Money Laundering Flashcards
OFAC
The Office of Foreign Assets Control (OFAC) is an office within the Department of the Treasury charged with administering and enforcing U.S. sanction policies against targeted foreign organizations and individuals that sponsor terrorism and international narcotics traffickers. OFAC maintains a list of individuals, governmental entities, companies, and merchant vessels around the world that are known or suspected to engage in illegal activities. Persons or entities on the list, known as Specially Designated Nationals and Blocked Persons (SDNs), include foreign agents, front organizations, terrorists and terrorist organizations, and drug traffickers.
Smurfing
Bank checks (such as cashier’s checks and money orders) could provide evidence of smurfing operations. Smurfing is the process by which a subject structures a deposit into several transactions, each less than $10,000, to avoid filing a currency transaction report as required under the Bank Secrecy Act. Smurfing is a very common technique for avoiding reporting requirements. To identify smurfing operations, fraud examiners should look for large numbers of cashier’s checks that are in even amounts and that are deposited on a regular basis.
Financial Institution includes what type of entities
The term “financial institution” includes any entity that is required to have an anti-money laundering program under the Bank Secrecy Act. In order to share information with another financial institution, the sharing institution must file a prescribed notice form with FinCEN stating that it intends to share customer information.
Cycles of money laundering
“Placement” of funds is the initial step in the money laundering process. It is the step in which the funds are deposited into a financial institution or taken out of the country. If a money laundering scheme is detected, it is most often detected at this stage. “Layering” involves the creation of numerous transactions to prevent detection, such as moving funds between bank accounts, transferring funds from one form of currency to another, or transferring money between businesses. The final stage in the laundering process is the “integration” of the asset back into the economy in such a way as to make it appear as if it were derived from a legitimate business transaction.
Suspicious Activity Reports
Suspicious Activity Reports (SARs) are used to report a known or suspected criminal offense or a transaction that involves money laundering or violates the Bank Secrecy Act. More specifically, a SAR must be filed with FinCEN for any transaction conducted or attempted to be conducted through the financial institution when the institution has reason to suspect that (1) the funds were derived from illegal activities, (2) the transaction is designed to evade any regulations under the Bank Secrecy Act, or (3) the transaction appears to have no business purposes or appears unusual in normal banking practice.
Persons who deal in jewels, precious metals, and precious stones are required to establish anti-money laundering programs. “Dealers” are defined as persons who have purchased at least $50,000 and sold more than $50,000 worth of jewels, stones, or metals during the preceding year. Additionally, the person must also be in the business of selling significant amounts of such items; therefore, the rule would not apply to occasional sellers or hobbyists. Dealers, however, are not required to file SARs.
Report of Foreign Bank and Financial Accounts?
Treasury Department regulations require citizens of the United States and resident aliens to file a Report of Foreign Bank and Financial Accounts (FBAR) (Treasury Form 90-22.1) when they maintain a financial interest or signature authority over a foreign bank account with a balance of more than $10,000 during the calendar year. Accounts in different foreign countries have to be aggregated.
The Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is an intergovernmental body that was established at the G-7 Economics Summit in 1989. Its purpose is to develop and promote standards and policies to combat money laundering and terrorist financing at both the national and international levels.
The FATF’s Recommendations, revised in 2012, created the most comprehensive standard with which to measure a country’s anti-money laundering, counterterrorism, and nuclear proliferation laws and policies. They serve as a basic framework of laws that its members should have. While the recommendations are not required by members and the FATF acknowledges that following each rule might not be possible, members of the FATF often adopt them.
Some of the key measures in the recommendations provide that countries should:
Use a risk-based approach when setting anti-money laundering policies.
Create policies that increase cooperation and coordination with other countries.
Specifically criminalize money laundering and terrorist financing.
Enable authorities to trace, freeze, and confiscate assets suspected in laundering and terrorist financing.
Require financial institutions to keep certain records and establish anti-money laundering policies.
If individuals receive over $10,000 in gift does that have to be reported to FINCen and IRS?
No.
While he received over $10,000 in currency, he did not receive it in the course of his trade or business; he received it as a gift. Title 31, Section 5331 of the U.S. Code (instituted as part of the USA PATRIOT Act) requires persons engaged in a trade or business and who in the course of such trade or business receive more than $10,000 in cash in one or more related transactions to file IRS Form 8300
Currency Transaction Reports (CTR)
Title II of the Bank Secrecy Act requires certain reports or records to be filed or kept by “financial institutions.” The Act defines “financial institution” very broadly in some sections and can include not only banks, but also securities brokers; currency exchange houses; insurance companies; loan companies; travel agencies; telegraph companies; issuers or cashiers of checks or money orders; auto, boat, and airplane dealers; casinos; and persons involved in real estate closings and settlements.
All banks, and certain other financial institutions (including securities broker-dealers, money transmitters, and currency exchangers), are required to fill out Currency Transaction Reports (CTR) whenever there is a currency transaction (deposit, withdrawal, exchange, or cashing of checks) of $10,000 or more. The easiest way to summarize the filing requirement is to remember the following: If currency in excess of $10,000 is brought into a financial institution to conduct a transaction, or if $10,000 in currency leaves the financial institution as the result of a transaction, a CTR must be filed.
Bank Secrecy Act (BSA)
Although money laundering has been around for a long time, the Bank Secrecy Act (BSA), which went into effect in 1970, was the first major piece of legislation aimed at detecting and preventing money laundering. The purpose of the law as stated in Section 5311 is “to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.” The BSA sets forth a system of reporting and recordkeeping requirements designed to help track large or unusual financial transactions.
When are brokers/dealers required to complete a Suspicious Fraud Report?
In 2002, FinCEN announced a new rule requiring brokers and dealers in securities to report suspicious activity via the Suspicious Activity Report by Securities and Futures Industries (SAR-SF; FinCEN Form 101). These firms are obligated to report suspicious transactions that are conducted or attempted by, at, or through a broker-dealer and involve or aggregate at least $5,000 in funds or other assets. Brokers and dealers in securities are required to report to FinCEN transactions that fall into one of the four categories below:
Transactions involving funds derived from illegal activity, or intended or conducted in order to hide or disguise funds derived from illegal activity
Transactions designed, whether through structuring or other means, to evade the requirements of the Bank Secrecy Act
Transactions that appear to serve no business or apparent lawful purpose or are not the sort of transactions in which the particular customer would be expected to engage, and for which the broker-dealer knows of no reasonable explanation after examining the available facts
Transactions that involve the use of the broker-dealer to facilitate criminal activity
Customer Identification Program (CIP)
Section 326 of the USA PATRIOT Act expands the Bank Secrecy Act by requiring financial institutions to implement Customer Identification Programs (CIPs). These CIPs are to be incorporated into financial institutions’ money laundering programs, and at a minimum, they must include reasonable procedures for:
Verifying the identity of any person seeking to open an account to the extent reasonable and practicable
Maintaining records of the information used to verify a person’s identity, including name, address, and other identifying information
Consulting lists of known or suspected terrorists or terrorist organizations to determine if the person seeking to open the account appears on any such list
