Chapter 1 (Part 1) Flashcards
What is an important preqquisite in the definition of money laundering
knowledge
what can also be used to prove knowledge
willful blindness
what is it defined as
deliberate avoidance of knowledge of the facts
or personal indifference
how does ML undermine the legitimate private sector
front companies have advantages because they have access to substantial illicit funds, allowing them to subsidize products and services sold at below-market rates.
what is concentration risk
the potential for loss results from too much credit or loan exposure to one borrower or group of related borrowers.
what does the yates memo do
reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.
what does it also note
the resolution of a corporate case does not provide protection to individuals from criminal or civil liability
what are 6 indicators of money laundering using electronic transfers
- funds transfers to or from a financial secrey haven, high risk geographic location without a business reason
- large, incoming funds transfers on behalf of a foreign client with little or no explanation or apparent reason
- many small incoming transfers of funds are received or deposits are made using checks and money orders.
- funds activity is explained, repetitive or shows unusual patterns
- payments or receipts are received that have no apparent link to legitimate contracts, goods or services
- funds transfers are sent or received from the same person to or from different accounts
why do remotely deposited checks lend themselves to potential abuse
the money launderers no longer need to go into the bank and risk detection
why else
once a money laundering has RDC capabilities, he or she can move checks with ease through an account
what also might be possible
to set up multiple imaging devices that will enable a money launderer to allow others to process checks through the system
what else is a concern regarding sanctions
without proper controls, RDC can also be misused to facilitate sanctions violations
what is the more prominent risk with RDC besides ML
fraud
what should RDC be reviewed for
sequentially numbered checks and money orders without payees
what are 3 other risks of correspondent banking relationships other than the two main risks
- 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
- Determining the effectiveness of the respondent’s AML controls
- nesting
what is nesting
correspondent bank has a respondent 1
respondent 1 is a correspondent to respondent 2
why is this more risky
the original correspondent bank is even further removed from knowing the identities or business activity of respondent 2
what is a payable through account
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
in other words what
the foreign customers have the ability to directly control funds at the correspondent bank
what are 4 elements of a PTA relationship that can threaten the correspondent banks ML defenses
- PTAs with foreign institutions licensed in offshore financial service centers with weak or nascent banks supervision and licensing laws
- 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
- PTA arrangements in which sub account holders have currency deposit and withdrawal privileges
- 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
what are concentration accounts (omnibus accounts)
internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank
what are these accounts frequently used to facilitate
transactions for private banking, trust and custody accounts, funds transfers, and international affiliates
how do money laundering risks arise with these accounts
if the customer identifying information, such as name, transaction amount and account number, is separated from the financial transaction
what happens if separation occurs
the audit trail is lost and accounts may be misused or administered improperly
what are 8 safety methods that should be implemented if someone is using these accounts
- requiring dual signatures on general ledger tickets
- prohibiting direct customer access to concentration accounts
- capturing customer transactions in the customer’s accout statements
- prohibiting customers’ knowledge of concentration accounts or their ability to direct employees to conduct transactions through the accounts
- retaining appropriate transaction and customer-identifying information
- reconciling accounts frequently by an individual who is independent from the transactions
- establishing a timely discrepancy resolution process
- identifying and monitoring recurring customer names
factors contributing to vulnerabilities of private banking (11 of them)
- perceived high profitability
- intense competition
- powerful clientele
- the high level of confidentiality associated with private banking
- the close trust developed between relationship managers and their clients
- commission-based compensation for RMs
- a culture of secrecy and discretion developed by the RMs for their clients
- the relationship managers becoming client advocates to protect their clients
- use of private investment companies by clients to reduce transparency of the BO
- clients maintaining personal and business wealth in numerous jurisdictions
- clients being able to utilize and control numerous legal entities for personal and family estate planning purposes
what do private banking customers often use to hold assets
private investment companies
what are they
shell companies formed to maintain clients confidentiality and for various tax or trust related reasons
what is a common technique used to structure
smurfing
what is smurfing
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
what is another method of structuring but on a smaller scale
micro structuring
what is microstructuring
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
what are credit unions
not for profit, member owned and operated democratic financial co-operatives
who do credit unions only serve financial needs of
their members
