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Banking Law > Financial Crime > Flashcards

Financial Crime Flashcards

1
Q

What is financial crime?

A

Activities exploiting the financial system for illegal gains, such as fraud, money laundering, and terrorist financing.

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2
Q

Why are banks particularly vulnerable to financial crime?

A

Their role in processing financial transactions makes them susceptible to exploitation by criminals for money laundering and terrorist financing.

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3
Q

How does technology impact financial crime?

A

Technology aids criminals in exploiting systems but also helps regulators detect and prevent illegal activities.

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4
Q

What are the goals of conduct regulation in financial crime?

A

To deter misconduct, protect customer interests, and ensure market integrity.

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5
Q

What is the purpose of the Proceeds of Crime Act 2002 (POCA)?

A

To criminalize the handling of ‘criminal property’ through the stages of money laundering: placement, layering, and integration.

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6
Q

What does the Terrorism Act 2000 address?

A

It criminalizes terrorist financing, including activities that support or conceal funds for terrorism.

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7
Q

What is the Money Laundering Regulations 2017 designed for?

A

To implement EU standards, requiring customer due diligence (CDD) and risk-based approaches for financial institutions.

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8
Q

What is SYSC in FCA regulations?

A

A set of rules requiring firms to have effective systems and controls to counter financial crime risks.

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9
Q

What is the first stage of money laundering, placement?

A

Introducing illicit funds into the financial system, such as through deposits or cash-based businesses.

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10
Q

What happens during the layering stage of money laundering?

A

Complex transactions are used to obscure the origin of funds.

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11
Q

What is the integration stage of money laundering?

A

‘Cleaned’ money is re-entered into the legitimate economy through investments or purchases.

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12
Q

What is terrorist financing?

A

Providing or collecting funds with the intention of supporting terrorist activities, irrespective of whether acts occur.

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13
Q

What regulatory focus exists for terrorist financing?

A

Preventing misuse of financial systems to transfer funds for terrorism.

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14
Q

What is the role of UN conventions in combating terrorist financing?

A

Establishing international frameworks, such as the 1999 UN Suppression of Terrorism Financing Convention.

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15
Q

What is the role of the Financial Conduct Authority (FCA)?

A

To oversee AML compliance, impose fines, and ensure financial institutions meet their obligations.

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16
Q

What does the National Crime Agency (NCA) do?

A

It handles enforcement and intelligence gathering, with powers under the Criminal Finances Act 2017.

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17
Q

What is Customer Due Diligence (CDD)?

A

The process of identifying and verifying customers and beneficial owners.

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18
Q

When is Enhanced Due Diligence (EDD) required?

A

For high-risk customers, such as politically exposed persons (PEPs) or those in high-risk jurisdictions.

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19
Q

What is Simplified Due Diligence (SDD)?

A

A reduced level of CDD applied to low-risk customers, such as government entities.

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20
Q

How does the Senior Managers Regime address financial crime?

A

By making the monitoring of AML/CTF compliance a senior management responsibility.

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21
Q

What are the responsibilities of the Money Laundering Reporting Officer (MLRO)?

A

To ensure the proper design and implementation of anti-money laundering policies.

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22
Q

What is a ‘prescribed responsibility’ under the Senior Managers Regime?

A

A senior manager must ensure the firm complies with financial crime obligations.

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23
Q

What systemic risks does financial crime pose?

A

It undermines market stability and public trust.

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24
Q

What is the moral hazard in financial crime prevention?

A

The risk that reliance on systemic safeguards reduces diligence in preventing financial crime.

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25
Q

How do cultural deficiencies exacerbate financial crime?

A

A compliance-focused culture often fails to proactively promote ethical behavior.

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26
Q

What is the Financial Action Task Force (FATF)?

A

An international body that sets standards for AML and CTF, including 40 Recommendations.

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27
Q

How do EU directives contribute to AML/CTF efforts?

A

They harmonize AML/CTF standards across member states, based on FATF guidelines.

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28
Q

What is a risk-based approach in financial crime prevention?

A

Tailoring measures based on customer and transaction risk levels.

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29
Q

What is a Suspicious Activity Report (SAR)?

A

A report filed when transactions are suspected of involving financial crime.

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30
Q

Why is staff training important in financial crime prevention?

A

To help employees identify and mitigate financial crime risks effectively.

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31
Q

What was established in R v Loizou (2005)?

A

The need to establish ‘criminal property’ under POCA.

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32
Q

Why is the Standard Bank (2014) case significant?

A

It was the first UK deferred prosecution agreement for AML failures.

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33
Q

What are Unexplained Wealth Orders (UWOs), introduced in 2017?

A

Tools that allow the investigation of assets where ownership legitimacy is unclear.

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34
Q

What is the importance of cultural reforms in banking ethics?

A

They help rebuild trust and emphasize self-regulation alongside compliance.

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35
Q

What does the Group of Thirty Report advocate for?

A

Transparent practices, ethics-driven leadership, and self-regulation in banking.

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36
Q

How do remuneration incentives impact ethical behavior?

A

Aligning pay with ethical behavior discourages financial crime.

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37
Q

What is transaction monitoring?

A

Real-time tracking of transactions to identify anomalies.

38
Q

How does screening software help in AML?

A

By flagging high-risk customers or politically exposed persons (PEPs).

39
Q

Why are periodic audits important for AML/CTF?

A

They ensure that policies and systems meet regulatory standards.

40
Q

What are the emerging risks in financial crime prevention?

A

New challenges like cryptocurrency laundering and evolving regulatory requirements.

41
Q

What does the Proceeds of Crime Act 2002 (POCA) regulate?

A

Criminalizes money laundering activities, including concealing or transferring criminal property.

42
Q

What does the Terrorism Act 2000 regulate?

A

Criminalizes the financing of terrorism.

43
Q

What are the obligations under the Money Laundering Regulations 2017?

A

Requires Customer Due Diligence (CDD) for new accounts and transactions.

44
Q

What precedent was set in R v Loizou (2005)?

A

Funds must be proven as ‘criminal property’ to establish money laundering offences.

45
Q

What was the significance of K v National Westminster Bank Plc (2006)?

A

Banks are obligated to report suspicious transactions, overriding contractual duties.

46
Q

What was the outcome of the HSBC AML failure case (2012)?

A

HSBC was fined $1.9 billion for facilitating money laundering, including drug trafficking funds.

47
Q

What principle was emphasized in the Standard Chartered Iranian Transactions case (2012)?

A

Banks must avoid transactions linked to sanctioned entities or jurisdictions.

48
Q

What is Customer Due Diligence (CDD)?

A

Verifying customer identities, understanding the nature of their business, and monitoring transactions.

49
Q

When is Enhanced Due Diligence (EDD) required?

A

For high-risk customers such as Politically Exposed Persons (PEPs) or those in high-risk jurisdictions.

50
Q

What role does the Money Laundering Reporting Officer (MLRO) play?

A

Oversees AML compliance, including monitoring and reporting suspicious activities.

51
Q

What is the purpose of a Suspicious Activity Report (SAR)?

A

A formal report submitted to the National Crime Agency (NCA) to flag potentially illicit activities.

52
Q

What responsibility does SM&CR impose on senior managers?

A

Personal accountability for ensuring that the institution complies with AML obligations.

53
Q

How does SM&CR complement AML regulations?

A

Enhances the accountability of senior managers and emphasizes proactive oversight of compliance systems.

54
Q

Why are banks considered gatekeepers in financial crime prevention?

A

They monitor, identify, and report suspicious transactions to disrupt money laundering activities.

55
Q

What are the three stages of money laundering?

A

Placement: Introducing illicit funds into the financial system. Layering: Obscuring the origin of funds through complex transactions. Integration: Reintroducing ‘cleaned’ money into the legitimate economy.

56
Q

What role does the Financial Action Task Force (FATF) play?

A

Establishes global standards for AML and Counter-Terrorist Financing (CTF) through its 40 Recommendations.

57
Q

What is the importance of international cooperation in AML?

A

Prevents jurisdictional loopholes that criminals exploit for cross-border money laundering.

58
Q

What penalties can banks face for AML breaches under POCA?

A

Criminal charges, fines, and reputational damage for facilitating money laundering.

59
Q

How are fines used as a deterrent in AML enforcement?

A

Fines incentivize banks to adopt rigorous internal controls to prevent financial crime.

60
Q

Why is personal liability for managers significant in AML enforcement?

A

Ensures that individuals in leadership positions are directly accountable for compliance failures.

61
Q

What challenges do banks face in implementing AML regulations?

A

Balancing compliance obligations with customer service and operational efficiency.

62
Q

What is the risk of over-reliance on automated systems for AML?

A

Potential complacency, with less emphasis on human judgment and active monitoring.

63
Q

What ethical considerations underpin AML regulations?

A

Preventing banks from being complicit in facilitating crimes and protecting the integrity of financial markets.

64
Q

How does remuneration affect compliance culture in banks?

A

Aligning bonuses and rewards with compliance goals discourages unethical behavior.

65
Q

What new challenges does cryptocurrency pose to AML efforts?

A

Anonymity and decentralized transactions make monitoring and regulation more difficult.

66
Q

How might FinTech innovations impact AML enforcement?

A

Improved monitoring tools but also increased opportunities for criminal exploitation of new systems.

67
Q

What is Cranston’s view on AML enforcement?

A

Fines are effective deterrents but can create conflicts between compliance and operational goals.

68
Q

What does Amao argue about reliance on fines?

A

Fines alone are insufficient; personal liability for senior management is necessary for true accountability.

69
Q

What is the ultimate goal of AML regulations?

A

To protect the financial system’s integrity and prevent its misuse for criminal purposes.

70
Q

How do AML laws balance deterrence and operational flexibility?

A

By imposing strict compliance measures while encouraging efficient processes and ethical culture.

71
Q

How does the FCA contribute to AML enforcement?

A

The FCA supervises regulated firms to ensure they have robust systems to prevent money laundering.

72
Q

What is the role of the National Crime Agency (NCA) in AML?

A

The NCA receives and investigates Suspicious Activity Reports (SARs).

73
Q

What are the primary goals of a Suspicious Activity Report (SAR)?

A

To flag potential money laundering activities to the NCA.

74
Q

How do banks use transaction monitoring systems?

A

Identifying unusual patterns of behavior or transactions.

75
Q

What did Barclays Bank v Quincecare Ltd (1992) establish?

A

Banks have a duty to question transactions when they suspect fraud or improper activity.

76
Q

What did R v Griffiths (2013) clarify about AML compliance?

A

Reinforced that failing to report suspicious activities can result in criminal charges for negligence or willful blindness.

77
Q

How does the EU Securitisation Regulation 2017/2402 support AML efforts?

A

Introduces transparency and risk assessment requirements for financial products.

78
Q

What is the Wolfsberg Group, and how does it relate to AML?

A

A global association of banks that develops frameworks and guidance for effective AML practices.

79
Q

What are the key elements of an effective AML risk assessment?

A

Identifying high-risk clients or jurisdictions.

80
Q

What industries outside banking are subject to AML regulations?

A

Real estate agents, legal professionals, casinos, and high-value goods dealers.

81
Q

How do cryptocurrencies challenge traditional AML measures?

A

Provide anonymity in transactions, making tracing difficult.

82
Q

What is blockchain analytics, and how can it aid AML?

A

Tools used to trace cryptocurrency transactions on public ledgers.

83
Q

What responsibilities does the Senior Managers Regime (SM&CR) impose regarding AML?

A

Personal accountability for implementing effective AML controls.

84
Q

How does clawback in remuneration relate to AML compliance?

A

Allows financial institutions to reclaim bonuses from senior managers if AML failings emerge.

85
Q

Why is an ethical culture critical for AML compliance?

A

Encourages proactive identification and reporting of risks.

86
Q

How does treating customers fairly (TCF) integrate with AML practices?

A

Ensures financial products are not used for illegal purposes.

87
Q

What sanctions can be imposed for AML non-compliance?

A

Fines, criminal charges, suspension of licenses, and reputational damage.

88
Q

How do international sanctions impact AML efforts?

A

Restrict transactions with certain countries, individuals, or entities.

89
Q

What trends are shaping the future of AML regulations?

A

Increased use of AI and machine learning for transaction monitoring.

90
Q

How might FinTech disrupt traditional AML practices?

A

Creates opportunities for innovative compliance solutions.

Banking Law (10 decks)

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