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ACAMs > Chapter 3 - AML/CFT Compliance Programs > Flashcards

Chapter 3 - AML/CFT Compliance Programs Flashcards

1
Q

FATF Recommendations for assessing risk (3 risk factors)

A
  • Customer risk factors (non resident, cash-intensive, complex ownership structure)
  • Geographic risk factors
  • Product, Service, Transaction or delivery channel risk factors
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2
Q

AML/CFT Risk Categories

A
  • Prohibited
  • High (enhanced controls required)
  • Medium (merits additional scrutiny)
  • Low (normal / expected activity)
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3
Q

AML / CFT Risk scoring

A

Institutions are encouraged to use scoring models (1-3 = low, 4-7= medium, 8-10 = high)

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4
Q

Example considerations triggering a modification of customer risk rating

A
  • Unusual activity (alerts, SARs)
  • Receipt of law enforcement inquiries
  • Transactions that violate economic sanctions
  • Activity not in line with ENPR
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5
Q

New products (characteristics that make new products susceptible to ML)

A
  • Enable high volume / value of txn
  • Client can transact with minimal oversight
  • Users can be anonymous
  • Allows value transfer to 3rd parties
  • Unusually complex
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6
Q

Elements of an ALM/CFT Program (4 Pillars)

A
  • System of internal policies, procedures and controls (1LoD)
  • Designated compliance function with compliance officer (2 LoD)
  • Ongoing employee training program
  • Independent audit function (3 LoD)
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7
Q

Elements of AML/CFT Program (5th pillar introduced by FinCEN)

A

Appropriate, risk based procedures for ongoing CDD (normally under pillar 1)

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8
Q

Elements of an AML/CFT program - FinCen Pillar 5 (3 elements)

A
  • Understanding ENPR to develop a risk profile of a client
  • Conducting ongoing monitoring to identify and report suspicious txns
  • Maintaining and updating customer information
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9
Q

AML Compliance Officer - Delegation of duties (typical subgroups)

A
  • Program Management
  • KYC (CRR, QA)
  • Screening, Monitoring
  • Investigations
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10
Q

AML/CFT Training - WHO TO TRAIN?

A
  • Client facing staff
  • Ops staff (esp i. transactions)
  • AML/CFT compliance staff
  • Independent testing staff
  • Board
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11
Q

FinCEN 2014 Advisory on Strengthening AML/CFT Compliance Culture (6 recommendations)

A
  1. ) Leadership must understand and support efforts
  2. ) Risk mitigation efforts must not be compromised by revenue interests
  3. ) Relevant info from businesses must be shared with compliance
  4. ) Compliance function must be adequately resourced
  5. ) Compliance program must be effective (e.g., use independent party to test)
  6. ) Leadership and staff must understand the importance of regulatory reporting
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12
Q

DFS Final Rule Part 504 (June 2016)

A

FIs must maintain Transaction Monitoring and Filtering Programs

Board of Directors must make annual certification to DFS that all steps have been taken to comply!

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13
Q

DFS 504 (8 minimum requirements for TMP)

A
  1. Identification of all data sources
  2. Validation of data accuracy
  3. Data extraction processes must be complete
  4. Governance and mgt oversight
  5. Vendor selection process
    6, Funding to design, implement and maintain a program
  6. Qualified personnel
  7. Periodic training
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14
Q

KYC - FATF Recommendation 10 (When to undertake CDD)

A
  • When establishing a client relationship
  • When carrying out occasional txn under certain circumstances
  • There is suspicious activity
  • doubts about the veracity of previously obtained information
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15
Q

7 main elements of a sound CDD program

A
  • Customer Identification (incl. source of Wealth)
  • Profiles (ENPR)
  • Customer Acceptance
  • Risk Rating
  • Monitoring
  • Investigations
  • Documentation
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16
Q

EDD - Customer Risk Factors (examples)

A
  • Non resident clients
  • Companies with bearer shares
  • Cash intensive businesses
  • Unusual circumstances (complex structures)
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17
Q

EDD - Geographic risk factors

A
  • High risk countries

- Countries that share a common border with known physical cross-border activity

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18
Q

EDD - Product, service, txn, delivery channel risk factors

A
  • Private Banking

- Non face to face

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19
Q

EDD - Additional data points to be collected (examples)

A
  • Source of funds
  • Identifying information
  • Financial statements
  • Description of business operations
  • Explanations for changes in account activity
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20
Q

For acceptance of higher risk customers, FATF recommends…

A

…senior management approval

…first payment to be carried out through an account n the customers name with a bank with high CDD standards

21
Q

Basel Committe Jan 2014 Publication: Sound Management of risks related to ML and FoT, states what in relation to KYC

A
  • Establish a systematic procedure for identifying and verifying customers, any person acting on their behalf and any beneficial owners
22
Q

BASEL Advice on global CDD programs

A
  • Consistent monitoring of client accounts globally across businesses
  • Oversight at parent level
23
Q

Global CDD program, how to deal with different standards in home and host countries

A

Offices in host locations should apply the higher standard (e.g. if home standard is higher apply this), if not possible, FI should confer with home country regulator

24
Q

Economic sanctions - categories

A
  • Targeted = aimed at named individuals
  • Sectorial = aimed at sectors of an economy
  • Comprehensive = generally prohibiting any trade with a country
25
Q

U.N. Sanctions

A

The UN can impose sanctions (U.N. Security Council)

26
Q

EU sanctions

A

EU can impose sanctions to achieve foreign policy and security objectives

27
Q

US Sanctions - what is SDN list?

A

Specially Designated Nationals and Blocker Persons

contains thousands of named individuals, businesses, aircrafts and ships

28
Q

Is OFAC a supervisory agency?

A

No, but works closely with supervisory agencies who test sanctions controls and can issue fines

29
Q

PEP screening - why difficult?

A
  • No comprehensive lists
  • PEPs not always clearly identifiable (e.g. no unique identifier, e.g. DoB)
  • PEPs try to disguise ownership (e.g. via shell companies)
30
Q

Does US consider accepting proceeds from corruption from PEPs a ML offence?

A

YES!

31
Q

Elements of SAR program (5)

A
  • procedure to identify suspicious txn
  • formal evaluation of each instance
  • documentation of decision
  • regular senior mgmt reporting
  • employee training
32
Q

ML/TF Red Flags - Unusual customer behaviour (examples)

A
  • Trying to find out record keeping / reporting requirements
  • Reluctant to proceed with a transaction once it’s clear that it has to be reported
  • Customer does not want to capture benefits (e.g. higher interest rates)
33
Q

ML/TF Red Flags - Unusual customer identification circumstances (examples)

A
  • Customer unwilling to provide full identification
  • Client adress outside the banks area of operation
  • Customer does not want statements to be mailed
34
Q

ML/TF Red Flags - Unusual Cash Transactions (examples)

A
  • Large cash deposit without having counted the cash
  • Frequent exchange of small into large bills
  • Large deposits inconsistent with customer business
  • Large cash transactions in different branches on the same day
35
Q

ML/TF Red Flags - Unusual non Cash deposits (examples)

A
  • Deposits large numbers of money orders / traveller cheques in sequential order
36
Q

Ml/TF Red Flags - Unusual wire transfer activity (examples)

A
  • wires received / sent to same person in different country
  • wires to / from high risk countries
  • Wire comes with instruction to convert funds to cheques and mail to 3rd party
  • Many small incoming, one large outgoing wire
37
Q

ML/TF red flags - unusual commercial account activity (examples)

A
  • Businesses that pay out cash not making cash withdrawals indicating another source of cash
  • Txns without business purpose
  • Businesses sharing one address
38
Q

ML/TF Red flags - unusual trade txns (examples)

A
  • commodities under / over market price

- Amendments to LOC just before payout

39
Q

ML/TF red flags - unusual investment activity (examples)

A
  • investment account used as pass through vehicle for wires (to offshore)
  • ## investor uninterested in fees, risk, commission etc.
40
Q

ML/TF red flags - unusual employee activity (examples)

A
  • employee exaggerates client credentials
  • ## employee involved in large number of unresolved exceptions
41
Q

ML / TF Red flags - insurance (examples)

A
  • Cash payments
  • refunds requested during policy legal cancellation period
  • change of beneficiary name not connected to policy holder
42
Q

ML/TF Red flags - Broker Dealers (examples)

A
  • Client acts on behalf of an undisclosed principal
  • ## Customer has multiple accounts in one or different names with txns between accounts
43
Q

ML/TF red flags - Unusual real estate activity (examples)

A
  • invalid documents to pay of mortgage balance
  • buyer of primary residence does not live in propertty
  • same notary receiving pmts from large number of borrowers
44
Q

ML/TF Red flags - Precious metal dealers (examples)

A
  • Diamonds originate from a market with no diamond mining
  • Volume of purchases / imports exceeds sales amount
  • Retail sales of gold bars, coins etc.
  • Open export settled by offsetting and receiving payment from 3rd partyy
45
Q

ML/TF Red Flags - Trade based ML (examples)

A
  • Payment from a 3rd party unrelated to transaction
  • Discrepancies invoice / goods shipped
  • Amended LOCs without justification
46
Q

ML/TF Red flags - Human smuggling (examples)

A
  • Multiple wires <3K from various locations to common beneficiary in US or in Mexico near US border
  • Beneficiaries in countries with high migrant population who are not nationals of this country
  • Unusual currency deposits followed by rapid withdrawal
  • ## Funnel accounts (multiple deposits in different cities / states, one withdrawal
47
Q

ML/TF Red Flags - unusual activity indicative of human trafficking

A
  • Unusal payroll behaviour (e.g, large deducts)
  • Outbound wires to countries with higher trafficking risk
  • Presence of funnel accounts
  • Transactions conducted by an individual escorted by a third party
48
Q

ML/TF red flags - unusual activity indicating terrorist financing

A
  • Parties to a transaction from countries known to support terrorism / individuals on sanctions lists
  • ## charities using funds not consistent with business purpose (doemstic / international ATM activity)

ACAMs (7 decks)

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