Chapter 1 (Part 1)

Question 1

What is an important preqquisite in the definition of money laundering

Answer 1

knowledge

Question 2

what can also be used to prove knowledge

Answer 2

willful blindness

Question 3

what is it defined as

Answer 3

deliberate avoidance of knowledge of the facts

or personal indifference

Question 4

how does ML undermine the legitimate private sector

Answer 4

front companies have advantages because they have access to substantial illicit funds, allowing them to subsidize products and services sold at below-market rates.

Question 5

what is concentration risk

Answer 5

the potential for loss results from too much credit or loan exposure to one borrower or group of related borrowers.

Question 6

what does the yates memo do

Answer 6

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

Question 7

what does it also note

Answer 7

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

Question 8

what are 6 indicators of money laundering using electronic transfers

Answer 8

1. funds transfers to or from a financial secrey haven, high risk geographic location without a business reason
2. large, incoming funds transfers on behalf of a foreign client with little or no explanation or apparent reason
3. many small incoming transfers of funds are received or deposits are made using checks and money orders.
4. funds activity is explained, repetitive or shows unusual patterns
5. payments or receipts are received that have no apparent link to legitimate contracts, goods or services
6. funds transfers are sent or received from the same person to or from different accounts

Question 9

why do remotely deposited checks lend themselves to potential abuse

Answer 9

the money launderers no longer need to go into the bank and risk detection

Question 10

why else

Answer 10

once a money laundering has RDC capabilities, he or she can move checks with ease through an account

Question 11

what also might be possible

Answer 11

to set up multiple imaging devices that will enable a money launderer to allow others to process checks through the system

Question 12

what else is a concern regarding sanctions

Answer 12

without proper controls, RDC can also be misused to facilitate sanctions violations

Question 13

what is the more prominent risk with RDC besides ML

Answer 13

fraud

Question 14

what should RDC be reviewed for

Answer 14

sequentially numbered checks and money orders without payees

Question 15

what are 3 other risks of correspondent banking relationships other than the two main risks

Answer 15

1. correspondent bank may be able to learn what laws govern the respondent bank, but it would be difficult to determine the degree of effectiveness of the supervisory regime (other countries version of FinCEN) of the respondent bank
2. Determining the effectiveness of the respondent’s AML controls
3. nesting

Question 16

what is nesting

Answer 16

correspondent bank has a respondent 1

respondent 1 is a correspondent to respondent 2

Question 17

why is this more risky

Answer 17

the original correspondent bank is even further removed from knowing the identities or business activity of respondent 2

Question 18

what is a payable through account

Answer 18

the respondent banks customers are permitted to conduct their own transactions through the respondent bank’s correspondent account without first clearing the transactions through the respondent bank

Question 19

in other words what

Answer 19

the foreign customers have the ability to directly control funds at the correspondent bank

Question 20

what are 4 elements of a PTA relationship that can threaten the correspondent banks ML defenses

Answer 20

1. PTAs with foreign institutions licensed in offshore financial service centers with weak or nascent banks supervision and licensing laws
2. PTA arrangements where the correspondent bank regards the respondent bank as its sole customer and fails to apply CDD to the customers of the respondent bank
3. PTA arrangements in which sub account holders have currency deposit and withdrawal privileges
4. PTAs used in conjunction with a subsidiary, representative or other office of the respondent bank, which may enable the respondent bank to offer the same services as a branch without being subject to supervision

Question 21

what are concentration accounts (omnibus accounts)

Answer 21

internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank

Question 22

what are these accounts frequently used to facilitate

Answer 22

transactions for private banking, trust and custody accounts, funds transfers, and international affiliates

Question 23

how do money laundering risks arise with these accounts

Answer 23

if the customer identifying information, such as name, transaction amount and account number, is separated from the financial transaction

Question 24

what happens if separation occurs

Answer 24

the audit trail is lost and accounts may be misused or administered improperly

Question 25

what are 8 safety methods that should be implemented if someone is using these accounts

Answer 25

1. requiring dual signatures on general ledger tickets
2. prohibiting direct customer access to concentration accounts
3. capturing customer transactions in the customer’s accout statements
4. prohibiting customers’ knowledge of concentration accounts or their ability to direct employees to conduct transactions through the accounts
5. retaining appropriate transaction and customer-identifying information
6. reconciling accounts frequently by an individual who is independent from the transactions
7. establishing a timely discrepancy resolution process
8. identifying and monitoring recurring customer names

Question 26

factors contributing to vulnerabilities of private banking (11 of them)

Answer 26

1. perceived high profitability
2. intense competition
3. powerful clientele
4. the high level of confidentiality associated with private banking
5. the close trust developed between relationship managers and their clients
6. commission-based compensation for RMs
7. a culture of secrecy and discretion developed by the RMs for their clients
8. the relationship managers becoming client advocates to protect their clients
9. use of private investment companies by clients to reduce transparency of the BO
10. clients maintaining personal and business wealth in numerous jurisdictions
11. clients being able to utilize and control numerous legal entities for personal and family estate planning purposes

Question 27

what do private banking customers often use to hold assets

Answer 27

private investment companies

Question 28

what are they

Answer 28

shell companies formed to maintain clients confidentiality and for various tax or trust related reasons

Question 29

what is a common technique used to structure

Answer 29

smurfing

Question 30

what is smurfing

Answer 30

multiple individuals making multiple cash deposits and/or buying multiple monetary instruments or bank drafts in amounts under the reporting threshold in an attempt to evade detection

Question 31

what is another method of structuring but on a smaller scale

Answer 31

micro structuring

Question 32

what is microstructuring

Answer 32

same as structuring but on a small level

instead of taking 18 grand and breaking into two deposits, the microstructurer breaks it into 20 deposits of $900 each

Question 33

what are credit unions

Answer 33

not for profit, member owned and operated democratic financial co-operatives

Question 34

who do credit unions only serve financial needs of

Answer 34

their members