Chapter 1

Question 1

MONEY LAUNDERING

What is money laundering?

Answer 1

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.

Question 2

THREE STAGES IN THE MONEY LAUNDERING CYCLE

Give an example of the second stage of money laundering.

Answer 2

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.

Question 3

THREE STAGES IN THE MONEY LAUNDERING CYCLE

Give an example of the first stage of money laundering.

Answer 3

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

Question 4

THREE STAGES IN THE MONEY LAUNDERING CYCLE

Give an example of the third stage of money laundering.

Answer 4

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

Question 5

INDIVIDUAL ACCOUNTABILITY

What does the Yates memo say?

Answer 5

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.

Question 6

ELECTRONIC TRANSFERS OF MONEY

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

Answer 6

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; and fund transfers that have no apparent link to legitimate business.

Question 7

REMOTE DEPOSIT CAPTURE

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

Answer 7

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.

Question 8

PAYABLE THROUGH ACCOUNTS

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

Answer 8

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; and PTAs where the sub-account holders have currency deposit and withdrawal privileges.

Question 9

CONCENTRATION ACCOUNTS

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

Answer 9

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.

Question 10

PEPS

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

Answer 10

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.

Question 11

STRUCTURING

What is structuring?

Answer 11

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.

Question 12

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?

Answer 12

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.

Question 13

THIRD-PARTY PAYMENT PROCESSORS

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

Answer 13

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.

Question 14

MONEY SERVICES BUSINESSES

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

Answer 14

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

Question 15

SECURITIES BROKER-DEALERS

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

Answer 15

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.

Question 16

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?

Answer 16

The fact that gold is an extremely attractive vehicle for laundering money due to the fact that it is relatively compact and easy to transport; and the fact that the gold market is a target for criminal activity because it is lucrative and holds its value regardless of the form it takes.

Question 17

CASINOS

What are some red flags associated with casinos and gambling?

Answer 17

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.

Question 18

TRAVEL AGENCIES

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

Answer 18

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.

Question 19

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

Answer 19

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.

Question 20

GATEKEEPERS

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

Answer 20

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.

Question 21

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).

Answer 21

It can be purchased with cash; the ultimate beneficial owner can be disguised; it is a relatively stable and reliable investment; and the value can be increased through renovations and improvements.

Question 22

TRADE-BASED MONEY LAUNDERING

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

Answer 22

Over and under invoicing.

Question 23

BLACK MARKET PESO EXCHANGE

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

Answer 23

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.

Question 24

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?

Answer 24

Some of the risks of pre-paid bank cards include: anonymous card holders; anonymous funding; high value limits; global access to cash through ATMs; lax offshore jurisdictions issuing the cards; and the cards being a substitute for bulk-cash smuggling.

Question 25

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”?

Answer 25

Some of the risks on new products and services, according to FATF, include anonymity; geographic reach; alternative to physical cross-border transportation; easy access to cash; and 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.

Question 26

VIRTUAL CURRENCY

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

Answer 26

One of the primary concerns with regard to the use of virtual currencies is the fact that beneficial ownership information may be difficult to obtain.

Question 27

TERRORIST FINANCING

What are some emerging risk for Terrorist Financing?

Answer 27

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;

Question 28

MONEY LAUNDERING

What is the concept of willful blindness?

Answer 28

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

Question 29

CORRESPONDENT BANKING

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

Answer 29

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.

Question 30

CONCENTRATION ACCOUNTS

What is a concentration account?

Answer 30

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.

Question 31

STRUCTURING

Describe microstructuring.

Answer 31

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.

Question 32

INSURANCE

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

Answer 32

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.

Question 33

DEALERS IN HIGH VALUE ITEMS

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

Answer 33

• 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.

Question 34

INVESTMENT AND COMMODITY ADVISERS

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

Answer 34

There are several ways commodity and futures accounts are susceptible to money laundering, including:
• 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.

Question 35

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.

Answer 35

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.

Question 36

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?

Answer 36

• 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.