Additionally, the section also requires foreign banks to designate a registered agent in the United States to accept service of subpoenas pursuant to this section. Furthermore, US banks and securities brokers and dealers that maintain correspondent accounts for foreign banks must keep records of the identity of the 25 percent owners of the foreign bank, unless it is publicly traded, as well as the name of the
correspondent bank’s registered agent in the U.S.

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77
Q

CRIMINAL MONEY LAUNDERING AND CIVIL FORFEITURE LAWS

How does the USA PATRIOT Act impact non-U.S. banks that have an account with a U.S. financial institution?

A

Section 319(a) of the USA PATRIOT Act greatly strengthened the forfeiture powers over the funds of foreign persons and institutions. If the funds the United States pursues are deposited in a foreign bank that keeps an “interbank account” at a US bank, the United States may bring a case to forfeit the crime-tainted funds in the US account.

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78
Q

OFAC

What is OFAC?

A

The Office of Foreign Assets Control is the division of the U.S. Department of Treasury that administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and to freeze foreign assets under US jurisdiction.

Many of the sanctions are based on United Nations and other international mandates that are multilateral in scope and involve close cooperation with allied governments. OFAC sanction programs prohibit transactions and require the blocking of assets of persons and organizations that appear on one of a series of lists that OFAC issues periodically. OFAC has the power to impose significant penalties on those who are found to be in violation of the blocking orders within each of the sanction programs.

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79
Q

THE WOLFSBERG GROUP
In its “AML Principles for Correspondent Banking,” what does the Wolfsberg Group indicate should be done for approval and ongoing review of higher risk correspondent bank relationships?

A

Approval of higher risk Correspondent Banking relationships at the time of on-boarding and periodic review shall be subject to a higher level of approvals by business and Compliance, or relevant control function. Periodic reviews shall be conducted of all high risk Correspondent Banking relationships, at minimum on an annual basis.

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80
Q

MAINTAINING AN AML/CFT RISK MODEL

Why is it important to continue to update and revisit risk assessments?

A

Risk is dynamic and needs to be continuously managed.

It should also be noted that the environment in which each organization operates is subject to continual change.

Externally, the political changes of a jurisdiction or whether economic sanctions are imposed or removed may impact a country-risk rating.

Internally, organizations respond to market and customer demands by introducing new products and services and implementing new delivery systems.

The combination of these changes makes it critical that the ML/TF risk model is subject to regular review.

In some countries, there is a legislative obligation for such reviews to be undertaken on a regular basis — usually annually or when new products, delivery channels or customer types are introduced.

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81
Q

AML/CFT RISK SCORING

What does FATF recommend considering when assessing risk?

A

When assessing risk, FATF recommends considering:

• Customer risk factors such as non-resident customers, cash-intensive businesses, complex ownership structure of a company, and companies with bearer shares.

• Country or geographic risks such as countries with inadequate AML/CFT systems, countries subject
to sanctions or embargos, countries involved with funding or supporting of terrorist activities, or those with significant levels of corruption.

• Product, service, transaction or delivery channel risk factors such as private banking, anonymous transactions, and payments received from unknown third parties.

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82
Q

ASSESSING THE DYNAMIC RISK OF CUSTOMERS

What are some factors an institution should consider when assessing the dynamic risk of its customers?

A

As every financial institution develops transaction history with customers, it should consider modifying the risk rating of the customer, based on:

• Unusual activity, such as alerts, cases and suspicious transaction report (STR) filings.
• Receipt of law enforcement inquiries, such as subpoenas.
• Transactions that violate economic sanctions programs.
• Other considerations, such as significant volumes
of activity where it would not be expected, such as
a domestic charity engaging in large international transactions or businesses engaged in large volumes of cash where this would not normally be expected.

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83
Q

AML/CFT RISK IDENTIFICATION – GEOGRAPHIC LOCATION

What are some sources of identifying countries that pose heightened geographic risk?

A
  • The US State Department issues an annual “International Narcotics Control Strategy Report” rating more than 100 countries on their money laundering controls.
  • Transparency International publishes a yearly “Corruption Perceptions Index,” which rates more than 100 countries on perceived corruption.
  • FATF identifies jurisdictions with weak AML/CFT regimes and issues country-specific Mutual Evaluation Reports.
  • In the United States certain domestic jurisdictions are evaluated based on whether they fall within government-identified higher-risk geographic locations such as High Intensity Drug Trafficking Areas (HIDTA) or High Intensity Financial Crime Areas (HIFCA).
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84
Q

SYSTEM OF INTERNAL POLICIES, PROCEDURES AND CONTROLS

What are some examples of internal controls, outside of policies and procedures?

A

While policies and procedures provide important guidance, the AML/CFT program also relies on a variety of internal controls, including management reports and other built-in safeguards that keep the program working. These internal controls should enable the compliance organization to recognize deviations from standard procedures and safety protocols.

A matter as simple as requiring a corporate officer’s approval or two signatures for transactions that exceed a prescribed amount could be a critical internal control element that if ignored seriously weakens an institution’s AML/CFT program and attracts unwanted attention from supervisory authorities.

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85
Q

THE COMPLIANCE FUNCTION

What factors should be considered when determining the sophistication of a compliance function within an institution?

A

The sophistication of the compliance function should be based upon the institution’s nature, size, complexity, regulatory environment, and the specific risk associated with the products, services, and clientele.

No two institutions will have exactly the same compliance structure because the risk facing each institution is going to be different, as identified in their respective risk assessments.

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86
Q

DESIGNATION AND RESPONSIBILITIES OF A COMPLIANCE OFFICER – COMMUNICATION
Why is it critical that the Compliance Officer have good communications skills?

A

The compliance officer must also have the means to communicate at all levels of the organization — from front-line associates all the way up to the CEO and Board of Directors. It is critical for a compliance officer to be capable of articulating matters of importance to senior and executive management, particularly significant changes that may present risk to the organization, such as a sudden or substantial increase in STRs or currency transaction reports (CTRs).

Other items of concern that need to be escalated to management may include changes to laws or regulations that may require immediate action. A compliance officer must have the skills necessary to be able to analyze and interpret these ongoing changes, determine what effect they may have on the institution, and suggest an action plan when appropriate.

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87
Q

DESIGNATION AND RESPONSIBILITIES OF A COMPLIANCE OFFICER – DELEGATION OF AML DUTIES
What controls should a Compliance Officer consider over an AML duty that has been delegated?

A

The compliance function may establish risk-based quality assurance reviews and monitoring and testing activities to ensure the functions are being performed appropriately. This may include a review of the CDD collected to ensure completeness, monitoring reports of CDD completeness or defects to ensure the systems are working as expected, and performing testing to assess whether the monitoring and the business performance are satisfactorily measuring and ensuring compliance.

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88
Q

AML/CFT TRAINING – WHO TO TRAIN

What are some of the target audiences for training?

A
  • Customer-facing staff
  • Operations personnel
  • AML/CFT compliance staff
  • Senior management and board of directors
  • Independent testing staff
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89
Q

AML/CFT TRAINING – HOW TO TRAIN

Why is it important to have a test at the end of a training session?

A

Tests should be considered as a means to evaluate how well the training is understood with a mandatory passing score.

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90
Q

AML/CFT TRAINING – WHEN TO TRAIN

When should an institution conduct training?

A

An institution’s training should be ongoing and on a regular schedule. Existing employees should at least attend an annual training session. New employees should receive appropriate training with respect to their job function and within a reasonable period after joining or transferring to a new job. Situations may arise that demand an immediate session.

For example, an emergency training session may be necessary right after an examination or audit that uncovers serious money laundering control deficiencies. A news story that names the institution or recent regulatory action, such as a Consent Order, might also prompt quick-response training.

Changes in software, systems, procedures or regulations are additional triggers for training sessions.

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91
Q

KNOW YOUR CUSTOMER/CDD

According to FATF, when should an institution conduct CDD?

A

FATF recommends that financial institutions should be required to undertake CDD measures when:

• Establishing business relationships.
• Carrying out occasional transactions under
certain circumstances.
• There is a suspicion of money laundering or terrorist financing.
• The financial institution has doubts about the veracity or adequacy of previously obtained customer identification data.

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92
Q

EDD

According to FATF, when should an institution conduct enhanced due diligence on a customer?

A

FATF indicates that when there are circumstances where the risk of money laundering or terrorist financing is higher, enhanced CDD measures should be taken.

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93
Q

EDD FOR HIGHER RISK CUSTOMERS

What are some examples of enhanced due diligence for higher risk customers?

A

A financial institution should consider obtaining additional information from high-risk customers such as:

• Source of funds and wealth.
• Identifying information on individuals with control over the account, such as signatories or guarantors.
• Occupation or type of business.
• Financial statements.
• Banking references.
• Domicile.
• Proximity of the customer’s residence, place of
employment, or place of business to the bank.
• Description of the customer’s primary trade area
and whether international transactions are expected
to be routine.
• Description of the business operations, the anticipated volume of currency and total sales, and a list of major customers and suppliers.
• Explanations for changes in account activity.

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94
Q

ACCOUNT OPENING, CUSTOMER IDENTIFICATION AND VERIFICATION

According to FATF, when should the identity of a customer be verified?

A

A bank should not establish a banking relationship,
or carry out any transactions, until the identity of the customer has been satisfactorily established and verified in accordance with FATF Recommendation 10.

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95
Q

CONSOLIDATED CDD

How should a global financial institution address the performance of CDD across its various operations?

A

Financial institutions should aim to apply their customer acceptance policy, procedures for customer identification, process for monitoring higher risk accounts and risk management framework on a global basis to all of their offices, branches and subsidiaries.

The firm should clearly communicate these policies and procedures through ongoing training and regular communications, as well as conduct monitoring and testing to ensure compliance with the policies and procedures.

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96
Q

ECONOMIC SANCTIONS

What are the three primary categories of economic sanctions?

A

Sanctions can generally fall into one of the following categories:

  • Targeted Sanctions – aimed at specifically named individuals, such as key leaders in a country or territory, named terrorists, significant narcotics traffickers and proliferators of weapons of mass destruction. These sanctions often include the freezing of assets and travel bans where possible.
  • Sectoral Sanctions – aimed at key sectors of an economy to prohibit a very specific subset of financial dealings within those sectors to impede future growth.
  • Comprehensive Sanctions – generally prohibit all direct or indirect import/export, trade brokering, financing or facilitating against most goods, technology and services. These are often aimed at regimes responsible for gross human rights violations, and nuclear proliferation.
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97
Q

ECONOMIC SANCTIONS – US

What is the Office of Foreign Assets Control’s (OFAC) list of sanctions persons known as?

A

The Specially Designated Nationals and Blocked Persons (SDN) list.

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98
Q

SANCTIONS LIST SCREENING

When should institutions conduct economic sanctions screening?

A

Before a financial institution starts doing business with
a new customer or engaging in certain transactions
(e.g., international wire payments), it should review the various country sanction program requirements as well as published lists of known or suspected terrorists, narcotics traffickers, and other criminal actors for potential matches.

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99
Q

POLITICALLY EXPOSED PERSONS SCREENING

What are some of the limitations on screening customers against lists of Politically Exposed Persons?

A

The information contained in them – and the ability to positively match your customer with a PEP on a database – can be a challenge. These lists do not always provide all relevant information related to PEPs that would assist in identifying them. For instance, there is no unique identifier, such as a date of birth or address.

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100
Q

ASSESSING RISK AND DEVELOPING A RISK-SCORING MODEL
Why is the risk-based approach more preferable than a prescriptive approach in the area of anti-money laundering and counter-terrorist financing?

A
  • 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, and
  • 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.
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101
Q

THE ELEMENTS OF AN AML PROGRAM – COMPLIANCE OFFICER

Identify the responsibilities of the anti- money laundering compliance officer.

A

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.

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102
Q

THE ELEMENTS OF AN AML PROGRAM – TRAINING

What are some characteristics of a successful anti-money laundering compliance training program?

A

Regulations and laws require financial institutions to have formal, written AML compliance programs that include “training for appropriate personnel.”

A successful training program not only should meet the standards set out in the laws and regulations that apply to an institution, but should also satisfy internal policies and procedures and should mitigate the risk of getting caught up in a money-laundering scandal.

Training is one of the most important ways to stress the importance of anti-money laundering efforts, as well as educating employees about what to do if they encounter potential money laundering.

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103
Q

THE ELEMENTS OF AN AML PROGRAM – TRAINING

Identify the basic elements behind the development of an effective anti-money laundering compliance training program.

A
  • Who to train,
  • What to train on,
  • How to train,
  • When to train, and
  • Where to train.
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104
Q

THE ELEMENTS OF AN AML PROGRAM – AUDIT

Describe how the independent audit should review Suspicious Transaction Reporting (STR) systems.

A

The independent audit should review Suspicious Transaction Reporting (STR) systems, which should include an evaluation of the research and referral of unusual transactions.

Testing should include a review of policies, procedures and processes for referring unusual or suspicious activity from all business lines (e.g., legal, private banking, foreign correspondent banking) to the personnel or department responsible for evaluating unusual activity.

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105
Q

THE ELEMENTS OF AN AML PROGRAM – AUDIT
What steps should the independent audit take to evaluate the bank’s transaction monitoring software’s ability to identify unusual activity?

A
  • Reviewing policies, procedures, and processes for suspicious activity monitoring,
  • Evaluating the system’s methodology for establishing and analyzing expected activity or filtering criteria,
  • Evaluating the appropriateness of the monitoring reports, and
  • Comparing the transaction monitoring typologies to the AML/CFT risk assessment for reasonableness.
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106
Q

WHAT RISKS DO YOUR PRODUCTS OR SERVICES POSE?

What banking functions or products are considered high-risk?

A
• 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, and
• Payable Through Accounts (PTAs).
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107
Q

WHAT RISKS DO YOUR CUSTOMERS POSE?

When categorizing risks, what are the four general levels of risk?

A
  • 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, and
  • Low- or Standard-Risk – This represents the baseline risk of money laundering; normal business rules apply.
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108
Q

COMPLIANCE CULTURE AND SENIOR MANAGEMENT’S ROLE

Where does the ultimate responsibility for the AML compliance program rest with?

A

The 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.

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109
Q

CUSTOMER DUE DILIGENCE

What are the seven elements of a sound customer due diligence (CDD) program?

A
  • 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, and
  • Documentation of findings.
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110
Q

WHAT RISKS DO YOUR CUSTOMERS POSE?

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

A

• Casinos,
• Offshore corporations and banks located in tax/
banking havens,
• MSBs, including 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 (restaurants, retail stores, parking).

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111
Q

KNOW YOUR EMPLOYEE

Describe a sound Know Your Employee program.

A

A Know Your Employee (KYE) program means that
the institution has a program in place that allows it to understand an employee’s background, conflicts of interest and susceptibility to money laundering complicity.

Policies, procedures, internal controls, job descriptions, code of conduct/ethics, levels of authority, compliance with personnel laws and regulations, accountability, monitoring, dual control, and other deterrents should be firmly in place.

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112
Q

SUSPICIOUS OR UNUSUAL TRANSACTION MONITORING AND REPORTING
Identify several types of internal reports financial institutions may use to discover money laundering and terrorist financing.

A

• 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, and
• New account activity reports.

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113
Q

SUSPICIOUS OR UNUSUAL TRANSACTION MONITORING AND REPORTING

Describe a typical suspicious or unusual transaction reporting process within a financial institution.

A

While reporting procedures vary from country to country, a typical suspicious or unusual transaction reporting process within a financial institution includes:

  • 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, and
  • Employee training on detecting suspicious transactions or activities.
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114
Q

BMPE
According to the 1999 U.S. Customs “trade advisory” titled “The Black Market Peso Exchange,” what are the three red flags as indicators of BMPE?

A
  • Payment made in cash by a third party with no connection to the underlying transaction,
  • Payment made by wire transfers from third parties unconncted to the underlying transaction, and
  • Payment made with checks, bank drafts or money orders not drawn on the account of the purchaser
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115
Q

ELECTRONIC ANTI-MONEY LAUNDERING SOLUTIONS
Identify the four ways that good technology can equip organizations with improved defenses in the fight against financial crime.

A
  • 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, and
  • A detailed audit trail: demonstrates compliance efforts to regulators.
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116
Q

LAW ENFORCEMENT INVESTIGATIONS

Define a search warrant and describe how it is issued.

A

A search warrant is a grant of permission from a court for a law enforcement agency to search certain designated premises and to seize specific categories of items or documents.

Generally, the requesting agency is required to establish that probable cause exists to believe that evidence of a crime will be located.

The warrant is authorized based on information contained in an affidavit submitted by a law enforcement officer.

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117
Q

DECISION TO PROSECUTE
Identify the factors a prosecutor may consider when determining whether or not to bring a case against an institution involving money laundering-related charges.

A
  • The institution has a criminal history,
  • The institution has cooperated with the investigation,
  • The institution discovered and self-reported the money laundering-related issues,
  • The institution has had a comprehensive and effective AML program,
  • The institution has taken timely and effective remedial action,
  • There are civil remedies available that can serve as punishment, or
  • Deterring wrongdoing by others is needed and will be served by a prosecution.
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118
Q

SUMMONSES AND SUBPOENAS
ABC Bank was served with a subpoena compelling the production of certain documents on a personal checking account. Describe the steps the bank should consider taking upon receipt of the subpoena.

A

If an institution is served with a summons or subpoena compelling the production of certain documents, the institution should have its senior management and/or counsel review the summons or subpoena.

If there are no grounds for contesting the summons or 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 institution. Also, the financial institution should not notify the customer who is being investigated.

If the government asks the bank to keep certain accounts open, such a request should be obtained in writing under proper letterhead and authority from the government.

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119
Q

SEARCH WARRANTS

ABC Bank was served with a search warrant. What next steps should the Bank consider?

A
  1. Call the financial institution’s in-house or outside counsel,
  2. Review the warrant to understand its scope,
  3. Ask for and obtain a copy of the warrant,
  4. Ask for a copy of the affidavit that supports the search warrant (the agents are not obligated to provide a copy of the affidavit, but, if a financial institution is allowed to see the affidavit, the financial institution can learn more about the purpose of the investigation),
  5. Remain present while the agents record an inventory of all items they seize and remove from the premises. Keep track of the records taken by the agents,
  6. Ask for a copy of law enforcement’s inventory of what they have seized, and
  7. Write down the names and agency affiliations of the agents who conduct the search.
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120
Q

MONITORING THE INSTITUTION’S RESPONSE TO A LAW ENFORCEMENT INVESTIGATION
How should a financial institution monitor the receipt of a subpoena, summons, or other government request?

A

When an institution receives a subpoena, summons
or other government request, the institution should
do more than just produce the records or information being sought.

Financial institutions should ensure that all grand jury subpoenas, as well as other information requests from government agencies, are reviewed by senior management, an investigations group or counsel to determine how best to respond to the inquiry and to determine if the inquiry or the underlying activity might pose a risk to the institution.

In addition, the institution should maintain a centralized control over all requests and responses in order to ensure that the requests are responded to on a complete and timely basis and to establish a complete record of what is provided. This centralized record will also assist with regard to the institution’s own internal investigation.

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121
Q

NOTICE TO EMPLOYEES
If a bank is under investigation by a government agency for possible money laundering, what steps should the Bank have for its employees follow?

A

With regard to investigations conducted by the government, employees should be informed of the investigation and should be instructed not to produce corporate documents directly, but, rather, should inform senior management or counsel of all requests for documentation and should provide the documents to them for production.

In that way, the institution will know what is being requested and what has been produced. In addition, the institution can determine what, if any, requests should be contested. The same procedure should be followed with regard to requests for employee interviews.

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122
Q

INTERNAL INVESTIGATIONS

Identify several situations that may require a financial institution to initiate an internal investigation?

A

• A report of examination from the regulators,
• Information from third parties, such as customers,
• Information derived from surveillance or monitoring systems,
• Information from employees or a company hotline,
• Receipt of a governmental subpoena or
search warrant,
• Learning that government investigators are asking questions of institution employees, business associates, customers or even competitors, and
• The filing of a civil lawsuit against the institution or a customer of the institution.

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123
Q

INTERNAL INVESTIGATIONS

What is the purpose of conducting an internal investigation?

A

The purpose of the investigation will be to learn the nature and extent of any potential wrongdoing, to develop information sufficient to report – when necessary – to the authorities, to enable the institution to minimize its liability, and to stop any potential money laundering.

124
Q

CLOSING THE ACCOUNT
The checking account for XYZ Trading LTD, a company registered in the British Virgin Islands, was identified on a government subpoena issued to International Bank.

The Bank has initiated an internal investigation on the account and its beneficial owners. What factors should the Bank consider on whether to close the account?

A

Based on its internal investigation, the institution should make an independent determination as to whether to close the account in issue. Some of the factors that the institution should consider are as follows:

• The legal basis for closing an account,
• The institution’s stated policies and procedures for
closing an account,
• How serious is the underlying conduct. If the conduct is serious and rises to the level where the account would ordinarily be closed, then the institution should consider closing the account, or
• As stated above, if law enforcement requests the institution to keep the account open, the institution should request that the investigator or prosecutor make that request in writing on proper government agency letterhead with the appropriate
authorized signature.

125
Q

FILING AN STR

If an institution decides to file an STR, what should they do as soon as possible?

A

Notify the investigators or prosecutors.

126
Q

THE IMPORTANCE OF GATHERING AND PRODUCING DOCUMENTS
What type of documents would a financial institution have that could assist a financial investigator in tracking money movements?

A

A financial investigator’s main objective is to track the movement of money, whether through a bank, broker- dealer, money services business or casino. For example, banks maintain signature cards, which are collected at the opening of an account, account statements, deposit tickets, checks and withdrawal items and credit and debit memorandums.

Banks also keep records on loans, cashier’s checks, certified checks, traveler’s checks and money orders.
They exchange currency, cash third-party checks, and conduct wire transfers, as do most money services businesses. Banks also keep safe-deposit boxes and issue credit cards.

127
Q

INTERVIEWING EMPLOYEES

Why is it important to interview knowledgeable employees as soon as practical?

A

When performing an internal investigation, it is important to secure and review all relevant documentation and to interview all knowledgeable employees.

It is important to interview these employees as soon as practicable so that their memories are the freshest and so that they can direct management or counsel to relevant documents and people on a timely basis.

128
Q

DISSEMINATION OF A WRITTEN REPORT BY COUNSEL
What steps should the institution take to ensure a written report on the internal investigation retains the attorney-client privilege?

A

If counsel for the institution prepares a written report
of an investigation, the institution should take steps to not inadvertently waive the attorney-client privilege by distributing the report to persons who should not receive it.

Every page of the report should contain a statement that it is confidential and is subject to the attorney-client privilege and work-product privilege.

Copies of the report should be numbered, and a list
of persons who are given copies to read should be maintained. After a set period of time, all copies should be returned. Persons obtaining the report should be instructed not to make notes on their copies. All copies should be maintained in a file separate from regular institution files in a further effort to maintain the highest level of protection.

129
Q

MUTUAL LEGAL ASSISTANCE TREATIES

What are the steps commonly taken to obtain mutual legal assistance?

A
  1. The central authority of the requesting country sends a “commission rogatoire” (letter rogatory, or letter of request) to the central authority of the other country.

The letter includes the information sought, the nature of the request, the criminal charges in the requesting country and the legal provision under which the request is made,

  1. The central authority that receives the request sends it to a local financial investigator to find out if the information is available,
  2. An investigator from the requesting country then visits the country where the information is sought, and accompanies the local investigator during visits or when statements are taken,
  3. The investigator asks the central authority for permission to remove the evidence to the requesting country,
  4. The central authority sends the evidence to the requesting central authority, thereby satisfying the request for mutual legal assistance, and
  5. Local witnesses may need to attend court hearings in the requesting country.
130
Q

AML COOPERATION BETWEEN COUNTRIES

Identify the three gateways that assist with the AML cooperation between countries.

A
  • Mutual Legal Assistance Treaties,
  • Financial Intelligence Units, and
  • The Supervisory Channel.
131
Q

FATF RECOMMENDATIONS ON COOPERATION BETWEEN COUNTRIES
Recommendations 36-40 from
FATF’s 40 Recommendations pertain specifically to the international aspects of money laundering and terrorist financing investigations. What are Recommendations 36-40?

A

Recommendations 36-40 deal with mutual legal assistance treaties, extradition, confiscation of assets and mechanisms to exchange information internationally.

132
Q

NEGOTIABLE INSTRUMENTS

What are bearer negotiable instruments?

A

Bearer negotiable instruments Include monetary instruments in bearer form such as:

• negotiable instruments (including checks, promissory notes and money orders) that are either in bearer form, are endorsed without restriction, are made out to a fictitious payee, or are otherwise in such form that title thereto passes upon delivery.

133
Q

MEMORANDUM OF UNDERSTANDING

What is a Memorandum of Understanding (MOU)?

A

An agreement between two parties establishing a set of principles that govern their relationship on a particular matter.

An MOU is often used by countries to govern their sharing of assets in international asset-forfeiture cases or to set out their respective duties in anti-money laundering initiatives.

Financial Intelligence Units (FIUs), with the task of receiving and analyzing suspicious transaction reports
on an ongoing basis and maintaining close links with police and customs authorities, share information among themselves informally in the context of investigations, usually on the basis of an MOU.

The Egmont Group of FIUs has established a model for such MOUs. Unlike the Mutual Legal Assistance Treaty (see below), this gateway is ordinarily used not for obtaining evidence, but for obtaining intelligence that might lead to evidence.

134
Q

COMMISSION ROGATOIRE

What is a commission rogatoire?

A

Also known as letter rogatory, commission rogatoire is a written request for legal or judicial assistance sent by the central authority of one country to the central authority of another when seeking evidence from the foreign jurisdiction.

The letter typically specifies the nature of the request, the relevant criminal charges in the requesting country, the legal provision under which the request is made, and the information sought.

135
Q

EXTRATERRITORIAL REACH

What is a country’s extraterritorial reach?

A

The extension of one country’s policies and laws to the citizens and institutions of another. U.S. money laundering laws contain several provisions that extend its prohibitions and sanctions into other countries.

For example, the “extraterritorial jurisdiction” of the principal U.S. anti-money laundering law can apply to a non-U.S. citizen if the “conduct” occurs “in part” in the U.S. (Title 18, USC Sec. 1956(f)).

136
Q

FINANCIAL INTELLIGENCE UNIT

Describe a Financial Intelligence Unit (FIU).

A

A central governmental office that obtains information from financial reports, processes it and then discloses it to an appropriate government authority in support of a national anti-money laundering effort.

The activities performed by an FIU include receiving, analyzing and disseminating information and, sometimes, investigating violations and prosecuting individuals indicated in the disclosures.

137
Q

FRONT COMPANY

Describe a front company.

A

A business that commingles illicit funds with revenue generated from the sale of legitimate products or services.

Criminals use front companies to launder illicit money by giving the funds the appearance of legitimate origin. Organized crime has used pizza parlors to mask proceeds from heroin trafficking.

Front companies may have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates or even below manufacturing costs.

Front companies have a competitive advantage over legitimate firms that must borrow from financial markets, making it difficult for legitimate businesses to compete with front companies.

138
Q

INTERNATIONAL BUSINESS COMPANY

What is an International Business Company (IBC)?

A

A variety of offshore corporate structures, alternately called “exempt companies,” which are dedicated to:
• business use outside the incorporating jurisdiction,
• rapid formation,
• secrecy,
• broad powers,
• low cost,
• low to zero taxation, and
• minimal filing and reporting requirements.

139
Q

KNOW YOUR CUSTOMER

Describe Know Your Customer (KYC).

A

Know Your Customer (KYC) refers to AML policies and procedures used to determine the true identity of a customer and the type of activity that is “normal and expected,” and to detect activity
that is “unusual” for a particular customer.

140
Q

MUTUAL LEGAL ASSISTANCE TREATY

What is a Mutual Legal Assistance Treaty (MLAT)?

A

An agreement among countries allowing for mutual assistance in legal proceedings and access to documents and witnesses and other legal and judicial resources in the respective countries, in private and public sectors, for use in official investigations and prosecutions.

141
Q

PHYSICAL CROSS-BORDER TRANSPORTATION OF CURRENCY

Define physical cross-border transportation of currency.

A

In-bound or out-bound transportation of currency or bearer negotiable instruments from one country to another. The term includes:

(1) physical transportation by a natural person, or in that person’s accompanying luggage or vehicle;
(2) shipment of currency through cargo containers; and
(3) the mailing of currency or bearer negotiable instruments.

142
Q

RED FLAG

Define a red flag.

A

A warning signal that should bring attention to a potentially suspicious situation, transaction or activity.

143
Q

REMITTANCE SERVICES

What are remittance services?

A

Remittance services are also referred to as giro houses or casas de cambio.

Remittance services are businesses that receive cash or other funds that they transfer through the banking system to another account. The account is held by an associated company in a foreign jurisdiction where the money is made available to the ultimate recipient.

144
Q

PONZI SCHEME

Describe a Ponzi Scheme.

A

A money laundering system named after Charles Ponzi, an Italian immigrant who spent 10 years in jail in the
U.S. for a scheme that defrauded 40,000 people out of $15,000,000.

Ponzi’s name became synonymous with the use of new investors’ money to pay off prior investors. Ponzi schemes involve fake, non-existent investment schemes in which the investors are tricked into investing on the promise of unusually attractive returns.

The operator of the scheme can keep the operation going by paying off early investors with the money from new investors until the scheme collapses under its own weight and/or the promoter vanishes with the remaining money.

The scheme recently engaged in by Bernie Madoff is an example of a Ponzi scheme. The prime bank guaranty, roll program, bank debenture program and high yield promises are frequently used to entice investors into participating in Ponzi schemes.

145
Q

SAFE HARBOR

What is a safe harbor for reporting suspicious activity?

A

Safe harbor is defined as legal protection for financial institutions, their directors, officers and employees from criminal and civil liability for breach of any restriction on disclosing information imposed by contract or by any legislative, regulatory or administrative prohibition, if they report their suspicions in good faith to the Financial Investigation Unit (FIU), even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.

146
Q

SMURFING

Define smurfing.

A

A commonly used money laundering method,
smurfing involves the use of multiple individuals and/or multiple transactions for making cash deposits, buying monetary instruments or bank drafts in amounts under the reporting threshold.

147
Q

TAX HAVEN

Describe a tax haven.

A

Countries that offer special tax incentives or tax avoidance to foreign investors and depositors.

148
Q

TIPPING OFF

What is tipping off?

A

The improper or illegal act of notifying a suspect that he or she is the subject of a Suspicious Transaction Report or is otherwise being investigated or pursued by the authorities.

149
Q

TRUSTEE

Describe a trustee.

A

A trustee may be a paid professional or company or unpaid person that holds the assets in a trust fund separate from the trustee’s own assets.

The trustee invests and disposes of the assets in accordance with the settlor’s trust deed, taking into consideration any letter of wishes.

150
Q

HAWALA

What is hawala?

A

A funds exchange system in Indian and Chinese civilizations used to facilitate the secure and convenient cross-border movement of funds.

Hawala was born centuries before Western financial systems. Merchant traders wishing to send funds to their homelands would deposit them with a hawala broker or hawaladar who normally owned a trading business.

For a small fee, the banker would arrange for the funds to be available for withdrawal from another banker, normally also a trader, in another country. The two bankers would settle accounts through the normal process of trade.

Today, the technique works much the same, with businesspersons in various parts of the world using their corporate accounts to move money internationally for third parties. Deposits and withdrawals are made through hawaladars, rather than traditional financial institutions. The practice is vulnerable to terrorist financing and money laundering—funds do not actually cross borders, and transactions tend to be confidential, as records are not stringently kept. In Pakistan, the system is called hundi. See Alternative Remittance System.

151
Q

WILLFUL BLINDNESS

Describe willful blindness.

A

A legal principle that operates in money laundering cases in the U.S. and is defined by courts as the “deliberate avoidance of knowledge of the facts” or “purposeful indifference.”

Courts have held that willful blindness is the equivalent of actual knowledge of the illegal source of funds or of the intentions of a customer in a money laundering transaction.

152
Q

BASEL COMMITTEE
According to the Basel Committee
on Banking Supervision’s paper entitled “Compliance and the compliance function in banks,” what are the responsibilities of the board of directors for compliance?

A

The bank’s board of directors is responsible for overseeing the management of the bank’s compliance risk.

The board should approve the bank’s compliance policy, including a formal document establishing a permanent and effective compliance function.

At least once a year, the board or a committee of the board should assess the extent to which the bank is managing its compliance risk effectively.

153
Q

BASEL COMMITTEE
According to the Basel Committee on Banking Supervision’s paper entitled “Customer Due Diligence for Banks,” how are sound KYC procedures relevant to the safety and soundness of banks?

A
  • They help to protect the banks’ reputation and the integrity of banking systems by reducing the likelihood of banks becoming a vehicle for or a victim of financial crime, and
  • They constitute an essential part of sound risk management (e.g. by providing the basis for identifying, limiting and controlling risk exposures in assets and liabilities, including assets under management).
154
Q

What is a letter of credit? How can it be used to launder money?

A

Letters of credit are a credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party when certain conditions are met.

They are commonly used to finance export bc exporters want assurance that the ultimate buyer of its goods will make payment, and this is given by the buyer’s purchase of a bank LOC.

How it’s used-
The LOC is forwarded to a correspondent bank in the JD in which the payment is to be made. The LOC is drawn on when the goods are loaded for shipping, received at the importation point, clear customs and are delivered.

How it can be used for ML-
LOC can be used to facilitate money laundering by transferring money from a country with lax exchange controls, thus assisting in creating the illusion that an import transaction is involved.

155
Q

How can corporate vehicles be misused my criminals?

Which are the most susceptible to abuse?

A

Corp vehicles can be misused for money laundering, bribery, corruption activity, sheltering assets, and tax evasion.

Corps, partnerships, and trusts are all excellent methods to maximize anonymity of ownership.

LLCs are attractive vehicles for ML since virtually anyone can own or manage an LLC, including foreign persons and other business entities.

International biz corporations (IBC): These are entities formed outside of a person or businesses’ country of residence, typically in offshore JDs, for confidentiality or asset protection.

156
Q

What is FATF?

A

The Group of Seven (G7) nations launched Financial Action Task Force (FATF) in 1989.

FATF’s standards for countries to implement are set out in the 40 Recommendations.

What it does:

  • Promulgates AML guidance to gov bodies around the world.
  • Sets standards and promotes effective implementation of legal, regulatory and operational measures for combatting ML, terrorist financing and other related threats.
  • Monitors countries’ progress in implementing the FATF Recommendations.
  • Reviews ML and terrorist financing techniques and counter-measures.
  • Promotes the adoption and implementation of the FATF Recommendations globally.

Technical Compliance Assessment
* Evaluates the specific requirements of the FATF Recommendations, including how a member relates them to its relevant legal and institutional framework, and the powers and procedures of its competent authorities. The focus is on the fundamental building blocks of an AML/CFT system.

Effectiveness Assessment
* Seeks to assess the adequacy of a member’s implementation of the FATF Recommendations, and identifies the extent to which a member achieves a defined set of outcomes that are central to a robust AML/CFT system. The focus is on the extent to which the legal and institutional framework of the member is producing the expected results.

Current FATF members:

  • 35 countries (US, China, Canada, MX, UK, India, Korea, Japan, etc.)
  • 2 regional orgs (the Gulf Cooperation and European Commission)
  • 31 associate members or observers of FATF
157
Q

What does the FATF 40 recommend re wire transfers?

A

Countries should require fin institutions to obtain and send required and accurate originator, intermediary, and beneficiary info with wires.

They should also monitor wires for those involving parties designated by the UN Security Council and take freezing actions or otherwise prohibit the transactions from occurring.

158
Q

What is the Basel Committee on Banking Supervision?

A

The Base Committee on Banking Supervision is the primary global standard-setter for the regulation of banks, and provides a forum for cooperation on banking supervisory matters.

The 4 key elements of a KYC program are:

  • Customer identification
  • RM
  • Customer acceptance
  • Monitoring

For higher-risk customers, Basel recommends that banks should:

  • Develop customer acceptance policies and procedures describing the customer’s background, country of origin, biz activities and other risk indicators.
  • Use standard identification procedures when dealing with non face2ace customers.
  • Provide periodic bank-wide employee training that explains the importance of the KYC policies and AML requirements.
  • Conduct continued monitoring of high-risk accounts by compliance personnel to obtain a greater understanding of the customers’ “normal activities” and to enable the updating of identification papers and the detection of suspicious transaction patterns.
159
Q

What is the Wolfsberg Group?

What are their recommendations?

A

The Wolfsberg Group is an association of 13 global banks that aims to develop financial services industry standards and guidance related to KYC, AML and Counter-terrorist financing policies.

The principles recommend controls for private banking that range from the basic (e.g. customer identification) to enhanced DD.

The principles recommend that at least 1 person other than the private banker should approve all new clients and accounts.
m
Recommendations:
* Providing lists of suspected terrorists on a globally coordinated basis by authorities;
* Providing info on the manner, means, and methods used by terrorists;
* Developing uniform global formats for funds transfers that assist in the detection of terrorism financing;
* Protecting financial institutions with safe harbor immunity to encourage them to share info and to report to authorities;
* Performing enhanced DD for biz relationships with remittance businesses, exchange houses, casas de cambio, bureaux de change and money transfer agents and other high-risk customers or those in high risk sectors, and activities such as underground banking businesses or alternative remittance systems.

160
Q

Summarize the important global organizations / groups / committees, etc. that are relevant to money laundering and counter terrorist financing..

Describe their members, important documents, and focus areas.

A
  1. FATF
    * Members: Group countries and international orgs
    * impt doc: 40 recommendations
    * Focus: Criminalization, role of financial system, and international cooperation
  2. Regional FATF bodies
    * Members: Caribbean, Asia-Pacific countries
    * Focus: Regional AML issues
  3. Basel Committee
    * Members: Central bank governors of the G-10
    * Important doc: CDD for Banks and Consolidated KYC
    * Focus: KYC
  4. European Union
    * Members: European union member countries;
    * Important doc: EU Directives on AML/CFT
    * Focus: CDD; Risk-based; Beneficial owners
  5. Wolfsberg
    * Members: large international banks
    * Important doc: AML Principles on private and correspondent banking
    * Focus: Customer acceptance; EDD
  6. Egmont Group
    * Members: National FIUs
    * Important doc: Secure Communication using Egmont Secure Web (ESW) Training
    * Focus: Cooperation among the national FIUs; Promoting establishment of FIUs
161
Q

What is the US PATRIOT Act? What sections are relevant to AML and Counter-terrorism financing?

A

The USA PATRIOT Act has implications for US institutions and non-US institutions that do biz in the US.

Section 311 - Treasury Authority

US Treasury Dept. has authority to apply “proportionate measures” against a foreign JD and foreign fin institutions, transactions and accounts if there is a ML concern.

The Treasury can require US fin institutions to:

  1. Keep records and/or file reports on certain transactions, including description, identities, addresses of the participants and beneficial owners.
  2. Obtain info on the beneficial ownership of any account opened in the US.
  3. Identify info about customers who route transactions through a foreign bank’s payable-through account.
  4. Identify and obtain info about customers permitted to use a correspondent account.
  5. Close payable through or correspondent accounts.

Section 312 - Correspondent & Private Bank Accounts

DD and EDD required for foreign correspondent accounts and private banking for non-US persons.
DD should be “appropriate, specific, and risk-based.” The DD program must:

  1. Determine whether enhanced due diligence (EDD) is necessary;
    - –> DD = obtaining info related to the foreign bank’s AML/CFT program; monitoring transactions; obtain info about the correspondent acct that is being used as a payable-through acc.
  2. Assess the ML risk presented by the correspondent account;
  3. Apply risk-based procedures and controls reasonably designed to detect and report suspected ML.

A private banking account is defined as:

  1. An account with a min aggregate deposit of $1M;
  2. For 1 or more non-US persons; and
  3. Which is assigned to a bank employee acting as a liaison with the non-US person.

For covered private banking accounts, US institutions must take reasonable steps to:

  1. Ascertain the identity of all nominal and beneficial owners of the accounts;
  2. Ascertain whether any such owner is a senior foreign political figure;
  3. Ascertain the source of the funds in the account and the purpose and expected use of the account;
  4. Monitor the account to ensure the activity in the account is consistent w/ the info provided as to the source of funds and the purpose and expected use of the account, as needed to guard against ML and to report any suspected ML or suspicious activity.

Section 313 - No Correspondent Accounts for Foreign Shell Banks

Sec. 313 prohibits US banks and securities brokers and dealers from maintaining correspondent accounts for foreign, unregulated shell banks that have no physical presence anywhere.

Section 319(a) - Forfeiture from US Correspondent Account

If funds have been deposited w/ a foreign bank, this section permits the US gov to seize funds in the same amount from a correspondent bank account in the US that has been opened and maintained for the foreign bank. The US gov is not required to trace the funds, as they are deemed to have been deposited into the correspondent account.

Section 319(b) - Records re Correspondent Accounts for Foreign Banks

Allows the approp fed banking agency to require a fin institution to produce within 120 hours (5 days) records or info related to the institutions AML compliance or related to a customer of the institution or any account opened, maintained, or managed in the US by the fin institution.

319(b) also requires foreign banks to designate a registered agent in the US to accept service of subpoenas pursuant to this section.

Also, US banks and securities brokers and dealers that maintain correspondent accounts for foreign banks must keep records of the identity of the 25% owners of the foreign bank, unless it is publicly traded, as well as the name of the correspondent bank’s registered agent in the US.

162
Q

What is an electronic transfer of funds?

A

An electronic transfer of funds is any transfer of funds that is initiated by electronic means, such as an Automated Clearing House (ACH) computer, an automated teller machine (ATM), electronic terminals, mobile phones, telephones, or magnetic tapes.

Illicit fund transfers can be easily hidden among the millions of legitimate transfers that occur each day.

163
Q

What is Correspondent Banking?

A

Correspondent banking is the provision of banking services by one bank (the “correspondent bank”) to another bank (the “respondent bank”). By establishing multiple correspondent relationships globally, banks can undertake international financial transactions for themselves and for their customers in JDs where they have no physical presence. Large international banks typically act as correspondents for thousands of other banks around the world.

Correspondent banking is vulnerable to ML for 2 main reasons:

  1. By their nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution.
  2. The amount of $$ that flows through correspondent accounts can pose a significant threat to financial institutions, as they process large volumes of transactions for their customers’ customers.
164
Q

Who / what makes up the Credit Card industry?

A
  1. Credit card associations
    Such as American Express, Mastercard, and Visa, which license member banks to issue bank cards, authorize merchants to accept those cards, or both.
  2. Issuing banks
    Solicit potential customers and issue credit cards.
  3. Acquiring banks
    Process transactions for merchants who accept credit cards.
  4. Third-party payment processors (TPPP)
    Contract with issuing or acquiring banks to provide payment processing services to merchants and other biz entities, typically initiating transactions on behalf of merchant clients that do not have a direct relationship with the TPPPs financial institution.

TPPPs are generally bank customers that provide payment-processing services to merchants and other business entities and often use their commercial bank accounts to conduct payment processing for their merchant clients. Oftentimes, they are not subject to any AML/CFT requirements.

165
Q

What are money services businesses?

A

An MSB, or a money or value transfer service (MVTS) transmits or converts currencies. Such businesses usually provide:

  1. Currency exchange
  2. Money transmission

Money transmitters accept currency or funds for the purpose of transferring those funds electronically thro a financial agency, institution or electronic funds transfer network.

  1. Check-cashing
  2. Money order services /Traveler’s checks

The issuer of a money order or traveler’s check is responsible for the payment of the item and often uses agents to sell the negotiable items.

  1. Prepaid Provider
    Providers of prepaid access arrange for access to funds or to the value of funds that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, electronic serial number, mobile identification number, or personal identification number. Prepaid access can be open loop or closed loop:
  • Open loop prepaid cards: can be used for purchases at any merchant that accepts cards issued for use on the payment network associated with the card and to access cash at any ATM that connects to the affiliated ATM network.
  • Closed loop prepaid cards are typically limited to buying goods or services from the merchant issuing the card.
166
Q

How can gatekeepers, such as notaries, accountants, auditors and lawyers facilitate or block the entry of illicit funds into the financial system?

A
  • Managing complex legal arrangements
  • —> Can obscure the links btwn the proceeds of a crime and the perpetrator.
  • Buying or selling property
  • —> Can cover for transfers of illegal funds (layering) or the final investment of proceeds after they pass through the initial laundering process (integration).
  • Performing financial transactions on behalf of client
  • —> E.g. issuing and cashing checks, making deposits, withdrawing funds from accounts, engaging in retail foreign exchange operations, buying and selling stock, and sending and receiving international funds transfers.
  • Providing financial and tax advice
  • —> Criminals w/ large amounts of money to invest may pose as individuals hoping to minimize tax liabilities or seeking to place assets out of reach in order to avoid future liabilities.
  • Other gatekeeper functions:
  • —> Providing introductions to financial institutions;
  • —> Undertaking certain litigation;
  • —> Setting up and managing a charity.
167
Q

Who must comply with OFAC regulations?

A
  1. All US citizens and permanent resident aliens,
  2. All persons and entities within the US,
  3. All US incorporated entities and their foreign branches.
168
Q

What factors should be considered when assessing product/service risk?

A

Does a particular new or current product/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?
169
Q

Regarding a proper AML program, what is the 1st, 2nd, and 3rd line of defense?

A

1st line of defense = Policies, Procedures and Controls

2nd line of defense = The Compliance Function
—> Responsible for monitoring the controls of the business.

Note on Compliance officer responsibilities

  • –> Designing and implementing the program;
  • –> Making necessary changes and updates to the program;
  • –> Disseminating info about the program’s successes and failures to key staff members;
  • –> Constructing AML/CFT related content for staff training programs.
  • –> Managing adherence to applicable AML/CFT laws and regulations.

3rd line of defense = Independent Audit

170
Q

Explain KYC verification methods.

A

Banks should verify the identity of customers using reliable, independent source docs, data, or info.

– Documentary Methods of Verification –

  • Obtaining a copy of the cert of incorp, articles of association, partnership agreement, or any other doc certifying the existence of the entity.
  • For established corp entities, reviewing a copy of financial statements (audited, if available)
    • Non-Documentary Methods of Verification –
  • Undertaking a company search and/or other commercial inquiries to ascertain that the legal person has not been, or is not in the process of being, dissolved or terminated.
  • Using an independent info verification process, such as by accessing public corporate registers, private databases or other reliable independent sources (e.g. lawyers, accountants)
  • Validating the legal entity identifier and associated data in the public access service;
  • Obtaining prior bank references;
  • Visiting the corporate entity, where practical.
  • Contacting the corp entity by telephone, mail or email.
171
Q

What is a “Know Your Employee” program?

A

A KYE program allows an institution to understand an employee’s background, conflict of interest, and susceptibility to ML complicity

172
Q

How can automated solutions help with an AML/CFT program/system?

A
  • Monitoring transactions to identify anomalies that might indicate suspicious activity;
  • Gather CDD info for new and existing customers, score customer responses, and store CDD data for subsequent use;
  • Conduct advanced evaluation and analysis of suspicious / unusual transactions identified by the monitoring system in the context of each client’s risk profile and that of their peer group.
  • View individual alerts within the broader context of the client’s total activity at the institution;
  • Use data from the institution’s core customer and transaction systems databases to inform/update monitoring and case management activities.
173
Q

Give some examples of RED FLAGS re:

  • Customer identification
  • Cash transactions
  • Wire transfers
  • Trade-based ML
  • Human trafficking
A

CUSTOMER IDENTIFICATION

  • Customer furnishes unusual or suspicious identification docs or declines to produce originals for verification;
  • Customer is unwilling to provide personal background info when opening an account;
  • Customer does not wish a statement of his account or any mail sent to him;
  • Customer’s IP address does not match the identifying info provided during online registration.

CASH TRANSACTIONS

  • Customer makes large cash deposit containing many larger denomination bills;
  • Customer withdraws cash in amounts under the reporting threshold;
  • Customer makes frequent deposits or withdrawals of large amounts of currency for no apparent biz reason, or for a biz that generally does not generate large amounts of cash.

WIRE TRANSFERS

  • Wires sent or received from the same person to or from diff accounts;
  • Wire activity to and from secrecy havens or higher-risk geographies without apparent biz reason or is inconsistent with customer’s transaction history.
  • An increase in international wire activity in an account w/ no history of such activity or where the stated biz of the customer does not warrant it.

TRADE-BASED ML

  • Discrepancies in the description of goods or commodity in the invoice or of the actual goods shipped;
  • No apparent biz relationship btwn the parties and transactions;
  • Frequent transactions in round or whole dollars;
  • Lack of approp documentation to support transactions.

HUMAN TRAFFICKING

  • A biz customer doesn’t exhibit normal payroll expenditures payroll costs can be nonexistent or extremely low for the size of the customer’s alleged ops, workforce and/or biz line.
  • Multiple, apparently unrelated customers sending wire transfers to the same beneficiary.
  • Payments to employment or student recruitment agencies that are not licensed or have labor violations.
  • Customer visits a branch while escorted by a third party.
  • Inflows are largely received in cash where sub’l cash receipts are inconsistent with the customer’s line of biz.
174
Q

What’s a subpoena?

What’s a search warrant?

What are a financial institution’s obligations if it receives either?

A

Subpoenas - usually issued by grand juries, operating under the purview of a court and empower a law enforcement agency to compel the production of docs and testimony.

Search warrant - a grant of permission from a court for a law enforcement agency to search certain designated premises and to seize specific categories of items or documents. Generally, the requesting agency is required to establish that PROBABLY CAUSE exists that evidence of a crime will be located. The warrant is authorized based on info contained in an affidavit submitted by a law enforcement officer.

In either situation (subpoena or search warrant), the financial institution maintains 2 independent obligations:

  1. Legally fulfill the requirements of the subpoena or warrant;
  2. Determine whether the activity of its customer identified in the subpoena or warrant requires the filing of a STR.
175
Q

What steps should an institution take when conducting an internal investigation?

A
  1. Review internal transactions, info obtained from the customer and other relevant internal documentation.
  2. Identify and review external info to understand the customer, related entities, and relevant media.
  3. Contact biz line employees responsible for the account relationship.
  4. Generate a written report documenting relevant findings.
176
Q

When evaluating whether to close a customer’s account, what should a financial institution consider?

A
  1. Legal basis for closing an account.
  2. The institution’s stated policies and procedures for closing an account.
  3. The seriousness of the underlying conduct.
  4. The reputational risk to the institution posed by maintaining the account.
  5. Correspondence w/ law enforcement and requests from law enforcement to either cancel or maintain the account.
177
Q

Are financial institutions required to have an internal reporting mechanism by which customer-facing employee referrals of suspicious activities are automatically routed to the approp investigative team?

A

No. Altho financial institutions may have a mechanism by which customer-facing employees can refer matters to be investigated for potentially suspicious activity, they can be in the form of manual referral processes like via email or phone.

178
Q

Upon receipt of a law enforcement inquiry, does a fin institution need to set up a board comprised of sr. management to monitor the progress of the investigation and to respond to all law enforcement requests?

A

No.

Upon receipt of a law enforcement inquiry, the fin institution needs to ensure that the approp sr. management is informed.

The financial institution should also designate someone (not necessarily a member of sr. management) to:

  • Respond to all law enforcement requests;
  • Monitor the progress of the investigation;
  • Keep sr. management informed of the nature and progress of the investigation.
179
Q

Should a financial institution automatically freeze and then close a customer’s account following a max of 2 STR filings, provided that there is a legal basis for closing the account?

A

No.

Based on its internal investigation, a fin institution should make an independent determination as to whether to close the account in issue. Altho a fin institution’s stated policies and procedures may include automatic closure recommendation following a specified # of STR filings, this is neither a mandatory requirement nor the only consideration for closing an account.

180
Q

What are Mutual Legal Assistance Treaties?

A

If evidence is required from another JD, a request can be made for mutual legal assistance.

Mutual legal assistance treaties (MLATs) provide a legal basis for transmitting evidence that can be used for prosecution and judicial proceedings.

181
Q

What are the Principles of Information Exchange between FIUs?

A

The Principles of Information Exchange describe practices that maximize cooperation btwn FIUs and can be useful to gov authorities when considering anti-money laundering legislation.

  • Differences in the definition of offenses
  • –> Differences in the def of offenses that fall under the competence of FIUs should not be an obstacle to free exchange of info at the FIU level.
  • Need for a Memorandum of Understanding
  • –> Should an FIU still need a MOU to exchange info, it should be negotiated and signed by the FIU w/o undue delay. To that end, the FIU should have the authority to sign MOUs independently.
  • Communication w/o Intermediaries
  • –> It should be possible for communication btwn FIUs to take place directly and w/o intermediaries.
182
Q

Does the Egmont principle of free exchange of info at the FIU level makes it possible to exchange info spontaneously, w/o the need for a formal Memorandum of Understanding (MOU)?

A

No.

Although the Egmont principle of free exchange of info @ the FIU level makes it possible to exchange info spontaneously, some FIUs might still require a formal MOU to exchange info. In such a situation, the MOU should be negotiated and signed by the FIU w/o undue delay.

183
Q

All of the following are methods that law enforcement may use to request info from a financial institution during the course of a criminal investigation EXCEPT:

  • Obtaining and issuing a Grand Jury subpoena;
  • Serving a search warrant;
  • Asking for documentation that supports an STR that has been filed;
  • Asking the AML officer to hand over all account records of the targeted suspect.
A

Asking the AML officer to hand over all account records of the targeted suspect.

184
Q

A financial institution may initiate investigations in response to notable media stories like the following, EXCEPT:

  • A story about the financial dealings of one of its customers;
  • A story about the corporate takeover of one of its customer’s companies;
  • A story about how one of its financial products is being used in the market;
  • A story about a ML or terrorist event in a geographical area it does not serve.
A

A story about the corporate takeover of one of its customer’s companies.

185
Q

Ravi, the compliance officer of a fin institution, has just received an extensive law enforcement subpoena focusing on the potential inadequacy of the institution’s AML program. Ravi should consider doing all of the following EXCEPT:

  • Notify the BOD and sr. management of the financial institution of the subpoena and its focus on the institution;
  • Provide law enforcement with results of any internal investigation conducted by the institution;
  • Advise the institution’s employees to maintain the confidentiality of all STRs.
  • Conduct an internal inquiry to determine the underlying facts and to ascertain what steps, if any, the institution should take.
A
  • Advise the institution’s employees to maintain the confidentiality of all STRs.
186
Q

Which of the following statements related to the “Principles of Info Exchange Between Financial Intelligence Units” is FALSE?

  • Differences in the def of offenses that fall under the competence of FIUs should not be an obstacle to free exchange of info at the FIU level.
  • The exchange of info btwn FIUs should take place w/ formal prerequisites and necessary pre-authorizations, thereby guaranteeing protection of privacy and confidentiality of the shared data.
  • Should an FIU need a Memorandum of Understanding to exchange info, it should be negotiated and signed by the FIU without undue delay.
  • Providing an FIU’s consent to disseminate the info for law enforcement or judicial purposes should be granted promptly and to the greatest extent possible.
A
  • The exchange of info btwn FIUs should take place w/ formal prerequisites and necessary pre-authorizations, thereby guaranteeing protection of privacy and confidentiality of the shared data.
187
Q
  1. Which of the following is the most common method of laundering money through a legal money services business?

A. Exchanging currency and remitting money
B. Smuggling bulk cash
C. Transferring funds through payable through accounts (PTAs)
D. Exchanging Colombian pesos on the black market

A

A

188
Q
  1. In general, the 3 phases of money laundering are said to be: placement and…

A. structuring and manipulation.
B. layering and integration.
C. layering and smurfing.
D. integration and infiltration

A

B

189
Q
  1. Which statement is true?

A. Systemic weaknesses in free trade zones include inadequate AML/CFT safeguards, minimal oversight by local authorities and weak procedures to inspect goods.
B. Cuckoo smurfing is a significant money laundering technique identified by the Financial Action Task Force, wherein a form of structuring uses nested accounts with shell banks in secrecy havens.
C. In its 40 Recommendations, the FATF issued a list of designated categories of offense that asserts crimes for a money laundering prosecution.
D. E-cash is not attractive to the money launderer because it cannot be completely anonymous and does not allow for large amounts to be transported quickly and easily.

A

A

190
Q
  1. Which three of the following is an indication of possible money laundering in an insurance industry scenario?

A. Insurance products sold through intermediaries, agents or brokers
B. Single-premium insurance bonds, redeemed at a discount
C. Policyholders who are unconcerned about penalties for early cancellation
D. Policyholders who redeem the policy within the free look period

A

B, C, D

191
Q
  1. Which two activities are typically associated with the black market peso exchange (BMPE) money laundering system?

A. Converting illicit drug proceeds from dollars or euros to Colombian pesos
B. Converting illicit drug proceeds from Colombian pesos to dollars or euros
C. Facilitating purchases by Colombian importers of goods manufactured in the United States or Europe through peso brokers
D. Facilitating purchases by European or U.S. importers of goods manufactured in Colombia through peso brokers

A

A, C

192
Q
  1. What is the right of reciprocity in the field of international cooperation against money laundering?

A. The legal principle that financial institutions that have referred customers to other financial institutions can share information about these customers with the other institutions
B. A rule of the Basel Committee allowing properly regulated financial institutes of another member state of the Basel Committee to do business without additional supervision to the degree that the other state grants the same right
C. The right of each FATF member country to delegate prosecution of a case of money laundering to another member that is already investigating the same case
D. A rule in the law of a country allowing its authorities to cooperate with authorities of other countries to the degree that their law allows them to do the same

A

D

193
Q
  1. The greatest risk for money laundering is for casinos that

A. provide their customers with a wide array of gambling services.
B. operate in a non-Egmont member country.
C. allow customers with credit balances to withdraw funds by check in another jurisdiction.
D. only send suspicious transaction reports to the financial intelligence unit of the country it operates in.

A

C

194
Q
  1. Which statement is true regarding the risk of politically exposed persons (PEPs)?

A. PEPs provide access to third parties on whom the financial institution has not conducted sufficient due diligence.
B. PEPs have significantly greater exposure to the politically corrupt funds, including accepting bribes or misappropriating government funds.
C. PEPs are foreign customers who inherently present additional risk as they are engaged in cross- border transactions.
D. PEPs generally do not pose enhanced risks to an institution due to their political standing; rather, PEPs increase the prestige of an institution.

A

B

195
Q
  1. In 2014, the Wolfsberg Group published its Anti-Money Laundering Principles for Correspondent Banking. Which three of the following elements are recommended to be included in the due diligence of a correspondent banking client?

A. The geographic risk
B. The ownership and management structure
C. The résumé of the compliance officer
D. The customer base

A

A, B, D

196
Q
  1. A new customer approaches a bank to open a commercial account. The customer provides an address for the account located across the city from the branch. When asked by the account representative if the customer requires any additional banking services, the customer responds that she is also interested in opening a personal investment account. The account representative refers the customer to the broker-dealer.

The customer tells the firm representative she has never had a brokerage account before and has a few questions about how an investment account works. The customer asks how deposits can be made into her account, if there are any reporting requirements, and how to go about moving balances out of the account using wire transfers. No questions are asked about fees associated with these transactions. Which three items would be considered suspicious?

A. The customer asks many questions about the brokerage account but none of them is related to investing.
B. The customer is opening a commercial account and at the same time a personal investment account.
C. The address of the account holder and the branch where the customer came to open the account are not close to each other.
D. The customer appears unconcerned about the fees.

A

A, C, D

197
Q
  1. Trade-based money laundering requires the ability to
    A. over- or under-invoice the goods.
    B. sell the imported goods for as little as possible.
    C. use goods that do not need to be declared.
    D. avoid the use of high-value assets such as luxury cars or boats.
A

A

198
Q
  1. Which of the following statements is true? Correspondent banking is most vulnerable to money laundering when the correspondent account is
    A. maintained for foreign financial institutions that are banks.
    B. not used to provide services directly to third parties.
    C. maintained for a foreign bank that does not have a physical presence in any country.
    D. maintained for a foreign private bank that is publicly traded and is a qualified intermediary.
A

C

199
Q
  1. Which statement is true?

A. Lawyers in FATF member countries generally cannot be used to serve as formation agents to set up trusts, front companies or shell companies.
B. Lawyers and similar professional gatekeepers are called money services businesses.
C. Lawyers generally cannot be used to act as nominee shareholders for a beneficial owner.
D. Lawyers can be abused by launderers by using the accounts they set up for them for the placement and layering of funds.

A

D

200
Q
  1. Which three of the following statements are true in respect to the Fourth EU Anti-Money Laundering Directive?
    A. Member countries can decide when and if they incorporate it into their local laws.
    B. It repeals and replaces the Third EU Directive on Anti-Money Laundering.
    C. Each member country must hold beneficial ownership information in a central registry and it must be made available to competent authorities.
    D. The definition of a PEP is expanded to include domestic persons.
A

B, C, D

201
Q
  1. According to the EU Directives, an independent legal professional is obligated to report suspicion of money laundering in a client relationship when
    A. representing a client in a legal matter.
    B. ascertaining the legal position for a client.
    C. participating in financial or corporate transactions.
    D. obtaining information associated with a judicial proceeding.
A

C

202
Q
  1. Which of the following is the most difficult regulatory challenge facing a foreign financial institution with a correspondent banking relationship in the U.S.?

A. USA PATRIOT Act
B. Basel Due Diligence Principles for Banks
C. FATF Guidance on Terrorist Financing
D. UN Security Council Resolution on Correspondent Banking

A

A

203
Q
  1. Which were the Basel Committee’s two main motivations to encourage strong know your customer programs in its paper Customer Due Diligence for Banks? (Choose two)

A. Mirror FATF’s KYC recommendations.
B. Meet European Union guidelines.
C. Protect the safety and soundness of banks.
D. Protect the integrity of banking systems.

A

C, D

204
Q
  1. What is the definition of a predicate offense?
    A. Lawful or unlawful activity that involves willful blindness, and if there is an international element to the crime, can lead to a suspicious activity report
    B. Unlawful activity whose proceeds, if involved in the transaction, can give rise to prosecution for the crime of money laundering
    C. An interface that is the underlying segment of a suspicious transaction monitoring system
    D. A specified unlawful activity that is committed through concentration accounts deceiving customers that are not directly related to the account
A

B

205
Q
  1. What is considered a beneficial owner of an account?

A. A person or entity who has direct signatory authority over an account and whose name appears on the account
B. A person or entity who is ultimately entitled to the funds in the account, even though his or her name may not appear on the account
C. A person or entity who is the originator and the destination of most (but not all) transactions conducted within the account but who does not ultimately control such funds
D. A person or entity who is a gatekeeper, has the legal title to the account and typically transfers the funds to a trust

A

B

206
Q
  1. FinCEN’s Advisory to U.S. Financial Institutions on Promoting a Culture of Compliance, published
    in 2014, listed six areas of emphasis. Which three areas are included in that list?

A. Leadership should be engaged.
B. Information should be shared throughout the organization.
C. Leadership and staff should understand how their BSA reports are used.
D. The organization must have an appropriately qualified compliance officer.

A

A, B, D

207
Q
  1. Which of the following should a national legislature consider when criminalizing money laundering in line with the CFATF 19 Recommendations? (Choose three.)
    A. Defining money laundering based on the model laws issued by the Organization of American States
    B. Permitting forfeiture in all cases following conviction
    C. Indicating whether it is relevant that a predicate offense may have been committed outside the local jurisdiction
    D. Requiring money laundering offenses to prove that the offender has actual knowledge of a criminal connection to the funds
A

A, B, C

208
Q
  1. Which three statements are true about the Fourth EU Directive on Money Laundering?

A. It updates European Community legislation to be further in line with the Financial Action Task Force (FATF) 40 Recommendations.
B. It repeats the definition of a politically exposed person in previous directives.
C. It repeats the customer due diligence requirements of the previous directives but adds more detail to the requirements by, for example, including a specific requirement to identify the beneficial owner and includes ongoing monitoring requirements.
D. It includes new definitions for correspondent relationships and senior management.

A

A, C, D

209
Q
  1. Which one of the following statements is correct in respect of the FATF 40 Recommendations? Countries should

A. not allow bearer shares and legal persons that are able to issue bearer shares.
B. gather statistics on STRs; prosecutions and convictions; on property frozen, seized and confiscated; and on mutual legal assistance, but not necessarily on other international requests for cooperation.
C. consider the feasibility of a system in which banks and other financial institutions and intermediaries would report currency transactions without indicating a minimum fixed amount.
D. not approve the establishment or accept the continued operation of shell banks.

A

D

210
Q
  1. The Egmont Training Group published FIUs in Action: 100 Sanitized Cases. Which two of the items noted below were listed in the report as part of the six most frequent indicators of money laundering?

A. Defensive stance to questioning
B. Use of precious stones for moving value
C. Unrealistic wealth compared to client profile D. Significant use of prepaid cards

A

A, C

211
Q
  1. In which stage of money laundering would you classify depositing small amounts of cash into several related accounts?

A. Integration
B. Structuring
C. Placement
D. Construction

A

C

212
Q
  1. In which stage of money laundering would you classify the use of laundered funds to purchase high- value assets and luxury items?

A. Integration
B. Structuring
C. Placement
D. Construction

A

A

213
Q
  1. In most money laundering international standards, it is stated that

A. financial institutions are not responsible for money laundering or suspicious transactions taking place within their accounts until the government places the customer on a watch list.
B. informing customers that their accounts and/or transactions are the subject of an AML investigation is not punishable.
C. the dirty money undergoing money laundering will not be confiscated because of privacy laws. D. the institution should identify the beneficial owner(s) of the account.

A

D

214
Q
  1. The tactic in which individuals make multiple deposits in small quantities to avoid detection is called

A. paralleling.
B. integration.
C. investing.
D. structuring.

A

D

215
Q
  1. In which case might a suspicious transaction report NOT be necessary?

A. A customer deposits money of suspicious origins and refuses to answer questions from the
financial institution’s staff.

B. A customer tries to move money that is suspected of being derived from criminal activity.

C. A customer owns a large supermarket and deposits large amounts of cash several times a day.

D. A customer’s account is showing transaction activities that are beyond his known financial capability.

A

C

216
Q
  1. As part of their role in fighting money laundering, financial institutions should-

A. designate a compliance officer.
B. depend solely on the state’s staff for combating money laundering.
C. refuse small cash deposits under the reporting threshold.
D. not open accounts for people from high-risk jurisdictions.

A

A

217
Q
  1. Over lunch with a friend from the computer operations department, a junior compliance analyst learns that there was a problem during the previous week related to data being transmitted to the transaction monitoring application. The friend states that because it was purely a technical computer system issue, he was quietly proud that he was able to rectify it quickly himself during the early hours of the morning. What action should the analyst take?

A. Congratulate his friend on his prompt action.
B. Congratulate his friend and, as soon as possible, ensure that the compliance officer is aware of the situation.
C. Nothing because the appropriate controls are in place for such events.
D. Immediately report the situation to the regulators.

A

B

218
Q
  1. What is willful blindness defined as?

A. Failing to file a suspicious transaction report for dealing with companies or financial institutions from offshore tax havens
B. Not following customer identification procedures as set out in the institution’s procedures
C. Deliberate avoidance of knowledge of the facts or ignoring obvious money laundering red flags
D. Deliberate avoidance of a customer based on the assumption that his or her behavior suggested a potential threat as money launderer and/or terrorist

A

C

219
Q
  1. In anti-money laundering terminology, a red flag is-

A. a warning sign indicating potentially suspicious, risky transactions or activities.
B. a general banking term used once the balance is negative or overdue.
C. the standard flag of countries not cooperative in fighting money laundering and terrorist financing.
D. an indicator that a customer is listed on an economic sanctions list.

A

A

220
Q
  1. The money laundering reporting officer of a financial institution should-

A. report everything that comes his or her way from anyone in the organization.
B. report everything that comes his or her way from senior management or Board of Directors.
C. review all available information and file a suspicious transaction report in respect of any unusual or potentially suspicious activity.
D. report only what the reporting officer’s superior agrees should be reported.

A

C

221
Q
  1. Which of the following statements is true?

A. Credit cards are not likely to be used in the layering phase of money laundering because of restrictions in cash payments.
B. Credit cards are effective instruments for laundering money because the transactions do not create an audit trail.
C. A launderer can launder money by prepaying his or her credit card using funds that are already in the banking system, creating a credit balance on his account, and requesting a credit refund.
D. A launderer can use illicit funds that are already in the banking system to pay his or her credit card bill for goods purchased, which is an example of placement.

A

C

222
Q
  1. Why is a payable through account vulnerable to money laundering?

A. It can be very difficult to conduct due diligence on the foreign institution customers who are ultimately using these accounts.
B. These are concentration accounts located in a domestic branch of a foreign bank.
C. These are nested correspondent accounts at a foreign shell bank with customers with whom the domestic bank did not exercise due diligence.
D. These are master escrow accounts on which a domestic bank generally does not conduct periodic verification.

A

A

223
Q
  1. What is the reasoning behind implementing a risk-based anti-money laundering approach?

A. It will keep the regulators focused on money laundering controls in sectors beyond banks.
B. Institutions can best use their limited resources to focus on matters where the money laundering risks are highest.
C. A quantitative approach will generate better results than a qualitative approach.
D. It allows the institution to focus on selling products that have a better return on investment.

A

B

224
Q
  1. According to the FATF 40 Recommendations, designated nonfinancial businesses and professions include

A. casinos, real estate agents and dealers in precious stones.
B. money service businesses, gatekeepers and issuers of electronic money.
C. dealers in precious metals, lawyers and commodity futures traders.
D. life insurance companies, real estate agents and notaries.

A

A

225
Q
39. According to the European Union’s Fourth Directive, the threshold for entities obliged to report suspicious transactions decreased to
A. $5,000 euros.
B. $10,000 euros.
C. $15,000 euros.
D. $20,000 euros.
A

B

226
Q
  1. Tom works as a compliance officer at ABC Bank. He is looking at the transactions of one of the bank’s customers, Mr. Brown, the owner of a check cashing company. Over the last six months, Mr. Brown has not made withdrawals of cash against check deposits. He also deposited two checks for $2,000 each that were issued by a casino. When checking the KYC file, Tom sees that, when opening the account, Mr. Brown had requested information about fees and commission that are charged by the bank. What should arouse Tom’s suspicion the most?

A. Mr. Brown deposited checks from casinos.
B. Mr. Brown has not made cash withdrawals against check deposits.
C. Mr. Brown asked for information about commissions and fees charged.
D. Mr. Brown does not have an escrow account.

A

B

227
Q
  1. A small broker-dealer has an AML compliance program that addresses procedures for filing suspicious transaction reports and includes policies, procedures and internal controls for customer identification, monitoring accounts and identifying money laundering red flags. Every employee of the broker dealer is trained via the Internet in January and in July on AML issues. The board does not take the Internet training. Instead, the compliance officer organizes a luncheon for them where an outsider comes in and trains them. The program provides for the appointment of a compliance officer, and once a year the compliance officer conducts an audit to test the program. In what respect does the program need improvement?

A. The AML program should be tested by an independent person, not the compliance officer.
B. The AML program should be tested more than once per year.
C. The board should receive the same training provided to the employees.
D. Employees should not be trained via the Internet, because classroom training is better.

A

A

228
Q
  1. The Basel Committee in Banking Supervision can be defined as a committee

A. that develops the guidance for FATF.
B. of the CEOs of the major international banks.
C. of senior members of international law enforcement who harmonize international AML/CTF laws.
D. of the G10 central bank governors, which issues guidance on subjects including customer due diligence, risk management and cross-border wire transfers.

A

D

229
Q
  1. Which of the following best describes the alternative remittance system?

A. The transfer of value between countries, outside of the legitimate banking system
B. A nonelectronic data remittance system used in several foreign countries to report suspicious activities
C. Old-fashioned reporting requirements commonly used in non-cooperative countries and territories
D. The transfer of funds between two or more financial institutions using concentration accounts

A

A

230
Q
  1. An AML compliance officer was reviewing customers at XYZ Bank and one of the customers (Mr. Sam Tropicana) attracted her attention. During the recent months, the cash deposits and withdrawals that were transacted through his account increased with amounts ranging between $7,500 and $17,000.
    In addition, Sam deposited two checks, issued by a casino, into his account for $32,000 each. When opening the account, Sam stated that he operated an import/export company. Which one of the following items should cause the compliance officer to launch an investigation?

A. Sam maintained a personal account as well as the business account.
B. Sam’s home telephone number was disconnected last month.
C. Sam asked for a letter of credit to finance some imports from a new supplier.
D. Sam had a recent increase in large cash transactions for his import/export business.

A

D

231
Q
  1. Which three of the following statements are true?

A. Online gambling provides an excellent method of laundering because transactions are conducted primarily through credit or debit cards and the sites are typically unregulated offshore firms.
B. An institution can know when a credit card is used for online gambling transactions because the cards rely on codes that illustrate the type of transactions.
C Online gambling provides an excellent method of laundering because it lends itself to any type of cash movement and there is no face-to-face contact with the customer.
D. Some banks no longer allow the use of credit cards for online gambling transactions.

A

A, B, D

232
Q
  1. Which of the following statements is true?

A. The Egmont Group membership comprises national FIUs.
B. The Wolfsberg Group membership comprises central bank governors of the G10.
C. The European Union recommends legislation to be passed in the member countries.
D. The Basel Committee levies fines on the member countries for non-compliance with AML laws.

A

A

233
Q
  1. Which three of the following statements are included in Section 313 of the PATRIOT Act definition of physical presence in respect to shell banks?

A. There is a fixed address.
B. It employs at least one full-time employee.
C. The majority of the board of directors must be local residents.
D. Banking records are kept at the fixed address.

A

A, B, D

234
Q
  1. The FATF has consistently noted the use of casinos in money laundering schemes in its annual typologies reports. One laundering technique involving casinos is

A. asking for winners’ checks to be made out in the name of third persons or without a payee.
B. abusing casinos by circumventing its gatekeepers.
C. prepaying a casino token or chip by using funds that are already in the casino system, creating a debit balance.
D. extensive gambling via multiple games throughout the casino.

A

A

235
Q
  1. Which of the following should an anti-money laundering specialist include on an internal investigation log?

A. A government order on a customer that garnishes his wages for failure to pay child support
B. Supporting documentation and materials for denying service to a client with a bad credit rating
C. Notes pertaining to activity that is unusual but for which a suspicious transaction report has not been filed
D. Reference to a memorandum to the company’s corporate management relating to budgetary and similar concerns

A

C

236
Q
  1. What are the three key criteria in AML risk rating?

A. Customer type, geographic location, products and services used
B. Geographic location, customer type, employment status
C. Products and services used, customer type and prior banking relations
D. Employment status, customer type, products and services used

A

A

237
Q
  1. A financial institution is looking to establish an online account opening service. The institution plans to offer this product to new and existing customers within the country. Which of the following would be the best plan of action for an AML specialist to recommend enabling the institution to verify the customer’s identity?

A. Do not offer the product, because it is too high risk because the customers cannot be seen to verify their identities.
B. Require all customers to send a copy of valid photo identification to the institution.
C. Ensure that the institution has a reliable third-party source that will enable verification of the customers.
D. Allow customers to enter required information but require all customers to come to the institution in person for verification.

A

C

238
Q
  1. Which of the following controls would most effectively minimize the need to correct failures to collect required customer information in the account opening process?

A. A quality review staff that checks paper applications to ensure all fields are complete
B. An automated account-opening platform that requires data entry prior to allowing the account to be opened
C. Requiring that a manager review and approve all new account applications
D. Documenting a procedure that sets forth the steps required to open an account

A

B

239
Q
  1. Jane, an investigator in the AML section of a large financial institution, is given a wide-ranging case to investigate involving potential money laundering in a number of countries and entities. Which three public source documents or records could aid Jane in furthering her investigation?

A. Domestic corporate filings
B. Court records
C. Police arrest records
D. Licensing and registration files

A

A, B, D

240
Q
  1. When drafting an AML policy, which of the following internal parties must approve the policy?

A. Executive management
B. The audit department
C. The sales team management
D. The operational staff management

A

A

241
Q
  1. Suzy is an AML compliance officer at an institution that is looking to open treasury management services (e.g., wires, check clearing and foreign draft issuance) for correspondent banking customers. Which of the following should Suzy be most concerned about regarding the institution’s capabilities concerning these customers?

A. Whether the new account systems will be able to handle customers with foreign names
B. Whether the correspondent accounts will be approved by government regulators
C. Whether the correspondent accounts will be able to provide evidence of their customers’ identities at account opening
D. Whether the correspondent accounts will be able to be monitored by the institution’s monitoring systems

A

D

242
Q
  1. What are three specific sources of funds for financing terrorism?

A. Kidnapping for ransom
B. Trafficking in humans and arms
C. Contributions to charities
D. Wiring funds internationally

A

A, B, C

243
Q
  1. A customer wants to establish a sizable relationship with a financial institution. The AML officer is not comfortable with the client’s explanation for the source of the funds, but the client manager vouches for the client and is eager to open the relationship quickly. What should the AML officer do to validate the client’s sources of funds?

A. Accept the client manager’s approval of the client.
B. Allow the account to be opened but be sure to monitor the account activity.
C. Perform a background investigation to determine whether the client’s source of funds is credible.
D. Decline the account.

A

C

244
Q
  1. An AML compliance officer is investigating unusual activity that she has noticed in a customer’s accounts. The customer has a retirement account, a savings account in trust for his son, a joint checking account with his wife, a company checking account and an individual brokerage account. The compliance officer believes the customer may be embezzling funds from his business. Which is the best path for her to follow up on her suspicions?

A. Focus on the checking accounts, as the checking accounts allow the fastest movement of funds.
B. Ignore the savings and brokerage accounts, as these are not used in the placement stage of money laundering.
C. Look at the movement of funds in all the accounts, as the customer may be using all of them to launder money.
D. Focus on the business account, as the customer is embezzling money from the company.

A

C

245
Q
  1. Identify three risks to financial institution employees for violations of AML laws.

A. Civil penalties
B. Termination of employment
C. Criminal penalties
D. Loss of passport

A

A, B, C

246
Q
  1. A customer at a brokerage firm indicated that he was primarily a conservative, long-range investor. The customer has recently been engaging in day trading in penny stocks. What should an AML compliance officer do in such a situation?

A. Check with the account officer to see if the customer has indicated a change in his investment strategy.
B. Report the customer as suspicious due to investing in penny stocks.
C. Contact the customer and ask why he is engaged in high-risk day-trading activity.
D. Refer the customer to senior management for approval.

A

A

247
Q
  1. A financial institution branch manager who has been in place for over 10 years has not taken a vacation for almost four years. The company does not allow employees to roll vacation over from year to year. An AML compliance officer has noticed unusual activity in several accounts at the branch location. What should the AML officer do?

A. Fire the manager for violation of bank policy.
B. Report the manager to authorities for engaging in suspicious activity.
C. Conduct an investigation to establish whether the manager has engaged in transactions in the accounts where the unusual activity has occurred.
D. Conduct a background check to see if the manager has been convicted of criminal activity.

A

C

248
Q
  1. An AML compliance officer is looking to establish a suspicious activity reporting process at her small institution. Which of the following should be incorporated into the procedures?

A. Allow employees to refer suspicious activity directly to the government authorities to file as quickly as possible.
B. Have employees refer all unusual activity to the internal independent audit department to assess whether the activity should be reported.
C. Have employees refer all unusual activity to senior management to ensure they are aware of all unusual activity within the organization.
D. Have employees refer all unusual activity to her so that she may conduct an investigation into what needs to be reported to authorities.

A

D

249
Q
  1. After reporting suspicious activity to the appropriate authorities, they request additional follow-up on the reports. Which of the following actions should an AML compliance officer take?

A. Inform the customer that his or her activity has been reported as suspicious and the authorities are asking about him or her.
B. Indicate to the authorities that you have fulfilled your regulatory duty by referring the matter to them.
C. Give the authorities everything they request.
D. Cooperate fully with the authorities, as permitted by law.

A

D

250
Q
  1. A compliance officer is looking to improve a compliance program for a financial institution that operates in several countries. The institution has developed consistent customer due diligence (CDD) requirements for all customers of the institution that exceed each of the individual country’s requirements. When looking to provide management reporting on the CDD compliance efforts of the institution, which of the following would make the most sense?

A. Report by each country’s compliance with the legal requirements within their country.
B. Report on compliance with the company’s stated requirements.
C. Report on compliance with each country’s requirements only for those customers that are serviced by branches in multiple countries; all others should be reported on the company’s stated requirements.
D. Report on the level of monitoring performed on the activity in the accounts.

A

B

251
Q
  1. What is the best way to establish compliance as a key responsibility for every employee of a financial institution?

A. Have senior management require compliance as a condition of employment.
B. Have auditors conduct testing on employee compliance.
C. Point out the regulatory consequences of non-compliance in training.
D. Have the AML officer personally tell associates of their responsibilities.

A

A

252
Q
  1. The Annex IV General Guide to Account Opening Consultative Document published in February 2016 by the Basel Committee lists information that should be obtained for the identification of legal persons. Which three items are recommended?

A. Name, legal form, status and proof of incorporation of the legal person
B. Permanent address of principal place of the legal person’s activities
C. A report describing a visit, by the account officer, to the principal place of business
D. Identity of natural persons who have authority to operate the account and who exercise control of the legal person through ownership or other means

A

A, B, D

253
Q
  1. Robert is a compliance officer for a financial institution. He is looking to assess the effectiveness of the current AML program. Which of the following should Robert consider in his assessment of the program’s effectiveness?

A. Sales staff surveys on AML efforts, customer due diligence error rates and quality assurance testing on STR filings
B. Customer due diligence error rates, sales staff surveys on AML efforts and percentage of products and services monitored for suspicious activity
C. Quality assurance testing on STR filings, sales staff surveys on AML efforts and percentage of products and services monitored for suspicious activity
D. Customer due diligence error rates, quality assurance testing on STR filings and percentage of products and services monitored for suspicious activity

A

D

254
Q
  1. Joe, the compliance officer for a small bank, has noticed that new regulations now require reporting on cross-border transactions that exceed a certain threshold. What are the appropriate next steps for Joe
    to take to prepare his bank for the new requirements?

A. Consult with the regulators, provide training to impacted associates and work with the technology partners to capture all cross-border transactions for reporting.
B. Provide training to impacted associates, work with technology partners to capture all cross-borders transaction for reporting and implement a testing plan to be sure appropriate transactions are captured and reported.
C. Work with technology partners to capture all cross-border transactions for reporting, implement a testing plan to be sure appropriate transactions are captured and consult with the regulators.
D. Implement a testing plan to be sure appropriate transactions are captured and reported, provide training to impacted associates and consult with the regulators.

A

B

255
Q
  1. When documenting ongoing training efforts, which of the following should be documented to demonstrate the distribution of the training to appropriate employees?

A. Whether the training was provided to the board of directors
B. The topics the training addressed
C. The names of the employees who took the training with their department name
D. Whether the employees who took the training passed the posttraining assessment

A

C

256
Q
  1. When assessing a new product, which of the following should be considered as part of the assessment from an AML perspective?

A. The inherent risk of the product, the control environment to mitigate the risks presented by the product and the residual risk of the product in light of the controls
B. The control environment to mitigate the risks presented by the product, the residual risk of the product in light of the controls and the projected profitability of the product
C. The projected profitability of the product, the control environment to mitigate the risks presented by the product and the inherent risk of the product
D. The residual risk of the product in light of the controls, the inherent risk of the product and the projected profitability of the product

A

A

257
Q
  1. Marie, a compliance officer at a financial institution, attends an annual AML-industry conference and learns of a new regulation that will impact her current AML processes. The regulatory environment has been relatively stable within the industry for several years but Marie is glad she attended this conference to get news of the new requirements. What should Marie do to stay abreast of future changes in requirements?

A. Request permission to attend future annual AML-industry conferences.
B. Ask internal auditors to provide her with notice of changes needed to the program.
C. Implement a process to determine when new regulations are published and assess them for impacts to the AML program.
D. Conduct a risk assessment to determine if the regulations change frequently enough to implement a process to check for changes.

A

C

258
Q
  1. A compliance officer is looking to provide some way to report on the effectiveness of the AML program to senior management. Which of the following would be the most appropriate means to keep senior management informed of these efforts?

A. Develop a report containing metrics that reflect the effectiveness of various key program elements.
B. Rely on the regulatory examinations.
C. Provide a summary of all reported suspicious activity.
D. Provide detailed training to senior management on their AML obligations.

A

A

259
Q
  1. Which statement is true in respect to the Wolfsberg Group?

A. It is a castle in Belgium where members of national FIUs meet to monitor global AML trends.
B. This group is responsible for making international laws to combat anti-money laundering and counter terrorist financing.
C. The major international banks meet in this group to develop global guidelines for anti-money laundering and counter terrorist financing.
D. The governors of central banks meet in this group to discuss global trends in anti-money laundering and counter terrorist financing.

A

C

260
Q
  1. The FATF 40 Recommendations are organized into seven groups. Which three of the following are valid group names?

A. Money Laundering and Confiscation
B. Financial and Non-Financial Institution Preventative Measures
C. Powers and Responsibilities of Competent Authorities and Other Instructional Measures
D. National Cooperation

A

A, B, C

261
Q
  1. A longtime customer of the bank comes into the bank a number of times over a series of weeks and deposits a large amount of cash and, the next day, asks for the amount to be wired to a third- world country. This behavior is not in keeping with his normal business practices. What should the compliance officer recommend?

A. Contact the board of directors as soon as possible and inform them of this activity.
B. Immediately contact law enforcement by phone and tell them of the potential money laundering activity.
C. Open an internal investigation, collect all the appropriate documentation and review it in order to decide on whether to file an STR.
D. Make a note of the activity but do not file an STR to avoid the risk of losing a longtime customer.

A

C

262
Q
  1. Which statement below defines a mutual legal assistance treaty?

A. It is a written request for legal or judicial assistance sent by the central authority of one country to the central authority of another when seeking assistance from the foreign jurisdiction.
B. It is an agreement among countries allowing for mutual assistance in legal proceedings and access to documents, witnesses and other legal and judicial resources in the respective countries, in private sectors, for use in official investigations and prosecutions.
C. It is an agreement between two parties establishing a set of principles that govern their relationship on a particular matter. An MOU is often used by countries to govern their sharing of assets in international asset-forfeiture cases or to set out their respective duties in anti-money laundering initiatives.

A

B

263
Q
  1. After receiving an STR regarding a customer account, the relevant law enforcement agency requests permission to interview the bank personnel who are familiar with the underlying transaction. What action should the compliance officer take?

A. The officer, in consultation with bank counsel, should cooperate, to the extent possible, and give permission for the relevant interviews.to take place.
B. The officer should deny permission for any such interviews without the creation of a grand jury or a formal court-ordered investigation.
C. The officer should only allow those employees who are comfortable to be interviewed by law enforcement.
D. The officer should allow the employees to be interviewed only if they are given immunity by law enforcement.

A

A

264
Q
  1. What three factors should a prosecutor take into consideration when deciding whether to bring criminal charges against a financial institution?

A. Whether the institution has a criminal history
B. Whether the institution cooperated with the law enforcement investigation
C. Whether the institution discovered and self-reported the potential criminal violation
D. Whether the institution is a very large institution and its prosecution will make good headlines for the law enforcement agency

A

A, B, C

265
Q
  1. The Egmont Group is supported by working groups. Which three are members of the five working groups?

A. Operational
B. Legal
C. Examination
D. Outreach

A

A, B, D

266
Q
  1. Gatekeepers are defined as

A. professionals such as lawyers, accountants, notaries and foreign exchange dealers.
B. professionals such as lawyers, accountants, notaries, investment advisors and trust and company service providers.
C. professionals such as lawyers, accountants, private bankers, investment advisors and trust and company service providers.
D. professionals such as lawyers, accountants, notaries and fraud examiners.

A

B

267
Q
  1. The compliance officer is trying to put together a set of procedures for handling the decision of whether or not to file an STR. What should the compliance officer include as part of these procedures?

A. The officer should recommend that the decision as to whether or not to file an STR be subjected to a quality assurance review.
B. The officer should recommend decentralizing the decision in order to speed up the process and to ensure that the decision is made closest to where the activity occurred.
C. The officer should recommend that STRs only be filed once they have been authorized by the board of directors of the bank.
D. The officer should recommend that STRs only be filed once they have received a thorough legal review.

A

A

268
Q
  1. Of the following scenarios, which two are potential red flags indicating possible suspicious activity that should be investigated further?

A. A large family with multiple accounts held in the name of different family members
B. Accounts held for a business in a branch that is located on the other side of town from where the business is located
C. An individual who holds multiple accounts under the same name
D. A company that has multiple accounts, one for each of their various subsidiary businesses

A

B, C

269
Q
  1. The FATF 40 Recommendations are grouped into seven topics. Identify three of those topics from the list below.

A. Terrorist Financing and Financing of Proliferation
B. Powers and Responsibilities of Competent Authorities and Other Institutional Measures
C. Money Laundering and Confiscation
D. Financial and Non-Financial Institution Preventative and Detection Measures

A

A, B, C

270
Q
  1. When would a financial institution typically file an STR?

A. Whenever it is preparing to close an account
B. Whenever it detects unusual or suspicious transactions
C. Only when it is able to establish the existence of a criminal violation
D. Only when the board of directors approves the filing of the STR

A

B

271
Q
  1. When a bank receives a subpoena for information about a specific account, what two steps should the compliance officer take?

A. The compliance officer should ensure that the staff investigate and collect all documents responsive to the subpoena.
B. The compliance officer should insist on law enforcement explaining why the subpoena was issued and what law enforcement is looking for.
C. The compliance officer should ensure that the subpoena is reviewed by senior management and/or counsel and be responded to in a timely manner.
D. The compliance officer should only comply with the subpoena after first getting approval from the bank’s external legal counsel.

A

A, C

272
Q
  1. A law enforcement representative calls up the compliance officer and urgently requests information pertaining to a particular account in connection with an on-going terrorist financing investigation. What should the compliance officer do?

A. Get permission from the board of directors to hand the material over to law enforcement.
B. Hand the material over to law enforcement immediately because of the urgent nature of the request.
C. Request that the law enforcement representative provide a court order, a grand jury subpoena or other legal process unless the bank has already filed an STR on the matter.
D. Get permission from outside legal counsel before handing the material over to law enforcement.

A

C

273
Q
  1. In conducting a criminal investigation, what are three things that the law enforcement investigators should do?

A. Conduct computer-based searches on the individuals and entities involved.
B. Review any previously filed STRs on the individuals and entities involved.
C. Analyze the financial transactions and activity of the subject and determine what is potentially illegal.
D. Initiate a Section 314(b) request for information.

A

A, B, C

274
Q
  1. The compliance officer reads about a large potential fraud case in the morning newspaper. When the officer gets to the bank, the officer uncovers the fact that the potential fraud case involves an important customer of the bank. After doing an internal investigation, the officer determines that there is no suspicious activity in the customer’s accounts. What should the officer do next?

A. The officer should notify the board of directors of the nature and results of the internal investigation.
B. The officer should document the nature and results of the internal investigation and keep the documentation in an appropriate file.
C. The officer should file an STR in case the customer’s accounts could assist law enforcement in its formal criminal investigation.
D. The officer should file an STR in order to justify the time spent on the internal investigation and to avoid being second-guessed by the bank examiners.

A

B

275
Q
  1. What are three developments that should cause a financial institution to conduct an internal investigation?

A. When the institution receives a grand jury subpoena with regard to transactions that have occurred within several accounts at the institution
B. When several employees of the institution alert senior management or the compliance officer that there are some suspicious transactions within an account
C. When the institution’s auditor identifies an omission in the AML policy
D. When a small local business starts engaging in overseas activity involving numerous, unexplained wire transfers

A

A, B, D

276
Q
  1. What are three possible red flags indicating suspicious or unusual activity that might warrant an investigation and the filing of an STR?

A. The opening of a new account without a local telephone number or utility bill available
B. Unusually high monthly balances in comparison to known sources of income
C. High level of monetary transactions through an account during the course of a month but low beginning and ending balances
D. Multiple cash deposits made just under the reporting threshold

A

B, C, D

277
Q
  1. What is the definition of a respondent bank?

A. A bank for which another financial institution establishes, maintains, administers or manages a correspondent account
B. A bank that provides international services to another local financial institution
C. A foreign bank that does not have a permanent staff
D. A bank that is not subject to any regulation

A

A

278
Q
  1. What are the three classic gateways for international cooperation and sharing?

A. Mutual legal assistance treaties (MLATs)
B. Law enforcement’s use of grand jury subpoenas
C. Exchange of information between financial intelligence units (FIUs)
D. Exchange of information between supervisory agencies

A

A, C, D

279
Q
  1. What are three of the recommended ways to respond to a law enforcement inquiry?

A. Cooperate with the law enforcement inquiry as much as possible.
B. Respond to all formal requests for information as promptly and thoroughly as possible, unless there is a valid objection that can and should be made.
C. Ensure that all communication, written and oral, is funneled through a centralized place.
D. Guard against unwarranted publicity by resisting all inquiries and requests whenever possible.

A

A, B, C

280
Q
  1. What three steps should be taken when there is a criminal investigation that is targeting the bank itself?

A. The senior management and the Board of Directors should be notified and kept apprised of the progress of the investigation.
B. The bank should consider retaining experienced outside counsel to assist the bank in responding to the investigation.
C. The bank should immediately go to the media and explain why it has done nothing wrong.
D. The relevant employees of the bank should be notified of the existence of the investigation and should be given instructions as to what to do and how to act.

A

A, B, D

281
Q
  1. When a financial institution is responding to a formal criminal investigation by a law enforcement agency, what is the primary purpose of requiring information going through a central point within the institution?

A. Ensure that nothing damaging to the financial institution gets released.
B. Ensure that responses are timely and thorough and that privileged material is not inadvertently handed over.
C. Ensure that the employees of the institution do not divulge information that would breach the privacy rights of customers.
D. Ensure that there is one person who can adequately and thoroughly apprise the Board of Directors of the progress of the investigation.

A

B

282
Q
  1. When a financial institution is served with a search warrant by a law enforcement agency, what are three things that the employees of the institution should do?

A. They should not release any documents until the institution’s outside counsel arrives on the scene.
B. They should cooperate fully with the law enforcement agents and remain calm and polite.
C. They should try to obtain an inventory of the materials that the law enforcement agents take from the institution.
D. They should review the warrant to determine its scope.

A

B, C, D

283
Q
  1. When should a financial institution consider retaining an experienced outside counsel for assistance?

A. Whenever the institution receives a subpoena from any law enforcement agency
B. When the institution itself appears to be the target of a criminal investigation
C. When law enforcement appears to be focused on the accounts of a very good and long-standing customer of the institution
D. When the banking agencies criticize the adequacy of the institution’s AML monitoring procedures

A

B

284
Q
  1. When should a compliance officer recommend that a financial institution conduct an internal investigation? (Choose three.)

A. When there is a suspicion that an employee is conspiring with a long-term customer to launder money through the bank
B. When several customers open separate accounts at different branches but with the same contact information
C. When the bank’s regulatory agency recommends changes to the AML policy
D. When a long-term employee decides to take only intermittent vacation days but not two weeks in a row, per bank policy

A

A, B, D

285
Q
  1. What are three practical tips in interviewing employees with regard to an unusual or suspicious transaction they have witnessed?

A. Interview the employees as soon after the occurrence as possible in order to ensure that their memories are fresh.
B. Try to put the employees at ease during the interview and start with relatively easy, noncontroversial questions before getting into more sensitive matters.
C. Use open-ended questions for the employees in order to ensure that the questions do not dictate what the expected answer is.
D. Control the interview as much as possible in order to attempt to resolve the matter quickly and uncover the wrongdoer.

A

A, B, C

286
Q
  1. With regard to exchanges of information between FIUs of different countries, what are three controlling principles?

A. Sharing between FIUs should be permitted only if the central banks are also a party to the sharing.
B. The sharing of information should be done as freely as possible on the basis of reciprocity.
C. The exchange of information should take place as informally and as rapidly as possible.
D. Differences in the definition of offenses should not impede the free exchange of information.

A

B, C, D

287
Q
  1. Rick is the AML compliance officer for a small bank that had AML difficulties and is operating under a deferred prosecution agreement with the federal government. The FBI approaches Rick and requests that the bank maintain an account the FBI is examining so that the FBI can monitor continuing activity. What two things should Rick do?

A. Ask that the request be submitted in writing.
B. Ensure that the request is from someone with the appropriate authority.
C. Ask the board of directors to approve keeping the account open after an internal investigation.
D. Keep the account open in order to avoid incurring any further disfavor with the federal government.

A

A, B

288
Q
  1. Identify three methods of money laundering in the real estate business.

A. Using large amounts of cash to purchase property
B. Disguising the beneficial ownership
C. Using an unlicensed agent
D. Generating rental income

A

A, B, C

289
Q
  1. Identify three methods of laundering money using lawyers.

A. Creating trusts for clients
B. Buying and selling property
C. Setting up and managing a charity
D. Litigating a civil case for a client

A

A, B, C

290
Q
  1. Roy, a BSA officer for a large financial institution, is reviewing a possible money laundering case. What are three potential red flags that should concern him?

A. Multiple purchases and sales of property over a short period of time
B. High number of transactions over the Internet or by phone
C. Newly arrived customer from out of state opening a business account
D. Two or more people using the same identification

A

A, B, D

291
Q
  1. Jim, an AML officer for a casino, identifies a number of potential red flags involving customers. Which should be the most troublesome?

A. A customer purchases a number of chips, plays for a short period of time and wants to wire the proceeds of the chips to another casino in a foreign country.
B. A customer gambles for an extended period of time and wants to convert his chips into a check issued by the casino.
C. A customer gambles for an extended period of time and wants to convert his chips into cash by the casino.
D. A customer asks to go into the high-stakes section of the casino but does not appear to know the rules of the game he selects to play.

A

A

292
Q
  1. What is nesting?

A. When a respondent bank is providing upstream correspondent services to other financial institutions
B. When a respondent bank is providing downstream correspondent services to other financial institutions
C. When a bank has many common customers with other local banks
D. When customers have accounts with many local banks

A

B

293
Q
  1. A financial institution is concerned about the possibility of the proceeds from human trafficking being funneled through the institution. What are three things the institution should look out for?

A. Multiple wire transfers, often below the reporting thresholds, sent from foreign countries
B. Multiple, unrelated individuals sending wires to the same beneficiary
C. Accounts for foreign workers for which the employment agency is the custodian for the accounts
D. A group of four women who come into the financial institution to open separate accounts

A

A, B, C

294
Q
  1. A new products manager wants to propose a product involving prepaid cards but the AML officer sees some problems. What would be three risks that the AML officer might raise?

A. The new product would enable customers to move funds around the world quickly.
B. The product can be reloaded and used anonymously.
C. There might be an influx of new customers who have not been vetted seeking to use the product.
D. The cards could be used as a substitute for bulk-cash smuggling.

A

A, B, D

295
Q
  1. Identify three key aspects of OFAC sanctions that have extraterritorial reach.

A. Restricting travel by U.S. citizens to certain countries
B. Economic and trade sanctions based on U.S. foreign policy
C. Freezing foreign assets under U.S. jurisdiction
D. Blocking people on the Specially Designated Nationals and Blocked Persons List

A

B, C, D

296
Q
  1. Identify three key roles of regional FATF-style bodies.

A. Writing the FATF 40 Recommendations
B. Publishing periodic typology reports
C. Actively participating in identifying AML technical assistance needs
D. Assisting in the FATF mutual evaluation process

A

B, C, D

297
Q
  1. Jim, an AML expert for a large bank, is reviewing some questionable customer account activity. What three scenarios should concern him the most in terms of possible AML red flags?

A. A customer who threatens an employee in an effort to discourage required record keeping
B. Transaction a customer has with a country whose location is unfamiliar to the AML expert
C. Corporate account that shows high velocity of cash deposits and wire transfer withdrawals always leaving a low month-end balance
D. Employee who complains about having to file numerous reports to FinCEN

A

A, B, C

298
Q
  1. Identify three key aspects of delivering targeted training for different audiences and job functions.

A. Determining whether to focus on real or hypothetical case studies
B. Determining how to provide the training
C. Determining the focus of the training
D. Determining whom to train

A

B, C, D

299
Q
  1. What are three initial things that a law enforcement investigator should consider in following up on an STR submitted by a financial institution?

A. Identify potentially suspicious activity and any specified unlawful activity.
B. Trace the source and ownership of illegal money through all appropriate accounts.
C. In cross-border cases, seek international assistance.
D. Consider providing immunity to the target of the investigation to get more information quickly.

A

A, B, C

300
Q
  1. Jack, the AML officer for a financial institution, is confronted with reports that several bank employees have been assisting suspected money launderers. What three things should Jack consider doing to follow up on these reports?

A. Determine whether the employees have been unduly promoted within the bank.
B. Determine whether the employees are living a lavish lifestyle.
C. Determine whether the employees may have been assisting the customers in hiding the ultimate beneficiaries of their accounts.
D. Determine whether the employees are involved in an excessive number of unresolved exceptions.

A

B, C, D

301
Q
  1. Suzy, the AML compliance officer for a large financial organization, is asked by her board of directors to review how best to protect the confidentiality of STRs submitted by the organization and the confidential information contained therein. What are three things she should consider?

A. Ensure that employees know how to retrieve STRs by the name of the customer quickly and efficiently.
B. Ensure training of employees so that they do not inadvertently inform, or tip off, the targeted customer of the filing.
C. Ensure strong record-keeping procedures to segregate information pertaining to STRs and to maintain their confidentiality.
D. Ensure that procedures are in place to promptly and appropriately respond to requests for copies of filed STRs.

A

B, C, D

302
Q
  1. What three initial actions should a financial institution take in responding to red flags that indicate that a customer is laundering money through his or her accounts?

A. Identify and review internal transactions engaged in by the customer.
B. Perform an Internet investigation focused on the customer, including a review of court records.
C. Confront the customer about the possible abuse of his or her accounts.
D. Compare the income generated by the customer with comparable businesses in the area.

A

A, B, D

303
Q
  1. The compliance officer of a financial institution has just received an extensive law enforcement subpoena focusing on the potential inadequacy of the institution’s AML program. What three steps should the compliance officer take?

A. He or she should advise the employees to maintain the confidentiality of all STRs.
B. He or she should notify the board of directors and senior management of the financial institution of the subpoena and its focus on the institution.
C. He or she should consider advising the institution to retain outside counsel experienced in this area.
D. He or she should consider providing law enforcement with the results of any internal investigation conducted by the institution.

A

B, C, D

304
Q
  1. What three factors could cause a financial institution to update its existing AML program?

A. The launch of a new product
B. The acquisition of another financial institution
C. The election of a new board of directors
D. The passage of time (e.g., 12–18 months)

A

A, B, D

305
Q
  1. What are three factors with regard to how and when to report an STR to the senior management and/or the board of directors of a financial institution?

A. Whether the STRs filed are in excess of the previous year’s filings
B. Whether the STR raises significant issues, especially in terms of reputational risk
C. Whether the STR indicates any compliance deficiencies
D. Whether the STR is indicative of any significant AML trends

A

B, C, D

306
Q
  1. Diane, the AML compliance officer for a large financial institution, uncovers a serious case of potential money laundering being conducted through a number of related accounts. What three factors should she consider in deciding whether or not to close the accounts?

A. Whether the account holder is a close associate of any of the members of the board of directors
B. Whether the alleged money laundering activity is occurring in all of the accounts or just some of the accounts
C. The legal basis for closing the accounts
D. The reputational risk to the institution if the accounts are maintained

A

B, C, D