Module 1 (Part 1) Flashcards
What are the 4 Parts of the CAMS Examination
- Risks and Methods of Money Laundering and Terrorist Financing
- Compliance Standards for Anti-Money Laundering and Combating the Financing of Terrorism
- AML/CFT Compliance Programs
- Conducting and Responding to Investigations
What is money laundering
involves taking criminal proceeds and disguising their illegal sources in order to use the funds to perform legal or illegal activities
what is it simply put?
the process of making dirty money look clean
what is the Palermo Convention known as
The united Nations 2000 Convention Against Transnational Organized Crime
What does the organization define money laundering as
The conversion or transfer of property knowing it is derived from a criminal offense, for the purpose of concealing or disguising its illicit origin or of assisting any person who is involved in the commission of the crime to evade the legal consequences of his or her actions
What is the second part of the definition
The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property knowing that it is derived from a criminal offense
What is the third part of the definition
The acquisition, possession or use of property, knowing at the time of its receipt that it was derived from a criminal offense or from participation in a crime
What are the 7 listed criminal activities that can lead to money laundering
- Illegal arms sales
- Narcotics Trafficking
- Contraband Smuggling and other activities related to organized crime
- Embezzlement
- Insider Trading
- Bribery
- Computer Fraud Schemes
What are the three stages of Money Laundering
- Placement
- Layering
- Integration
What is Placement
The physical disposal of cash or other assets derived from criminal activity
what happens during this phase
The money laundering introduces the illicit proceeds into the financial system
how is this often accomplished
placing the funds into circulation through formal financial institutions, casinos, and other legitimate businesses, both domestic and international
What is layering
The separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds
What does this second stage involve
converting the proceeds of the crime into another form and creating complex layers of financial transactions to muddy/confuse the source and ownership of funds
What is the definition of integration
Supplying apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transactions
what does this stage entail
using laundering proceeds in seemingly normal transactions to create the perception of legitimacy
What examples are given
purchase of luxury assets, financial investments, industrial/commercial investments
What is consequence 1 of money laundering
Increased exposure to organized crime and corruption
what does successful money laundering enhance
the profitable aspects of criminal activity
what is consequence 2 of money laundering
undermining the legitimate private sector
what is consequence 3
weakening financial institutions
what is consequence 4
dampening effect on foreign investments
what is consequence 5
loss of control of, or mistakes in, decisions regarding economic policy
what is consequence 6
economic distortion and instability
consequence 7
loss of tax revenue (tax evasion)
consequence 8
risks to privatization efforts
what does this mean
money laundering threatens the efforts of many states trying to introduce reforms into their economies through the privatization of state owned properties such as land, resources, or enterprises
What are the 4 risks of money laundering to financial institutions
- Reputational
- Operational
- Legal
- Concentration Risk
what is reputational risk
the potential that adverse publicity regarding an organization’s business practices and associations, whether accurate or not, will cause a loss of public confidence in the integrity of the organization
What is operational risk
The potential for loss resulting from inadequate internal processes, personal or systems, or from external events
what is legal risk
the potential for lawsuits, adverse judgments, unenforceable contracts, fines and penalties generating losses, increased expenses for an organization, or even the closure of the organization
What are the two different types of channels listed in which illicit money can move through numerous different channels
Commercial products
Financial Intermediaries
What are the 5 commercial products listed
- Checking Accounts
- Savings accounts
- Brokerage accounts
- Loans
- Wire Transfers
What are the 5 Financial Intermediaries
- Trusts
- Company Service Providers
- Securities Dealers
- Banks
- Money Services Businesses
What are the 5 areas listed for money laundering through banks
- Electronic Fund Transfers
- Correspondent Banking
- Private Banking
- Politically Expose Persons
- Structuring
What is an electronic fund transfer
any transfer of funds that is initiated by electronic means
such as what
Automated Clearing House (ACH)
ATM
Electronic terminals
Mobile telephones
telephones or magnetic tapes
why are electronic funds transfers effective
illicit fund transfers can be easily hidden among the millions of legitimate transfers that occur each day
what can money launderers also use electronic transfers for
to move the funds from one account to another, from one bank to another, and from one jurisdiction to another
what does this do
it layers the transactions
how does it make it more difficult for law enforcement and investigative agencies
they cannot trace the origin of funds as easily due to the layering
What is the second area of money laundering through banks
Correspondent banking
What is correspondent banking
the provision of banking services by one bank (the correspondent bank) to another bank (the respondent bank)
What is the benefit of correspondent banking for banks
by establishing multiple correspondent relationships globally, banks can undertake international financial transactions for themselves and for their customers in jurisdictions where they have no physical presence
what do large international banks typically act as
correspondents for thousands f other banks around the world
What is the first main reason correspondent banking is vulnerable to money laundering
By their nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution
what is the second reason
the amount of money that flows through correspondent accounts can pose a significant threat to financial institutions as they process large volumes of transactions for their customers’ customers
What is the example of Correspondent Banking
ABC Corp (Country A) USD
Bank 1 (Country A)
Correspondent Bank (Country B) Changes from USD to Euros
Respondent Bank (country B)
XYZ Corp (Country B) Euro
What is the third area of money laundering through banks
Private banking
What private banking
it provides highly personalized and confidential products and services to wealthy clients at fees that are often based on “assets under management.”
What is significant about offshore or international financial centers
private banking customers are often “non-residents”
what does this mean
they conduct their banking in a country outside the one in which they reside
how may their assets move
overseas where they are held in the name of corporate vehicles like private investment companies
where can these private investment companies be established
in secrecy havens
wat are private investments companies
corporations established by individual bank customers and others in offshore jurisdictions to hold assets
What is the fourth area of money laundering through banks
PEPs
What are the two types of PEPs
Foreign
Domestic
what are Foreign PEPs
individuals who are or have been entrusted with prominent public functons by a foreign country
what are the 6 examples listed
- heads of state or of government
- senior politicians
- senior government
- Judicial or military officials
- Senior executives of state owned corporations
- important political party officials
What are domestic PEPs
Individuals who are or have been entrusted domestically with prominent public functions
What are the 6 examples listed
- heads of state or of government
- senior politicians
- senior government
- Judicial or military officials
- Senior executives of state owned corporations
- important political party officials
What is the Fifth and final area of money laundering through banks
Structuring
What is structuring
Designing a transaction to evade triggering a reporting or recordkeeping requirement by the financial institution
True or false, Structuring is possibly the most commonly known money laundering method
True
Since it is a crime in many countries what must a financial institution do
report the activity by filing a SAR
