Chapter 1

Question 1

What is money laundering?

Answer 1

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

Money laundering is the process of making dirty money look clean.

Question 2

Give an example of the second stage of money laundering

Answer 2

Layering/strutting

Electronically moving funds from one country to another and
dividing them into advanced financial options and/or markets;

moving funds from one financial institution to another or within accounts at the same institution;
converting the cash placed into the system into monetary instruments;

reselling high-value goods and prepaid access or stored value products;

investing in real estate and other legitimate businesses;

placing money in stocks, bonds, or life insurance products;

using shell companies to obscure the ultimate beneficial owner and assets.

Question 3

Give an example of the third stage of money laundering

Answer 3

Integration

Purchasing luxury assets such as property, artwork, jewelry, or high-
end automobiles;

entering into financial arrangements and other ventures in which investments can be made in business enterprises.

Question 4

Give an example of the first stage of money laundering.

Answer 4

Placement

Blending of funds, purchasing significant stored value cards with
currency, foreign exchange, breaking up amounts, currency smuggling, and loans.

Question 5

What does the Yates Memo say?

Answer 5

The Yates memo reminds prosecutors that criminal and civil
investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.

It notes that the resolution of a corporate case does not provide protection to individuals from criminal or civil liability.

Question 6

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

Answer 6

Funds transfers to or from a financial secrecy haven or high-risk geographic location without an apparent business reason or when the activity is inconsistent with the customer’s business or history;

large, incoming funds transfers on behalf of a foreign client with little or no explanation or apparent reason;

checks and money orders used to receive many small, incoming transfers of funds or to make deposits; funds activity that is unexplained, repetitive, or reveals unusual patterns;

payments or receipts that have no apparent link to legitimate contracts, goods, or services;

funds transfers sent or received from the same person to or from different accounts.

Question 7

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

Answer 7

Remote deposit capture (RDC) is a bank product that allows customer to scan a check and transmit an electronic image to the bank for deposit.

Because RDC minimizes human intervention, it decreases the ability to identify potential fraud indicators, such as an altered check and multiple deposits of the same item.

Question 8

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
weak bank supervision and licensing laws;

PTAs arrangements in which the correspondent bank fails to apply CDD to the respondent’s customers;

PTA arrangements in which subaccount holders have currency deposit and withdrawal privileges;

PTAs used in conjunction with a subsidiary, representative, or other office of the respondent bank.

Question 9

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

Answer 9

Money laundering risks can arise in concentration accounts when the customer-identifying information is separated from the financial transaction.

When separation occurs, the audit trail is lost, and accounts can be misused or administered improperly.

Question 10

Define a politically exposed person (pep)

Answer 10

Person who is or has been entrusted with a prominent public function domestically or by a foreign country or international organization.

Relatives and close associates of peps are considered peps

Question 11

What is structuring?

Answer 11

Is designing a transaction to evade triggering a reporting or record keeping requirement.

Ex, breaking up cash transaction to be in different accounts, banks, or separate days to avoid reporting threshold.

Question 12

What ml stage( s) are credit cards most likely to be used? And ex of ml using credit cards.

Answer 12

A) second (layering) and 3rd (intergration)
B) overpaying credit card bal and asking for refund and placing funds in Accts at offshore banks.

Question 13

What are some risks posed by 3rd party payment processors (tppps)

Answer 13

-Multiple financial orgs relationships whereby tppps suspicious activity cannot be seen in its entirety.

-Money laundering by sending funds directly to a financial org from foreign jurisdiction through international ach payment ( automated clearing house, ie electronic fund transfer)

High return rates from unauthorized transactions

Question 14

What are some ways money services business (msbs) can be used for ml?

Answer 14

Can use money remitted and currency exchanges to make funds available to criminal organizations at destination country in local currency. The launder/broker then sells the criminal dollars to foreign business people wishing to make legitimate purchase of goods for export.

Question 15

What are some of the aspect associated with the securities industry that increases exposure to ml

Answer 15

international nature
Speed of transactions
Ability to conduct free of payment transfers
Ease of converting holdings to cash without significant loss of principal
Routine use of wire transfers to, from and through multiple jurisdictions
Competitive commission driven environment
Practice of maintaining securities accounts as nominees or trustees
Weak aml programs.

Question 16

What are some red flags of ml associated with casinos and gambling?

Answer 16

-converting the funds to be laundered from cash to cheques and using casino credit to layer transactions before transferring out the funds
-buying chips with illicit funds and requesting payment via check from casinos account.
-using illicit funds to repay casinos lines of credit
-junket operators moving funds across borders and through multiple casinos
-paying gambling debts in cash under reporting requirements
- engaging in minimal gambling without reasonable explanation
-using casinos for banking-like financial services
- unusual gambling and transaction patterns.

Question 17

Why is gold vulnerable to ml and tf risks?

Answer 17

Has high intrinsic value in compact and easy to transport form.
It can be bought and sold simply and often anonymously for currency in most areas of the world allowing criminals to convert thier illicit cash into anonymous transferable assets.
Gold holds its value regardless of the form it takes.

Question 18

List ways in which travel agencies can be used to launder money

Answer 18

-Purchasing an expensive airline ticket for another person who then asks for refund
-strutting wire transfers in small amounts to avoid record keeping requirements
-establishing tour operator networks with false bookings and docs to justify significant pmts from foreign travel groups.

Question 19

List various functions of gatekeepers, attorneys, notaries, accountants, and auditors that can be useful to ml.

Answer 19

-creating and managing corporate vehicles and other complex legal arrangements
-Buying or selling property as a cover for illegal fund transfers
-Performing financial transactions
-Providing financial and tax advice
-Providing introductions to financial organizations
-undertaking certain litigations
-Setting up and managing charities

Question 20

Why is the issue of requiring attorneys to be gatekeepers in the AML/CFT area controversial ?

Answer 20

Attorneys have confidential relationships with their clients

Question 21

What makes real estate in attractive channel for laundering illicit funds?

Answer 21

-It can be purchased with cash
-The ultimate beneficial owner can be disguised
-It is a relatively stable and reliable investment
-The value can be increased through renovations and improvements

Question 22

What are some common money laundering techniques involved with trade-based money laundering

Answer 22

-Over invoicing and underinvoicing
-Shipping and short shipping
-ghost shipping
-shell companies
-Multiple invoicing
-black market trades

Question 23

What is the black market peso exchange (BMPE)?

Answer 23

-form of trade base money laundering, bmpe is a process by which money in the US derived from a illegal activity is purchased by peso brokers and a deposited in the US Bank account established by the brokers. The broker sells checks and wire transfers drawn on those accounts to legitimate businesses which use them to purchase goods and service in the US. Although the US is predominately figured in BMPE, the process is not limited exclusive to that country.

Question 24

What are the potential risk factors commonly associate with prepaid bank cards?

Answer 24

-anonymous card holders, anonymous funding, anonymous access to funds, high value limits, and no limits on the number of cards individuals can acquire
-global access to cash through ATMs
-Offshore card issuers that might not observe laws in all jurisdictions
- Use as a substitute for bulk cash smuggling

Question 25

What are some specific controls that E money institutions can implement to mitigate the money laundering risk prepaid cards, mobile payments and Internet-based payment services

Answer 25

-robust oversight of outsourced functions
-Limits on storage values transactions and turnover
-Transaction, modern systems capable of detecting, Money laundering patterns and deviations
-systems for identifying customers with multiple purses, accounts, and cards
-location device related information and IP address to identify discrepancies in customer activity from the info provided on boarding
-Cooperation with merchants, the accept e money
-geographic restrictions on the use and function of E money products

Question 26

Explain the roles of the following participants in the virtual currency (vc) ecosystem: user, exchanger, and administrator

Answer 26

User- person who obtains VC to purchase goods or services
Exchanger- is a person engaged as a business and exchange a VC for real currency, funds, or other virtual currency
Admin-as a person engaged as a business and issuing VC in, and who has the authority to redeem the virtual currency

Question 27

What are some emerging risks for terrorist financing?

Answer 27

-Self funding by foreign terrorist fighters
-Raising funds through social media
-New payment products and services
-Exploitation of natural resources

Question 28

Explain the legal concept of willful blindness in the context of money laundering

Answer 28

• deliberate, avoidance of knowledge of the facts or purposeful indifference. Courts have held that wilful blindness is an equivalent of actual knowledge of the legal source of funds or the intentions of a customer and money laundering transactions.

Question 29

In what ways is correspondent banking vulnerable to financial crime?

Answer 29

-Correspondent banks do not know the customers are responded directly and rely on the respondent banks internal controls
-less info is available to help the correspondent bank recognize unusual activity
-Correspondent does not degree of supervision to which respondent is subject and might have limited info on the respondents aml controls
-Respondents are correspondence to third banks which further shields the parties involved

Question 30

What is a concentration Acct?

Answer 30

Concentration counts are internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day. They are frequently used to facilitate transactions for private banking, trust and custodian accounts, fund transfers and international affiliates.

Question 31

Describe micro structuring

Answer 31

Micro structuring is a method of placing large amount of a illicit cash into the financial system. It is essentially the same as structuring i.e. designing a transaction to evade reporting requirements, but at a smaller level. Micro structuring might take an 18,000 deposit and break it into 20 deposits of approximately 900 each.

Question 32

What are the typical features of high risk insurance products?

Answer 32

High risk concern product typically offer the ability to fold funds and assets into the policy
-Full or partial underlying investments under the control of the customer
-Option of asset, transfers
-Higher upper limit for the amount of funds held

Question 33

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

Answer 33

-require all vendors provide ID information and confirm that their authorized sell the item
-Verify the identities and addresses of new vendors and customers
-Report, suspicious items to the art loss register
-Avoid cash payments
-Be aware of money, laundering regulations
-appoint senior staff member to whom employees can report suspicious activities

Question 34

Describe several ways which investment and commodity advising industry is susceptible to ml.

Answer 34

-withdrawal of assets through transfers to unrelated Acct’s or hr jurisdictions
-frequent additions to or withdrawals from Acct’s
-cheques drawn on or wire transfers from Acct’s to 3rd party with no relation to client
-clients who request custodial arrangements that allow for anonymity
-transfers of funds to the advisor for mgmnt followed by transfers to Acct’s at other institutions in layering scheme
-investing illegal proceeds for client
- movement of funds to disguise origin

Question 35

Describe types of services that trust co service providers (TCSPs) offer 3rd parties

Answer 35

-Can act as formation agent of illegal persons
-act as or arrange for another person to act as Director or secretary of a company, partner of a partnership or some position in relation to the other legal persons
-Provide registered office, business address, or correspondence for a company, partnership, or another legal person or arrangement
-Act as arrange for another person to act as trustee of an express trust
-act as or arrange for another person act as nominee shareholder for another person

Question 36

What are four related purpose for establishing or controlling a shell company company for money laundry

Answer 36

1) shell companies convert cash properties crime into alternative assets
2) create perception that illicit funds were generated from legitimate sources
3) facilitate wide range of legitimate and or fake business transactions that can use to further the laundering process
4) concealed criminal ownership

Question 37

How can Trust accounts be used to launder money, whether offshore or onshore, in the context of money laundering

Answer 37

-trust used to convert illicit cash into less suspicious assets
-Help disguise, criminal ownership of funds and other assets
-form essential link between different laundering vehicles and techniques, such as real estate, nominees, and deposit and transfer of criminal proceeds
-Hide assets from legitimate creditors and protect property from seizure. Payments to the trust beneficiaries can be used to longer money.

Question 38

What makes bearer bonds, bearer stocks certificates, and bearer shares prime vehicles from money laundering

Answer 38

-bear bonds, stocks certificates, share belong to on the surface to the bearer. When mirror 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 many opportunity to disguise the legitimate ownership.

Question 39

What is the basic difference between the crimes of terrorist financing and money laundering

Answer 39

TF uses funds for an illegal political purpose, but the money is not necessary derived from illicit proceeds.

ML always involves the proceeds of illegal activity. Purpose of laundering is to enable the money to be used legally.

Question 40

Describe factors that indicate financial organization is at risk for being used at a conduit for terrorist financing

Answer 40

-Use an account as a front for a person with suspected terrorist links
-Appearance of an account holders name on a list of suspected terrorist
-frequent, large cash deposit in accounts of nonprofit organizations
-High volumes of transactions in accounts
-Lack of clear relationship between the banking activity and the nature of the acct holder business

Question 41

What makes hawalas attractive to terrorist financiers?

Answer 41

Unlike formal financial institutions, hawalas are not subject to formal government oversight, and are not required to keep detailed records in a standard form. Although some hawaladers do keep ledgers, the records are often written in Idiosyncratic shorthand and are maintained only briefly.

Question 42

What characteristics of charities and nonprofit organizations make them particularly vulnerable to misuse for terrorist financing

Answer 42

-enjoying public trust
-Having access to considerable sources of funds
-being cash intensive
-Frequently having a global presence often in or near areas exposed to terrorist activity
-Often being subject to little or no regulation, and or have few obstacles to their creation

Question 43

Describe four types of risks associated with money laundering that are faced by financial organizations

Answer 43

1) reputation risk (potential that adverse publicity regarding an organizations, business practice and associations will cause loss of public confidence in the integrity of the organization)
2) operation risk (potential for loss, resulting from an adequate internal processes, personnel, or systems)
3) legal risk (potential for lawsuits, adverse judgments, unenforceable contracts, fines, and penalties)
4) concentration risk (potential for loss resulting from too much credit or loan exposure to one borrower or group of borrowers)

Question 44

Describe the three stages of money laundering

Answer 44

1) placement- physical disposal of cash or other assets derived from criminal activity
2) layering- separation of illicit proceeds from their source by layers of financial transactions, intended to conceal the origin of the proceeds
3) integration- supplying apparent legitimacy to illicit wealth through reentry of funds into the economy in which appears to be normal business or personal transactions

Question 45

What motivated passage of the USA patriot act and to whom does it apply?

Answer 45

-motivated by the terrorist attacks of September 11, 2001 and urgent need to decipher and disable mechanisms that finance terrorism, including strengthening money laundering laws, and the bank secrecy act.
-The act has implications for US organizations and non-US organizations that do business in the US.

Question 46

What factors contribute to the vulnerabilities of private banking to money laundering

Answer 46

-preceived high profitability
-Intense competition
-powerful clientele
-high-level of confidentiality
-Trust developed between relationship managers, and their clients
-Commission base compensation for relationship relationship managers
-Culture of secrecy and discretion
-Role of relationship managers as client advocates to protect the clients

Question 47

What is one of the most important aspects of due diligence for bank when establishing relationship with money service businesses

Answer 47

Confirm that the MSB has implemented sufficient AML/CFT program (procedures, training and suspicious activity monitoring) and is properly licensed and or registered in the jurisdiction in which it operates

Question 48

How can the free look period in the insurance industry be used to launder money

Answer 48

Free period is featured that allows investors, for a short period of time after the policy is signed and the premium is paid to back out of a policy without penalty. This process allows money longer to get an insurance check which represents clean funds.

Question 49

How can having a lawyer as trustee on clients account create vulnerabilities to money laundering at a financial org

Answer 49

When lawyer serve as trustees by holding money or assets interest for clients, it enables the lawyers to conduct transactions and administer the clients affairs. Sometimes illicit money is placed in the law firms general trust account in a file set up in the name of the client, nominee, or company controlled by the client.

Question 50

What are some money, laundering risk, methods, and red flags in the vehicle sales industry?

Answer 50

-structuring, cash deposits below reporting threshold
-Purchasing vehicles with sequentially numbered checks or money orders
-Trading in a vehicles and conducting successive transactions of buying and selling new and use vehicles reduce complex layers of transactions
-Accepting third-party payments, particularly from jurisdictions with ineffective ML controls

Question 51

What are some of the potential macro economic consequences of unchecked ML?

Answer 51

-increased exposure to organize crime and corruption
-undermining the legitimate private sector
-weakening financial organizations
-dampening defect, foreign investments
-Loss of control, or mistakes, decisions regarding economic policy
-Economic distortion and instability
-Loss of tax revenue
-Risk to privation efforts
-Reputation risk for the country
-Risk of international sanctions
-Social costs
-Operational risk
-legal risk
-concentration risk

Question 52

What are bearers checks?

Answer 52

Are unconditional orders that when presented to financial organization, must be paid to the holder of the instrument rather than to pay specified on the order itself. Financial organizations is usually not obligated to verify the id of the presenter of the check unless transactions past specific threshold.

Question 53

What are financial intelligence units?

Answer 53

Mandatory national agencies that handle financial intelligence. They receive reports of suspicious transactions from financial organizations, other people and entities, analyze them, and disseminate the resulting intelligence to local law-enforcement agencies and foreign flu to combat ML.

Question 54

What stage is placement and give examples?

Answer 54

First stage

Ex: -blending of funds (legitimate funds with legitimate funds. Drug profit into cash intensive restaurant.)
-Breaking up amounts into smaller amounts to evade reporting requirements
-currency smuggling- cross physical movement of cash
-Loans-repayment of loans with laundered cash

Question 55

What stage is layering and give examples?

Answer 55

Second stage

-Convert proceeds of crime into another form
- obscure source and ownership
Examples: -electronically moving funds from country to another account or banks
-converting cash into money instruments, i.e cash , money, orders, promised notes
-reselling high value goods
-Investing in real estate and business
-Stock bonds life insurance
Shell companies

Question 56

What stage is integration and give examples?

Answer 56

Reentry of funds into common in what appears to be normal business or personal use
-Integration, difficult distinguish from legal and illegal funds
-often difficult to ID unless discrepancy between employment versus wealth. Example purchasing luxury products when can’t afford it.

Question 57

What are three types of peps?

Answer 57

Foreign, domestic, international org peps

Question 58

What is the most common ML method?

Answer 58

Structuring
Designing transactions of a triggering, a reporting or recordkeeping requirement

Question 59

What is Smurf Ing?

Answer 59

Common techniques involves multiple individuals making multiple cash deposits and or buying multiple monetary bank drafts

Ex. Customer breaks large transaction to two or more transactions conducted by 2 or more people

Question 60

What is a third-party payment processor?

Answer 60

Tppp
PayPal, shopify
Generally bank customer that provide to merchants. Contracted with use retailers that have physical location or to help collect monies owed.
-Financial organizations maintains relationship with TPPP and not merchant. Which means FI does not know who on behalf its processing transaction for.
-Types emergence with services are provided can increase TPPP‘s vulnerability to ML, ID theft and other legal activities. Example, telemarking, gambling, Internet, merchant.

Question 61

Finncen defines MSB in one more falling capacities

Answer 61

-Dealer in foreign exchange
-Check cashier
-Issue of travel, checks or money orders
-Money transmitter (Western Union, PayPal, MoneyGram)
-provider and seller of prepaid access
1) open loop prepaid cards - American Express, Visa, MasterCard
2) close loop prepaid cards- US Postal Service

Question 62

How are casinos used in the ML process

Answer 62

Use in placement and layering stage
-Provides excuse for recent acquired wealth

Question 63

What is a junket?

Answer 63

junket’ refers to a short-term gambling program arranged by a junket operator for one or more high-wealth players at a chosen casino, in conjunction with the relevant casino operator, on terms agreed between them.

junket participants rely on third-party or junket operator, smooth funds across border and through multiple casinos this house occur a source of wealth, ownership and ID

Question 64

What are some behaviours to watch for casinos?

Answer 64

-attempts to evade AML reporting and recordkeeping. I.e. breaking up 10 K winnings with cash and chips.
-Using cashier case for banking like financial services. I.e. wire funds to non-bank or bank not resident of or place a business.
-minimal gambling activity without reasonable explanation
-Unusual gambling and transaction patterns. Example bet both sides.

Question 65

What are five red flags for notaries, accountants, auditors, and lawyers

Answer 65

1) characteristics of client (secretive, uses intermediary, refused info, known to be subject, investigation, ties to criminals)
2) characteristics of involved parties (incorporated in a highest country, connected without business reason, attended to skies real ownership, appear to not be suitable reps)
3) characteristics of source of funds (collateral, located in high extinction, significant increase in capital for recent incorporated without logical explanation)
4) characteristics of retainer (located significant distance from client without legitimate economic reason, pay significantly higher than usual fees, without legitimate reason, frequent legal advisors)
5) Characteristic of retainer (transaction unusual with regards to operation, create of complicated ownership with involvement of multiple jurisdictions, litigation is settled quickly with little help legal pros retained)

Question 66

What is a free trade zone?

Answer 66

Designated Geo area, it was specific regulatory and tax treatment for certain trader goods and services. Often in developing countries near Port of entry example Shanghai in China.

Weakness:
-In adequate AML/CFT safeguards
-Minimal oversight by local authorities
-Weak procedure to inspect good and legal entities, including in adequate recordkeeping and info systems
-Lack of corporation between free zones and local custom authorities

Question 67

What are ways execute trade based ML

Answer 67

1) Over invoicing and under invoicing
2) over shipping or short shipping
3) ghost shipping ( invoices but no goods)
4) shell companies
5) multiple invoicing ( # of invoices for same shipment)
6) black market trades

Question 68

What are the three stages of wildlife trafficking include?

Answer 68

1) source- involves where initial trafficking act occur. WT crimes often facilitated by bribing, corrupt officials and individuals with access to target species.
2) transit- movement of poach or legal attained wildlife goods that are disguised and consolidated with other items for transport
3) destination- involves poach illegally required or traffic goods arriving at final destination often sold at in person or online market

Question 69

What are the two categories of virtual currency?

Answer 69

1) centralized VC: centralized, repository and single administrator. Facebook Diem
2) decentralized VC: no repository or admin. Bitcoin.

Can be distinguished between convertible and real currency or non-convertible intended to be specific to me example red coins