Module 1 (Part 4) Flashcards
What is this topic on
Corporate Vehicles used to facilitate illicit finance
What are the two listed common corporate vehicles used to facilitate illicit finance?
LLCs
International Business Corporations (IBCs)
Why is the LLC an attractive vehicle
virtually anyone can own or manage an LLC,
including who?
including foreign persons and other business entities
What is an International Business corporation
entities formed outside of a person or businesses’ country of residence, typically in offshore jurisdictions
what are they used for
confidentiality or asset protection
what do IBCs permit the person to do
reduce transparency between tits owner in his/her home country and that of the offshore entity where the company is registered
Why are bearer bonds and bearer stock certificates or bearer shares prime money laundering vehicles
because on the surface they belong to the “bearer.”
What happens when bearer securities are transferred
The transfer takes place by physically handing over the bonds or share certificates
why does it occur this way
there is no registry of owners
so what does this basically mean
the person who holds the bonds or shares gets to claim ownership.
What are the two types of companies used to facilitate money laundering that is a well documented typology according to FATF
Shell company
Shelf company
What is a shelf company
a corporation that has had no activity. It has been created and put on the shelf.
What occurs then in the future with a shelf company
it is sold to someone who prefers a previously registered corporation over a new one
What is a Shell company/corporation
a company that at the time of incorporation has no significant assets or operations
What are trusts
Private fiduciary arrangements that allow a grantor (settlor) to place assets for future distribution to beneficiaries
What are the two categories of trusts
Revocable
Irrevocable
What does revocable mean
the grantor/settlor can terminate the trust
what about irrevocable
the grantor cannot terminate the trust once created
how are trusts seen
trusts are often seen as separate legal entities from the grantor
as such, what are they often useful for
estate planning and asset protection purposes
what do the instructions usually state
how the grantor/settlor would like the funds to be distributed and are limited only to a legal purpose
how can trusts be misused
they may be formed to take advantage of strict secrecy rules in order to conceal the identity of the true owner or beneficiary of the trust property
what are the other 3 ways they also used for
- to hide assets from legitimate creditors
- protect property from seizure under judicial action
- to mask the various links in the money flows associated with money laundering or tax evasion schemes
What is the most basic difference between terrorist financing and ML
the origin of funds
What does terrorist financing use funds for
an illegal political purpose
but what though
the money is not necessarily derived from illicit proceeds
What does money laundering always involve
the proceeds of illegal activity
what is the purpose of ML
to enable the money to be used legally
What do alternative remittance systems or informal value transfer systems commonly involve
the international transfer of value outside the legitimate banking system
what are they based on
trust
what is the concept that is discussed here
Hawala
When and where was Hawala created
centuries ago in india and china before Western financial systems were established to facilitate the secure and convenient movement of funds
What is hawala
one of the many alternative remittance systems or informal value transfer systems that are often associate with ethnic groups from Africa, asia, and the middle east
what does hawala mean
an Arabic word meaning change or transform
what is the hindi word for it and what does it mean
hundi which means collect
what is the term for the way the system operates
chiti banking
what does china refer to it as
chop shop banking
what does Thailand refer to it as
poey kuan
how does hawala work
people in various parts of the world using their accounts to move money internationally for third parties
so what happens
deposits and withdrawals are made through hawala bankers rather than traditional financial institutions
what are the three reasons why hawala is still in use today
- cheaper and faster money transmission
- lack of banking access in the remittance receiving country
- cultural preference and lack of trust in the formal banking system
what is there usually with hawala
no physical movement of currency
lack of formality with regard to verification and record-keeping
how does the money transfer take place
by coded information that is passed through chits, couriers, letters, faxes, emails, text messages, or online chat system
what is it followed by
some form of telecommunications confirmation
what can be used by the receiver to pick up the values in the other country
almost any document that carries an identifiable number
What are the 5 characteristics of charities or non profit organizations that make them vulnerable to misuse for terrorist financing
- enjoying the public trust
- having access to considerable sources of funds
- Being cash intensive
- frequently having a global presence, often in or next to areas exposed to terrorist activity
- often being subject to little or no regulation and/or having few obstacles to their creation
What does FATF recommend
that charities use formal bank accounts to store and transfer funds so that they are subject to the bank’s regulations and controls
what does this intern mean for banks where the accounts are stored
banks can treat non profits like other customers, apply their KYC rules and file SARs
