Module 3 (Part 1) Flashcards
What does this module cover
AML/CFT Compliance Programs
what does FATF and numerous member countries urge for effective AML/CFT compliance
risk based controls
What does a risk based approach require financial institutions to have
systems and controls that are commensurate with the specific risk of money laundering an terrorist financing facing them
Per FATF, what has to be taken when the risk of money laundering or terrorist is higher
enhanced CDD measures
what are the 3 risk factors FATF recommends considering when assessing risk
- Customer risk factors
- Country or geographic risks
- Product, service, transaction or delivery channel risk
What are the customer risk factors
Non-resident customers, cash intensive businesses, complex ownership structure of a company, companies with bearer shares
what is the country or geographic risks
countries with inadequate AML/CFT systems, countries subject to sanctions or embargos, countries involved with funding or supporting of terrorist activities, or those with significant levels of corruption
what about Product, service, transaction or delivery channel risk factors
such as private banking, anonymous transactions, and payments received from unknown third parties
What are the four AML/CFT Risk categories
- Prohibited.
- High Risk
- Medium Risk
- Low Risk
What does Prohibited level indicate
that the institution will not tolerate any dealings of any kind given the risk.
What else could this category include
transactions with countries subject to economic sanctions or designated as state sponsors of terrorism
What is the deal with high risk
the risks are significant but are not necessary prohibited
what may high risk customers include
PEPs or certain types of MSBs or cash intensive businesses
what about high risk products and services
may include correspondent banking and private banking
what do medium risks merit
additional scrutiny
but what
do not rise to the level of high risk
what is an example
a retail business that accepts low to moderate levels of cash, but is not considered cash-intensive
what does low risk represent
the baseline risk of money laundering
what does low risk typically indicate
normal, expected activity
what does a risk scoring model use
numeric values
what do the numeric values to determine the risk of
a financial institutions
- Customer type
- Geographical location
- Products/services
What is the deal with assessing dynamic risk of customers
one critical component of a risk assessment is having a process to re-evaluate risks and to determine when the customer risk-ranking should be raised or lowered
what is the deal with the importance of reevaluating customer risk
in addition to the initial assessment of the inherent risk of a customer, it is important to consider how a customer’s relationship, and risk, with the institution changes over time
what is perhaps the most important consideration driving a customer’s risk rating
the actual activity that the customer conducts
as every financial institution develops transaction history with customers, It should consider modifying the risk-rating of the customer based on what 4 factors
- Unusual activity
- Receipt of law enforcement inquiries such as subpoenas
- transactions that violate economic sanctions programs
- other considerations
what are the other considerations
significant volumes of activity where it would not be expected, such as a domestic charity engaging in large international transactions or businesses engaged in large volumes of cash where this would not be expected
what is a vital step in a risk assessment
the analysis of the users of the products and services that the institution or business offers
what can customer types include
individuals
listed companies
private companies
join ventures
partnerships
financial institutions
basically what
anyone who wants to establish a relationship with the financial institution
what have supervisory authorities in various countries stated
some customer types are inherently high risk for money laundering
what 6 types are listed
- casinos
- offshore corporations and banks located in tax/banking havens
- embassies
- MSB’s, including currency exchange houses, money remitters, check cashers
- Import/Export companies
- Cash intensive businesses (restaurants, retail stores, parking)
what is a crucial step in devising a risk scoring model
involves jurisdictional risk
what is the first key question to consider
in what countries or jurisdictions do your individual customers reside and what are the customers’ countries of citizenship
what is the second question to consider
where are your corporate customers headquartered and where do they conduct the majority of their business
When assessing the money laundering risks of various territories and countries what should you do
- scan the terrorism and sanctions lists published by governments and international organizations
- consider the overall reputation of the countries in question
- monitor major news media
What is the deal with assessing the risk of products and services
An important element of assessing AML/CFT risk is to review new and existing products and services that the institution or business offers to determine how they may be used to launder money or finance terrorism
what is the deal with the importance of risk rating
based on the type of product the customer seeks, a risk rating is calculated using a number of product-related factors.
Among other things what
it depends on the likelihood that the product requested might be used for money laundering or terrorist financing
is product scoring universal
no
why
because different financial institutions face varying degrees of risk
what are 5 risk rating considerations
does the particular new or current product or service:
- Enable significant volumes of transactions to occur rapidly
- allow the customer to engage in transactions with minimal oversight by the institution
- afford significant levels of anonymity to the users
- have an especially high transaction or investment value
- allow payments to third parties
