Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ACAMs > Chapter 1 - Risks and Methods of ML and TF > Flashcards

Chapter 1 - Risks and Methods of ML and TF Flashcards

1
Q

Definition of Money Laundering (Palermo Convention)

A

a) transfer of property, knowing it is derived from a criminal offense
b) concealment of nature, source, location, disposition, rights with respect to ownership of property that is derived from a criminal offense
c) acquisition, possession or use of property, knowing at the time of its receipt that it was derived from a criminal offense

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

“Knowledge” of criminal source of funds

A

FATF 40 Rec. & 4th AMLD: “Knowledge” includes what may be inferred from objective factual circumstances

Some jurisdictions also include “willful blindness / deliberate avoidance of knowledge”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Three stages of money laundering

A

Placement - Layering - Integration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Three stages of money laundering - Placement

A

Physical disposal of cash or other assets, introduction into the financial system:

  • Blending of funds (legal and illegal money in cash intensive businesses)
  • Foreign exchange
  • Small deposit placements
  • Repayment of loans
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Stages of money laundering - layering

A

Separation of illicit proceeds from their source

  • electronically moving the funds / splitting up
  • converting cash into monetary instruments, shares, bonds
  • investing in legitimate businesses
  • using shell companies to obscure owner
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Stages of money laundering - integration

A

Re-entry of funds into the economy in what appear to be normal business or personal transactions

  • Purchasing luxury assets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Macroeconomic consequences of money laundering

A
  • Increased exposure to organised crime and corruption
  • Undermining the legitimate private sector
  • Weakening of financial institutions
  • Dampening effects on foreign investments
  • Loss of control in economic policy (if dirty money large part of fiscal sector)
  • Economic distortion
  • Loss of tax revenue
  • Risks to privatisation efforts
  • Reputation risks for the country
  • Risk of international sanctions
  • Social costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Characteristics of countries with weak ML controls

A
  • Limited number of predicate crimes for ML
  • Limited types of institutions covered by ML laws
  • Little enforcement / low penalties
  • Limited regulatory capacity for effective supervision
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Consequences of ML for Banks

A
  • Reputational risk
  • Operational risks (cut off from clearing, higher borrowing costs)
  • Legal risks
  • Concentration risks (unknown beneficial owners)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Individual accountability for ML controls

A
  • 2014 FinCEN (Financial Crime Enforcement Network) and US FIU issue advisory that entire staff is responsible for AMl/CFT compliance
  • 2015 “Yates” memo (investigations into organisations should also focus on individuals)
    2015 UK SMR
  • DFS 2016 rule to have TM monitoring and sanctions filtering in place
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Methods of Money Laundering - Remote Deposit Capture

A
  • Depositing of scanned cheques
  • Increased risk as it minimises face-to-face contact in the branch
  • MLs can set up multiple devices / accounts to deposit cheques
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Methods of Money Laundering - Correspondent Banking

A
  • No firsthand knowledge of underlying clients
  • Large amounts
  • Nesting
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Methods of money laundering - payable through accounts (PTA)

A
  • Respondent bank client has direct access to correspondent account
  • ## Unlimited number of sub-account holders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Methods of money laundering - concentration accounts

A

Omnibus accounts to facilitate transactions, issue if transaction is is separated from identifying information, banks must put controls in place (e.g., no direct client access to concentration accounts)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Methods of money laundering - Private Banking

A
  • Confidentiality
  • Personal relationships with RMs
  • Powerful individuals etc.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Methods of money laundering - Private Investment Companies

A
  • Shell companies
  • Offshore
  • Limited transparency on beneficial owner
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

PEPs - Types

A

Foreign PEPs
Domestic PEPs
Individuals who have been entrusted with a prominent public function

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Methods of money laundering - Structuring (Definition)

A

Designing a transaction to evade triggering a reporting or record keeping requirement. Crime, SAR must be filed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Methods of money laundering - Structuring (examples)

A
  • Single customer breaks down one transaction (e.g., cash deposit) into multiple smaller below reporting threshold
  • Transaction broken down between multiple different people
  • Wealthy chinese man sends 1m in 40k tranches to different people in UK (to avoid ccy controls)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Methods of money laundering - microstructuring

A

Breaking txn down into many very small amounts, e.g. individual $20 deposits via ATM
Detection: check for lots of small amounts being deposited and withdrawn frequently

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Use of credit cards in ML stages

A

Less likely in placement (no cash), more likely in layering and integration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

TPPP - examples of risks

A
  • Multiple bank relationships / limits traceability
  • International ACH
  • High return rates from unauthorised transactions for a criminal merchant…?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

MSBs - services provided

A
  • Currency exchange
  • Money Transmission
  • Check cashing
  • Money order services (prepaid cheque with named beneficiary)
  • Prepaid cards seller
  • Payday loans
  • Bill payments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Prepaid cards (open / closed loop)

A

open: cards can be used anywhere, closed: cards can only be used at one retailer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

MSB - risk factors

A
  • can be completely internet based
  • historically targeted at underbanked market
  • small, can be a one shop business (therefore banks must ensure AML procedures are in place)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

MSBs - principals / agents

A
  • Principal: issuing money orders etc., must have written AML procedures, appoint BSA officer etc.
  • Agent: offering MSB services through another MSB, agent must follow same regulations as principal MSB
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Examples of how MSBs can be used by criminals

A
  • cAshing fraudulent cheques without asking for proof of identity
  • International remittances
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Insurance products (use in ML)

A

Some life insurance products offer investments, cash payouts to nominate beneficiaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Securities Broker Dealers in ML

A
  • Generally used after placement
  • Risk factors: international, speed of transactions, ease of converting cash into securities, routine use of wire transfers, use of trustee / nominee accounts concealing identity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Wash trading / Offsetting transactions

A

Entry of matching buys and sells in securities that create the illusion of trading

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Casinos - ML

A
  • Placement and Layering (buying chips with cash, then requesting repayment via cheque, draw down credit from a chain of casinos in another country)
32
Q

Junkets

A

Organisers offering trips to casinos, sometimes they collect credit via pooled funds (super risky)

33
Q

Casinos - suspicious behaviour

A
  • purchasing chips in small amounts, engage in minimal gaming, then request casino cheque
  • using casino solely for banking purposes
  • two customers placing cancelling bets (appear to be gambling but hedging their bets)
  • Request casino cheque without specified payee
34
Q

Online gambling - risk profile

A

Site operators are unregulated offshore firms with accounts at offshore banks which in turn use reputable correspondent banks

35
Q

Precious metal dealers - why is gold attractive for money launderers?

A
  • gold provides opportunity to convert illicit cash into anonymous, liquid asset
  • gold keeps it’s value regardless es form
36
Q

Precious metal dealers - transactions requiring specific attention

A
  • Payments to persons other than the owner (gold owner deposits gold but requests payment to be made to a different person)
  • Precious metal pool accounts
37
Q

Precious metal dealers - how does money laundering happen?

A
  • Direct purchase of gold / diamonds with illicit money
  • forged or fraudulent invoicing
  • co-mingling of legitimate and illicit funds in accounts and making international payments
38
Q

Travel agencies - risk typologies

A
  • Purchasing an expensive airline ticket for another person who then asks for a refund
  • False bookings from networks of tour operators to justify significant payments from foreign travel groups
39
Q

Vehicle sellers - down selling

A
  • Part exchanging expensive vehicle for cheaper one and receiving difference in cas
40
Q

Gatekeepers (Notaries, Accountants, Auditors, Lawyers) - activities useful to money launderers

A
  • creating corporate vehicles
  • Buying or selling property
  • performing financial transactions
  • providing financial and tax advice
  • setting up / managing a charity
41
Q

Gatekeeper red flags (the parties to a transaction)

A
  • Incorporated in high risk country
  • Connection without apparent business reason
  • Appear in multiple transactions in a short time
42
Q

Gatekeeper red flags (source of funds)

A
  • unusual payment arrangements
  • collateral in high risk country
  • high capitalisation for new company without reason
43
Q

Gatekeeper red flags (the lawyer)

A
  • Inexperienced
  • Being paid higher
  • Frequently changes by client
44
Q

Gatekeeper red flags (retainer)

A
  • unusal tramsaction wrt size, frequency, execution
  • no connection to clientks business
  • limited documentation
  • last minute changes to instructions
  • no regards for fees, tax impact etc.
45
Q

Trust and Company Service Providers (Definition)

A

Participate in the creation, administration and management of corporate vehicles (formation agent of legal persons, director / secretary of a company, providing office address)

46
Q

Trust and Company Service Providers (red flags)

A
  • Limited oversight / regulation of TCSPs

- Inconsistent record keeping

47
Q

TCSPs (indicators for ML)

A
  • txn involving complex LE structures
  • Consulting fees paid to shell companies
  • Use of TCSPs in jurisdictions that do not require information on beneficial ownership of corp vehicles
48
Q

Real Estate - Risk factors

A
  • Use of escrow accounts

- Large amounts

49
Q

Real Estate - Reverse flip

A
  • Seller sells £2m property for officially reported £1m
  • ML can pay seller £2m (secretly passing on £1m)
  • After holding a while, launderer sells property for 2m
50
Q

Real Estate (ML methods)

A
  • Use of 3rd party straw buyers
  • Use of loans and mortgages
  • Manipulation of property values
  • Hiding beneficial ownership of property via corporate vehicles
51
Q

Free trade zones - definition

A

Areas in which goods may be handled, stored, manufactured, traded without customs duty

52
Q

Free trade zones - risk factors

A
  • Inadequate AML safeguards
  • Minimal oversight
  • Weak procedures to inspect goods, record keeping etc.
53
Q

Trade based money laundering - FATF definition

A

Disguising the proceeds of crime and moving value through the use of trade transactions

54
Q

Trade based money laundering - 6 methods

A
  1. ) Over / under invoicing to transfer value between buyer and seller
  2. ) Over / short shipping
  3. ) Ghost shipping (Fictitious trades)
  4. ) Shell companies
  5. ) Multiple invoicing
  6. ) Black market trades / Peso exchange (domestic transfer is used to pay for foreign goods)
55
Q

Funnel account

A

account in one geographic area receiving multiple cash deposits, funds withdrawn in a different jurisdiction with little time elapsing

56
Q

Black Market Peso Exchange

A
  • USD derived from drug sales deposited with US banks by Peso Broker
  • Peso broker sells these to Mexican importers to pay for US manufactured goods in USD
  • Goods shipped and sold in Mexico
  • Proceeds in Pesos given to drug trafficker in Mexico
57
Q

Prepaid cards - risk factors

A
  • Anonymity

- Global access to cash through ATMs

58
Q

E-Money (definition)

A
  • Card based

- Online account based

59
Q

E-Money (Risk Factors)

A
  • high / no transaction limits
  • Frequent cross border txn
  • Higher risk merchants
  • funding lacks verification (e.g., cash)
60
Q

New payments methods (risk factors)

A
  • Non face to face
  • Global reach
  • Funding methods
  • Access to Cash
  • Segmentation of services (several parties in the transaction)
61
Q

New Payment Methods (Risk Mitigation)

A
  • CDD
  • Loading, value, geographical limits
  • Limit allowable funding sources
  • Record keeping, txn monitoring, reporting
62
Q

Virtual ccy - classification

A
  • Centralised / Decentralised

- Convertible (Bitcoin) / Non convertible (World of Warcraft Gold)

63
Q

Corporate Vehicles used to facilitate ML - IBCs

A

International Business Corporations - formed outside a person’s or business countrynof residence, typically offshore jurisdiction

64
Q

Bearer Shares

A

Person who holds the shares physically is the owner, no register of owners available

65
Q

Shell company - definition

A

Company that at the time of incorporation has no significant assets or operations

66
Q

Shelf company - definition

A

Company with no activity to be sold to someone who prefers a previously registered entity

67
Q

Shell companies - risk factors

A
  • Proceeds of crime can be converted into alternative assets
  • Perception that illicit funds are created from legitimate business activity (especiallu for cash intensive businesses)
  • Shell companies can be used for a wide range of activities (loans, mortgages, wires etc.)
  • Possible to conceal identity (use nominees as owners)
68
Q

Trusts - definition

A

Private fuduciary arrangements that allow a grantor to place assets for future distribution to beneficiaries (normally, 3rd party will manage the funds)

69
Q

Trusts - use in ML

A
  • Conceal identity, hide assets (by transferring title to a person named by the trustee)
70
Q

Terrorist Financing - FATF recommendation 5

A

Encouraging to classify terrorist financing as money laundering predicate offenses

71
Q

TF - similarities to ML

A

Terrorists also need to disconnect source and use of funds (to maintain access to funds)

72
Q

Alternative Remittance Systems / Informal Value Transfer Systems

A

Transfer of money outside the financial system, based on trust

73
Q

Hawala - risk factors

A

No verification or record keeping

74
Q

Charities - risk factors

A
  • Public trust
  • Access to funds
  • Cash intensive
  • Global presence in developing economies
  • unregulated
75
Q

Foreign terrorist fighters - funding

A
  • Crowd funding

- P2P lending

ACAMs (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions