Chapter 1 Flashcards
What is the Definition of Money Laundering ?
Money Laundering involves taking criminal proceeds and disguising their illegal sources to use the funds to perform legal or illegal activities
What are the three stages of Money Laundering ?
- Placement- Introducing cash or assets to the financial system
- Layering - Converting proceeds into another form and creating complex layers to obscure the source and ownership of funds
- Integration - Using the proceeds of laundered funds in normal to create a perception of legitimacy
What are the economic and social consequences of money laundering ?
(11 consequences)
- Increased exposure to organised crime and corruption
- Undermining the legitimate private sector
- Weakening financial organisations
- Dampening Foreign Investments
- Loss of control in decisions regarding economy policy
- Economic Distortion and instability
- Loss of Tax Revenue
- Risks to privatization efforts
- Reputational Risk for the country
- Risk of International Sanctions
- Social Costs
Who is considered a PEP ?
PEPs themselves, Relatives and Close Associates
What are the three types of PEPs ?
- Foreign PEP - Currently or historically entrusted with prominent public functions by a foreign country
- Domestic PEP - Currently or historically been intrested Domesticaly with prominent public functions
- International Organisations PEP - Currently or historically been entrusted with a prominent function by an international organization
How do terrorists raise, move, store funds ?
(3 answers)
- Hawala
- Charities
- Non Profit Organisations
(Terrorism Financing)
What is Hawala ?
- An informal value transfer system (IVTSs)
- Leaves little to no paper trail
- Details of customers are communicated by phone, fax or email
- Can be used at any phase of the money laundering cycle
- Layering may be complex by using haldawars in several countries
(Terrorism Financing)
How do Terrorists use Charities / Non Profit Organisations ?
- Charities and NPOs are vulernable as they:
* Enjoy Public Trust
* Have considerable sources of funds
* Cash Intensive
* Have a global presence,
* Subject to little regulation - Funds raised may be diverted to support terrorist activity domestically or abroad
- May be perpetrated by internal or external individuals
- NPOs often operate in the same environments which terrorists operate in
- Criminals attempt to disguise terrorist funding as humanitarian activity
- Social Media can serve as a tool to facilitate and enable terrorist funding, recruitement and propoganda.
Typologies
What are the categories of Typologies used in Money Laundering ?
- Banks and Depository Institutions
- Non-Banking Financial Institutions
- Non-Financial Businesses & Professions
- International Trade Activity
- New Payment Products and Services
- Corporate Vehicles used to facilitate illicit finance
Typologies
What are the Sub Categories of Banking and Depository Institutions Typologies (1)
- Electronic Transfer of Funds
- Remote Deposit Capture (RDC)
- Correspondent Banking
- Payable-through Accounts
- Concentration Accounts
- Private Banking
- Strucuring
- Credit Unions / Building Societies
Typologies
What are the Sub Categories of Non-Bank Financial Institutions Typologies (2)
- Credit Card Industry
- Third Party Payment Processor
- Money Services Business
- Insurance Companies
- Securities Broker-Dealers
Typologies
What are the Sub Categories of Non-Financial Businesses & Professions Typologies (3)
- Casinos
- Dealers of High Value Items
- Travel Agencies & Websites
- Vehicle Sales
- Gatekeepers
- Investment and Commodity Advisors
- Trust and Company Service Providers (CSPs)
- Real Estate
Typologies
What are the Sub Categories of International Trade Activity Typologies (4)
- Free Trade Zones
- Black Market Peso Exchange
- Wildlife Trafficking
Typologies
What are the Sub Categories of New Payment Products & Services (5)
- Prepaid Cards
- Electronic Money
- Virtual Currency
Typologies
What are the Sub Categories of New Payment Products & Services (6)
- Public Companies
- Private Limited Companies
- Bearer Shares
- Shelf Companies
- Shell Companies
- Trusts
Typologies: Banks and Depository Institutions (1)
Key points of Electronic Transfer of Funds
- A transfer of funds initiated by electronic means
- Fastest way to move money
- Illicit fund transfers are easily hidden
- Often used in layering stage
- Creates confusion aboutsource of funds
- Money Launderers can vary amounts sent, can keep transfers small, under reporting thresholds.
Typologies: Banks and Depository Institutions (1)
Key points of Remote Deposit Capture
- A service offered by banks allowing customers to scan a check and send an image to the bank
- Abused by Money Launderers as it reduces contact
- May allow different people to process cheques through the system
- Decreases the ability to identify potential fraud
Typologies: Banks and Depository Institutions (1)
Key points of Correspondent Banking
- An arrangement whereby one bank acts as the agent of another bank in a foreign country
- The local bank = Respondent bank
- Large international banks act as correspondents for thousands of smaller banks
- Correspondent bank provides services for unverified clients, therefore vulnerable.
Typologies: Banks and Depository Institutions (1)
Key points of Payable-Through Accounts
- A type of correspondent banking bypassing the respondent (original) bank
- Clients may directly control funds at the correspondent bank
- PTAs hides the source of funds and customers’ identities
Typologies: Banks and Depository Institutions (1)
Key points of Concentration Accounts
- Internal accounts to facilitate processing and settlement of multiple transactions in a bank
- Aggregating funds from multiple locations to one centralised account
- May assist criminals when key details are seperated from the account, thus losing the audit trial
Typologies: Banks and Depository Institutions (1)
Key points of Private Banking
- A lucrative industry providing personalised and confidential products to wealthy clients
- Competition may increase pressures on relationship managers to obtain new clients
- Business interests take precedence over legal compliance
- Private investment companies may be set up for more anonimity in privare banking
- Shell companies may be formed to maintain clients’ confidentiality
Typologies: Banks and Depository Institutions (1)
Key Points of Structuring
- Designing transaction to avoid triggering a report
- Smurfing - Is a common structuring technique involving multiple cash deposits under the reporting threshold
- Microstructuring - is essentially Smurfing, but split into much smaller payments
Typologies: Banks and Depository Institutions (1)
Key Points of Credit Unions / Building Societies
- Not for profit financial cooperatives
- Do not have clients or customers, but members who are also owners
- Serve the financial needs of their members
- FATF declares credit unions as banks
Typologies: Non-Bank Financial Institutions (2)
Key Points of Credit Card Industry
- Credit Card Associations: American Express, Mastercard, Visa
- These Associations license member banks to issue bank cards
- Credit Cards are usually used in the layering and integration stages of money laundering.
Typologies: Non-Bank Financial Institutions (2)
Key Points of Third Party Payment Processor
- Bank Customers providing payment processing services to merchant clients
- Often not subject to AML/CFT requirements
- Usually Middlemen, therefore difficult for a financial organisation to determine the originator of the transaction
- May be used by criminals to mask transactions
Typologies: Non-Bank Financial Institutions (2)
Key Points of Money Services Business
- Businesses that provide currency exchange, money transmission, check-cashing services
- Check cashier may be compromised
- Criminals may use money remitters to trasnfer funds to criminal organisations in destination countries
- They are overseen by regulators as well as the banks with which they maintain a relationship
- Many MSBs are small and might not have robust AML/CFT programs
Typologies: Non-Bank Financial Institutions (2)
Key Points of Insurance Companies
- Insurance Industry provides cover for multiple clients’ assets
- Operates through intermediaries, agents, and brokers
- Sectors such as Life Insurance, Annuities are primary targets for criminals who want to launder money
Typologies: Non-Bank Financial Institutions (2)
Key Points of Securities Broker-Dealers
- The Stocks, Bonds and Shares Industry
- Provides opportunities for criminals to launder their money anonymously
- An industry run by electronic transfers and paper
- Real-time mirror trades involve rapid transfers of significant sums of money around the world
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Casinos
- Amongst the most proficient cash-generating businesses
- Billions of dollars flow between customers and casinos
- Are associated with money laundering because they provide an excuse for recently acquired wealth with no apparent legitimate source
- Money Laundering in Casinos occurs in the placement and layering stages
- Casino cashiers may be exploited for placement
- Intermediaries such as junket agents can be used to place, layer and integrate funds
- VIP customers may be subject to less scrutiny
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Dealers of High-Value Items
- Precious Metals, Jewelry & Art dealers
- Gold has high intrinsic value in compact form and is easy to transport, can be bought and sold anonymously
- Gold is an attractive vehicle for money laundering
- Origins are difficult to trace
- Can be easily exchanged for cash, or used as currency in most aread of the world
- Art markets are high risk
- Shell companies are often used to enhance secrecy
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Travel Agencies & Websites
- Cash intensive business
- Allow use of false identities
- May be used to commingle legitimate and illegitimate funds
- Can be used in all three stages of money laundering
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Vehicle Sales
- Risks include structuring cash deposits
- Trading-in vehicles
- Accepting third-parties payments
- Car dealerships are vulnerable to money laundering
- Fraudulent invoices can be used to hide buyer identities
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Gatekeepers
- Notaries, Accountants, Aufitors and Lawyers
- Professionals have the ability to either block or facilitate the entry of illegitimate money into the financial system
- Gatekeepers responsibilities include identifying clients, conducting due diligence, maintaining records, and reporting suspicious client activities
- Professional enablers who commit crimes can be imprisoned and likely barred from operating within their profession
- Gatekeepers special skills enable them to help their clients evade detection using sophisticated money laundering schemes
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Investment and Commodity Advisors
- Raw materials such as oil or gold
- These advisors are in a unqiue position position to observe possible Money Laundering
- The industry is vulnerable to Money Laundering
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Trust and Company Service Providers (CSPs)
- There are gatekeepers who set up trusts
- Provide legal and administrative functions for corporations
- TCSPs need to obtain detailed information on customers and understand the source of funds
- Should always be able to identify the beneficial owners
Typologies: Non-Financial Businesses & Professions (3)
Key Points of Real Estate
- Sector is frequently used in Money Laundering Schemes
- Investing capital in real estate is a classic method of laundering illicit funds
- UBO can be disguised
- Relatively stable and reliable investment
- Value can be increased through renovations and improvements
Typologies: International Trade Activity (4)
Key Points of Free Trade Zones
- Designated geographic areas with special regulatory and tax treatments
- Often located in developing countries near ports of entry
- Inadequate AML/CFT safeguards
- Minimal oversight by local authorities
- Lack of cooperation between FTZ and local customs authorities
Typologies: International Trade Activity (4)
Key Points of Black Market Peso Exchange
- A process by which US money derived from illegal activity is purchased by Colombian Peso Brokers
- The smuggled US dollars are deposited into foreign institutions - And wired back to the US as payments for international trade goods and services
- Used by drug cartels
Typologies: International Trade Activity (4)
Key Points of Wildlife Trafficing
- The illegal trade, smuggling, poaching , capture and collection of endangered speciies and protected wildlife
- Includes wildlife derivatives such as leather, food, exotic pets
Typologies: New Payment Products & Services (5)
Key Points of Prepaid cards
Portable, exchangeable and anonymous
Typologies: New Payment Products & Services (5)
Key Points of Electronic Money
- Risk factors include High Transaction Limits
- Customers may hold numerous purses or cards
Typologies: New Payment Products & Services (5)
Key Points of Virtual Currency
- A medium of exchange
- Operates in the digital space without legal tender status
- High levels of anonymity, can obscure and anonymise transactions
- Difficult to trace identity
- Transactions are executed instantly
- Preferred payment for purchasing illicit goods on the darknet
Typologies: Corporate Vehicles used to Facilitate illicit finance (6)
Key Points of Public Companies
- Shares are freely available
- Information on ownership is publicly available
- Subject to significant regulation
Typologies: Corporate Vehicles used to Facilitate illicit finance (6)
Key Points of Private Limited Companies
- Not publically traded
- Restricted Information
- May be owned by one or many owners
- Subject to minimal regulatory oversight
- Limited Liability Companies (LLCs) are common corporate vehicles subject to misuse
- Can be owned or managed anonymously
Typologies: Corporate Vehicles used to Facilitate illicit finance (6)
Key Points of Bearer Shares
- Prime Money Laundering Vehicles
- Bearer shares belong to those who physically hold them
- No registry of owners, transfer takes place by physically handing over the shares
Typologies: Corporate Vehicles used to Facilitate illicit finance (6)
Key Points of Shelf Companies
- A corporation that has had no activity
- Created and put on the shelf
Typologies: Corporate Vehicles used to Facilitate illicit finance (6)
Key Points of Shell Companies
- A company that at the time of incorporation has no significant assets or operations
- Launderers can create the perception that illicit funds have been generated from a legitimate source
Typologies: Corporate Vehicles used to Facilitate illicit finance (6)
Key Points of Trusts
- Trusts are private arrangements allowing the grantor to place assets for future distribution to beneficiaries
- A trustee is usually appointed to administer the assets in accordance with the instructions provided
- Can be used to convert illicit cash into less suspicious assets
- Help Disguise the criminal ownership of funds
