09 Tracing Illicit Transactions

Question 1

What is a letter rogatory?
A. A letter whereby a criminal defendant requests that the government release exculpatory information
B. A letter in which a judge in one country orders the government in another country to release a defendant from jail
C. A formal request by the courts of one country seeking judicial assistance from the courts of another country
D. A formal request by the government of a country seeking information from a defendant residing in another country

Answer 1

C. A formal request by the courts of one country seeking judicial assistance from the courts of another country

Government officials may be authorized to make a formal government-to-government request for assistance, or letters rogatory, to obtain foreign evidence. Letters rogatoryare formal requests that a court in one country makes to seek judicial assistance from a court in another country. Letters rogatory also permit formal communication among the judiciary, a prosecutor, or a law enforcement official of one country and their counterpart in another country. The most common types of assistance sought by letters rogatory are service of process and taking of evidence.

Question 2

______________________ are national centers that collect information on suspicious or unusual financial activity, and they are designed to fight international financial crimes by encouraging global cooperation and mutual exchange of financial intelligence information.

A. Financial Intelligence Units (FIUs)
B. National Bank Registrars (NBRs)
C. Intelligence Agency Units (IAUs)
D. Financial Task Force Units (FTFUs)

Answer 2

A. Financial Intelligence Units (FIUs)

Financial Intelligence Units (FIUs) are national centers that are responsible for receiving and analyzing information on suspicious or unusual financial activity in order to combat international financial crimes. FIUs are also designed to improve global cooperation and promote mutual exchange of financial intelligence information.

Question 3

When circumstantial evidence is offered to prove that a subject has more income available than can be accounted for from legitimate sources, the subject often responds with which of the following defenses?
A. The subject incurred substantial debts.
B. The subject’s excess funds were received as gifts.
C. The subject’s excess funds were deobligated.
D. The subject has no taxable income.

Answer 3

B. The subject’s excess funds were received as gifts.

If a party uses an indirect method to prove the defendant’s illicit assets circumstantially, the defendant will try to rebut such evidence. Often, the defendant will claim that the excess income came from legitimate sources. The defendant might claim that the funds are cash that he accumulated earlier or cash from other legitimate sources, such as loans or gifts from relatives.

Question 4

Credit card records and statements pertaining to a subject can provide insight into the subject’s movements and habits, but they do not reveal people with whom the subject does business.

A. True
B. False

Answer 4

B. False

Credit card records are important in tracing assets because they reveal a great deal of personal and business information about the account holder or cardholder. Among other things, credit card records show card purchasing limits, previous payment history, account balance, when and where the subject has traveled, restaurants frequented by the subject, and assets the subject has acquired. In short, these records show the movements and habits of the person to whom the records pertain.
Credit card statements also contain a great deal of important information. Generally, these statements contain the name of the credit card issuer, the cardholder’s account number, a summary of the transactions on the account, payment information, and a list of all the transactions that occurred during that month’s billing cycle (i.e., purchases, payments, credits, cash advances, and balance transfers). Credit card records will document out-of-town travel and, often, they will name people with whom the subject conducts business.

Question 5

Which of the following is a common method fraudsters use to conceal illegally acquired assets?

A. Creating a will to allocate assets at death
B. Transferring assets into another person’s name
C. Placing assets in probate
D. Purchasing a used vehicle

Answer 5

B. Transferring assets into another person’s name

Any type of asset can be hidden (e.g., real property, jewelry, stocks, bonds, vehicles, cash), and there are many techniques that a fraudster might use to hide ill-gotten gains. Some common techniques for hiding assets include transferring assets into foreign trusts, overpaying taxes, prepaying on a home mortgage, obtaining a life insurance policy, and transferring assets into someone else’s name.

Question 6

Which of the following is an example of an indirect method of locating assets or tracing illicit funds?
A. The specific-items method
B. Financial condition analysis
C. Correlation analysis
D. Net-worth analysis

Answer 6

D. Net-worth analysis

Often, when a fraud examiner must locate a subject’s assets or trace illicit funds, the subject’s books and records are not made available. In such cases, the fraud examiner must use an indirect approach, such as net-worth analysis or the bank deposit analysis method, to prove income.

Question 7

Which of the following is LEAST likely to be revealed by analyzing a subject’s electronic payment records?
A. Assets the subject has purchased
B. The funds the subject has tied up in real property
C. Loans the subject has obtained
D. The locations of the subject’s residences and businesses

Answer 7

B. The funds the subject has tied up in real property

Electronic payments (or e-payments) refer to any type of noncash payment that does not involve a paper check. Electronic payment records can reveal, among other things:
* Assets the subject has purchased
* The locations of the subject’s assets (e.g., through the payment of real estate taxes, broker’s fees, or utility payments)
* The locations of the subject’s residences and businesses (e.g., through analyzing the payments of utility bills)
* Loans the subject has obtained (e.g., through analyzing loan payments)
* Payments made to nonexistent employees with direct deposit
* The cities and countries in which the subject conducts business (e.g., through analyzing the payments for carrier services to deliver packages)
* Assets ostensibly owned by family members or close associates but effectively controlled, held, or gifted by the subject
* Hotel payments
* The true owner of a property (e.g., through analyzing the mortgage payments and payments for home owner insurance)

Question 8

Which of the following is considered a red flag indicating that a subject is seeking to conceal ill-gotten assets through a loan repayment?
A. Accelerated payments
B. Payments in odd amounts
C. Large paydowns
D. All of the above

Answer 8

D. All of the above

Generally, fraud examiners should look for loans with unusual repayments and trace them. Lump-sum payments, payments in odd amounts, accelerated payments, and large paydowns are unusual. These are all considered red flags indicating that an individual is seeking to conceal ill-gotten assets through a loan repayment, and loans with any such red flag should be investigated further.

Question 9

Which of the following is a method of tracing illicit funds in which deposits to financial institutions are compared to legitimate income?

A. Asset method
B. Bank deposit analysis method
C. Installment transaction analysis method
D. Income correlation method

Answer 9

B. Bank deposit analysis method

The bank deposits method is a method of tracing illicit funds in which deposits to financial institutions are compared to legitimate income.
The asset method is another method of tracing illicit funds, but it involves identifying assets previously acquired, identifying current liabilities, and taking the difference between the two.
The installment transaction analysis method and the income correlation method are not methods of tracing illicit funds.

Question 10

Which of the following is NOT a piece of information contained on most wire transfers?

A. The name of the sender or originator
B. The amount of the transfer
C. The date of the transfer
D. The recipient’s government identification number

Answer 10

D. The recipient’s government identification number

The information contained on a wire transfer generally will include the following items:
* The amount of the transfer
* The date of the transfer
* The name of the sender or originator
* The routing number of the originating bank or financial institution
* The identity of the designated beneficiary or receiver of the funds
* The routing number of the recipient bank
However, the government identification number for the recipient is not typically included in most wire transfer records.

Question 11

Net worth can be defined as the difference between assets and liabilities at a particular point in time.

A. True
B. False

Answer 11

A. True

Net worth can be defined as the difference between assets and liabilities at a particular point in time.

Question 12

Suppose you need to prove a suspect’s illicit income circumstantially. Which of the following methods of tracing assets would yield the best result when the suspect is spending his illicit funds on items that would not cause an increase in net worth, such as travel and entertainment?
A. The income correlation method
B. The expenditures method
C. The bank deposits method
D. The asset method

Answer 12

B. The expenditures method

The expenditures method (also known as the sources and application of funds method) compares the suspect’s known expenditures and known sources of funds during a given period of time. That is, this analysis seeks to quantify the cost of the subject’s lifestyle and determine whether the subject’s reported income is sufficient to support his lifestyle. The expenditures method is best used when the subject spends illicit income on consumables (such as travel and entertainment) that would not cause an increase in net worth.

Question 13

Which of the following documents is likely to be included with the account-opening documents for a corporation’s business account?
A. Copies of corporate resolutions of the board of directors authorizing the opening of the account
B. A copy of the corporation’s board-authorized personnel policies
C. A copy of all shareholders’ meeting minutes
D. A list of all shareholders

Answer 13

A. Copies of corporate resolutions of the board of directors authorizing the opening of the account

To open a business account for a corporation, the opening party must provide a signature card, or similar document, and copies of corporate resolutions of the board of directors authorizing the opening of the bank account and naming the person who may authorize payments on the account. Also, the bank might require a copy of the company’s organizational or business filings (such as articles of incorporation). These documents should indicate who the company’s corporate officers are and the company’s date of incorporation.

Question 14

1. Which of the following is the main purpose of conducting a net-worth analysis?
   A. To show that the subject’s assets or expenditures exceed his reported income
   B. To show that a subject’s actions caused a decrease in the victim’s net worth
   C. To prove that the subject purchased an asset with appreciated value
   D. To prove that the subject’s assets equal his liabilities

Answer 14

A. To show that the subject’s assets or expenditures exceed his reported income

The net-worth method (or comparative net-worth analysis) is used to prove illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. The net-worth method is a reliable method for estimating a person’s ill-gotten gains. The method is used extensively by criminal investigators around the world, especially in drug and money laundering cases.

Question 15

A bank credit department generally maintains which of the following types of basic loan records?

A. The cash record
B. The credit or loan file
C. The master appropriation file
D. The accounting journal

Answer 15

B. The credit or loan file

Loan records can provide important information regarding a subject. When a bank makes a commercial loan to an individual, it requires detailed statements of assets and liabilities from the borrower, and these records will be contained in the loan records. The loan file also might include the results of credit inquiries regarding paying habits, loan amounts, and present unpaid balances.
A bank credit department generally maintains the following basic records:
* The credit or loan file: This file includes the customer’s loan application, financial statements, and general economic history.
* The liability ledger: This contains the customer’s past and present liability to the bank. These sheets also contain information such as the loan date, note number, amount of the loan, interest rate, due date, and payments.
* The collateral file: This contains a complete description of the items pledged as security for loans. Records of such collateral can provide valuable information about a subject’s assets.

Question 16

Which of the following is NOT a characteristic asset hiders generally look for in the financial vehicles they use to conceal assets?

A. Security
B. Transparency
C. Accessibility
D. Liquidity

Answer 16

B. Transparency

Generally, asset hiders look to conceal their assets with financial vehicles that have certain characteristics. For one thing, asset hiders want products that are liquid (i.e., items that can be purchased and sold in a short period of time). Moreover, asset hiders want products that are difficult to trace or are untraceable. With such instruments, asset hiders can break or obscure many links between the initial receipt of the assets and their final disposition. Asset hiders also look for products that are secure and accessible.

Question 17

Which of the following is an accurate statement about tracing the disposition of loan proceeds?

A. Tracing loan proceeds can determine if the proceeds were deposited into hidden accounts
B. Tracing loan proceeds can determine if hidden accounts were used for loan payments
C. Tracing loan proceeds can uncover hidden assets or unknown witnesses
D. All of the above

Answer 17

D. All of the above

If a fraud examination involves a loan with proceeds that have been disposed, the fraud examiner should trace the disposition of the loan’s proceeds. A fraud examiner can trace loan proceeds to determine if hidden accounts were used for loan payments or if the proceeds were deposited into hidden accounts. Also, because loans might be secured by hidden assets or co-signed by previously unknown cohorts, tracing loan proceeds can uncover hidden assets or unknown witnesses. Moreover, if the subject has taken out a loan for someone else, tracing the disposition of the loan proceeds will uncover those leads.

Question 18

Which of the following is the best definition of the indirect method of tracing financial transactions?

A. Using financial analysis to discover all significant expenses the target incurred during the relevant period to develop the financial profile
B. Using circumstantial evidence to analyze the relationship between a suspect’s receipt and subsequent disposition of funds or assets
C. Using bank records and financial statements to identify and analyze information about the target’s personal characteristics to identify sources of hidden wealth or assets
D. Using the subject’s books and records to analyze the relationship between the subject’s receipt and subsequent disposition of funds or assets

Answer 18

B. Using circumstantial evidence to analyze the relationship between a suspect’s receipt and subsequent disposition of funds or assets

Generally, fraud examiners can trace illicit transactions using a direct method or an indirect method. An indirect method employs circumstantial evidence to analyze the relationship between a suspect’s receipt and subsequent disposition of funds or assets. In contrast, a direct method uses the subject’s books and records (or financial transaction records belonging to third parties) to analyze the relationship between a suspect’s receipt and subsequent disposition of funds or assets.

Question 19

Which of the following is a step in the general process for tracing illicit transactions?

A. Building a financial profile
B. Establishing reporting protocols
C. Selecting a response team
D. Implementing litigation hold procedures

Answer 19

A. Building a financial profile

Although the procedures performed during a tracing investigation vary depending on the circumstances, an actual investigation to trace transactions generally should involve the following elements:
* Collect information.
* Profile the subject (i.e., assemble the personal—financial and behavioral—profile).
* Review information for leads and prioritize leads.
* Trace the illicit transactions.

Question 20

Records obtained from financial institutions are perhaps the single most important financial source available to fraud examiners for purposes of tracing assets.
A. True
B. False

Answer 20

A. True

Records obtained from financial institutions are perhaps the single most important financial source available to fraud examiners for asset-tracing purposes. They can be used as evidence for fraud, as well as to:
* Identify witnesses and other evidence.
* Uncover criminal profits.
* Identify criminal assets.
* Locate assets that can be used to satisfy a judgment.
* Identify localities where assets are stored.
* Determine the lifestyle of an account holder.
* Determine the financial health of an organization.
* Determine the source of funds placed into an account.
* Determine the use of the funds from an account.

Question 21

Which of the following documents is typically included with the account-opening documents for a corporation’s business account?
A. Copies of corporate resolutions of the board of directors naming the person who may authorize payments on the account
B. A signature card
C. Copies of corporate resolutions of the board of directors authorizing the opening of the account
D. All of the above

Answer 21

D. All of the above

To open a business account for a corporation, the opening party must provide a signature card, or similar document, and copies of corporate resolutions of the board of directors authorizing the opening of the bank account and naming the person who may authorize payments on the account. Also, the bank might require a copy of the company’s organizational or business filings (such as articles of incorporation). These documents should indicate who the company’s corporate officers are and the company’s date of incorporation.

Question 22

Turnbull, a fraud victim, hired Kennedy, a CFE, to trace a fraudster’s assets to facilitate the recovery of the illicit proceeds obtained by the fraudster. Which of the following typically will be the MOST useful source of information for Kennedy in his efforts to trace the fraudster’s assets?

A. Surveillance footage
B. The fraudster’s bank records
C. The fraudster’s paystubs
D. Third-party witnesses

Answer 22

B. The fraudster’s bank records

Records obtained from financial institutions are perhaps the single most important financial source available to a fraud examiner for asset-tracing purposes. They can be used as evidence for fraud, as well as to:
* Identify witnesses and other evidence.
* Uncover criminal profits.
* Identify criminal assets.
* Locate assets that can be used to satisfy a judgment.
* Identify localities where assets are stored.
* Determine the lifestyle of an account holder.
* Determine the financial health of an organization.
* Determine the source of funds placed into an account.
* Determine the use of the funds from an account.

Question 23

When determining a subject’s net worth for asset-tracing purposes, all assets should be valued at current market value to eliminate any question about estimates.

A. True
B. False

Answer 23

B. False

When computing a subject’s net worth, these issues should be considered:
* All assets should be valued at cost, not fair market value. Subsequent appreciation or depreciation of assets should be ignored.
* The amount of funds available to the subject from legitimate sources should be estimated or computed generously.
* The subject should be interviewed to identify all alleged sources of funds and to negate defenses that he might raise later.

Question 24

Which of the following pieces of information is NOT usually contained on the signature card of a personal bank account?

A. The thumbprint of the person opening the account
B. The address of the person opening the account
C. The telephone number of the person opening the account
D. The identification number of the person opening the account

Answer 24

A. The thumbprint of the person opening the account

To open a personal account, the individual opening the account must provide a signature card, or similar document, evidencing a contract between the customer and bank. The signature card is a source of valuable information. Although its form varies, the card usually contains the person’s name, address, telephone number, identification number, amount of opening deposit (and possibly the source of opening deposit), and security data (e.g., mother’s maiden name). The person’s identification information might be significant, especially if the depositor used an alias. Also, a fraud examiner might be able to trace the opening deposit through the bank’s records to disclose a source of income.
While a bank signature card evidencing a contract between the customer and bank contains several important pieces of identifying information, it typically does not contain the fingerprints of the account holder.

Question 25

The records of a wire transfer identify the amount of the wire, where it was sent, and the date it was sent, but they do not identify who sent the wire. A. True B. False

Answer 25

B. False ## Footnote The records of a wire transfer identify who sent the wire, where it was sent, the date it was sent, and its amount.

Question 26

Which of the following is LEAST likely to be revealed by analyzing a subject’s electronic payment records? A. The cities and countries in which the subject conducts business B. The locations of the subject’s assets C. If the subject is skimming employer funds D. Loans the subject has obtained

Answer 26

C. If the subject is skimming employer funds ## Footnote Electronic payments (or e-payments) refer to any type of noncash payment that does not involve a paper check. Electronic payment records can reveal, among other things: * Assets the subject has purchased * The locations of the subject’s assets (e.g., through the payment of real estate taxes, broker’s fees, or utility payments) * The locations of the subject’s residences and businesses (e.g., through analyzing the payments of utility bills) * Loans the subject has obtained (e.g., through analyzing loan payments) * Payments made to nonexistent employees with direct deposit * The cities and countries in which the subject conducts business (e.g., through analyzing the payments for carrier services to deliver packages) * Assets ostensibly owned by family members or close associates but effectively controlled, held, or gifted by the subject * Hotel payments * The true owner of a property (e.g., through analyzing the mortgage payments and payments for home owner insurance)

Question 27

Which of the following is an indirect method of proving illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income? A. Bank deposit method of analysis B. Net-worth method of analysis C. Regression analysis D. Fundamental analysis

Answer 27

B. Net-worth method of analysis ## Footnote The net-worth method (or comparative net-worth analysis) is used to prove illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. Fraud examiners should use the net-worth method when several of the subject’s assets or liabilities have changed during the period under examination and when the target’s financial records are not available.

Question 28

Which of the following types of records for a personal bank account would most likely contain the account holder’s name, address, telephone number, and government identification number? A. ATM withdrawal slip B. Signature card C. Deposit slip D. Canceled check

Answer 28

B. Signature card ## Footnote To open a personal account, the individual opening the account must provide a signature card, or similar document, evidencing a contract between the customer and bank. The signature card is a source of valuable information. Although its form varies, the card usually contains the person’s name, address, telephone number, identification number, amount of opening deposit (and possibly the source of opening deposit), and security data (e.g., mother’s maiden name). The person’s identification information might be significant, especially if the depositor used an alias. Also, a fraud examiner might be able to trace the opening deposit through the bank’s records to disclose a source of income.

Question 29

Which of the following would be the most successful method of proving illicit income when several of the subject’s assets or liabilities have changed during the period under examination and the subject’s financial records are not available? A. Sampling sources method of analysis B. Net-worth method of analysis C. Attribute method of analysis D. Benford's method of analysis

Answer 29

B. Net-worth method of analysis ## Footnote The net-worth method (or comparative net-worth analysis) is used to prove illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. Fraud examiners should use the net-worth method when several of the subject’s assets or liabilities have changed during the period under examination and when the target’s financial records are not available.

Question 30

Suppose you need to prove a suspect’s illicit income circumstantially. Which of the following methods of tracing assets would yield the best result when the suspect is using his illicit funds to accumulate wealth and acquire assets, thus causing his net worth to increase? A. The bank deposits method B. The expenditures method C. The income correlation method D. The asset method

Answer 30

D. The asset method ## Footnote The asset method, the expenditures method, and the bank deposits method can all be used to establish a subject’s sources of income using circumstantial proof. The asset method allows the fraud examiner to prove income circumstantially by showing that the subject’s assets for a given period exceed those that can be accounted for from known or admitted sources of income. Fraud examiners should use the asset method when it is suspected that the subject has accumulated wealth and acquired assets with illicit proceeds, which causes the subject’s net worth—the difference between a person’s assets and liabilities at a particular point in time—to increase. The expenditures method (also known as the sources and application of funds method) compares the suspect’s known expenditures and known sources of funds during a given period of time. That is, this analysis seeks to quantify the cost of the subject’s lifestyle and determine whether the subject’s reported income is sufficient to support his lifestyle. The expenditures method is best used when the subject spends illicit income on consumables (such as travel and entertainment) that would not cause an increase in net worth. The bank deposits method of tracing illicit funds is recommended as a primary method of proof when most of the subject’s income is deposited and the subject’s books and records are unavailable, withheld, incomplete, or maintained on a cash basis. The income correlation method is not a method of tracing illicit funds.

Question 31

Which of the following terms refers to the search for evidence showing what has happened to property, identifying the proceeds of property, and identifying those who have handled or received property or the proceeds of property? A. Replicating B. Patterning C. Acceding D. Tracing

Answer 31

D. Tracing ## Footnote Tracing refers to the search for evidence showing what has happened to property, identifying the proceeds of property, and identifying those who have handled or received property or the proceeds of property.

Question 32

Which of the following is the term that refers to the net amount a lender disburses to a borrower under the terms of a loan agreement? A. Loan principal B. Loan proceeds C. Loan curtailment D. Loan disbursement

Answer 32

B. Loan proceeds ## Footnote If a fraud examination involves a loan with proceeds that have been disposed, the fraud examiner should trace the disposition of the loan’s proceeds. Loan proceeds refer to the net amount a lender disburses to a borrower under the terms of a loan agreement.

Question 33

Asset hiders generally prefer the financial vehicles they use to conceal assets to be traceable, inaccessible, illiquid, and exclusive. A. True B. False

Answer 33

B. False ## Footnote Generally, asset hiders look to conceal their assets with financial vehicles that have certain characteristics. For one thing, asset hiders want products that are liquid (i.e., items that can be purchased and sold in a short period of time). Moreover, asset hiders want products that are difficult to trace or are untraceable. With such instruments, asset hiders can break or obscure many links between the initial receipt of the assets and their final disposition. Asset hiders also look for products that are secure and accessible.

Question 34

What is mutual legal assistance (MLA)? A. A formal request by the government of a country seeking information from a defendant residing in another country B. A formal request by the courts of one country seeking judicial assistance from the courts of another country C. A letter whereby a criminal defendant requests that the government release exculpatory information D. A process by which countries request and provide assistance in law enforcement matters

Answer 34

D. A process by which countries request and provide assistance in law enforcement matters ## Footnote Mutual legal assistance (MLA) is a process by which countries request and provide assistance in law enforcement matters, such as gathering information, obtaining provisional remedies, and enforcing foreign orders and judgments. To obtain assistance from a foreign government, the government seeking assistance makes an MLA request. An MLA request is a written request to the government of a foreign country that is used to obtain assistance in law enforcement matters. Generally, MLA can be used to obtain assistance in matters such as conducting searches, gathering evidence, compelling sworn testimony and the production of documents, issuing search warrants, issuing subpoenas, serving process, exchanging affidavits, obtaining provisional remedies, and providing assistance in forfeiture proceedings.

Question 35

When tracing financial transactions, the method that involves using the subject’s books and records to analyze the relationship between the subject’s receipt and subsequent disposition of funds or assets is called which of the following? A. The indirect method B. The direct method C. The asset method D. The bank records method

Answer 35

B. The direct method ## Footnote Generally, fraud examiners can trace illicit transactions using a direct method or an indirect method. A direct method uses the subject’s books and records (or financial transaction records belonging to third parties) to analyze the relationship between a suspect’s receipt and subsequent disposition of funds or assets. In contrast, anindirect method employs circumstantial evidence to analyze the relationship between a suspect’s receipt and subsequent disposition of funds or assets.

Question 36

Which of the following is the most accurate description of the net-worth (or comparative net-worth) method of analysis? A. The net-worth method refers to the process of using a subject’s books and records to determine the subject’s financial condition and identify the receipt or disposition of funds or assets. B. The net-worth method is an indirect method of proving illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. C. The net-worth method is an indirect method of proving illicit income circumstantially by measuring and recording income as earned and recording expenses as incurred. D. The net-worth method refers to the process of assigning forecasted income and expenses to accounts, which will be compared to actual income and expenses for analysis of variances.

Answer 36

B. The net-worth method is an indirect method of proving illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. ## Footnote The net-worth method (or comparative net-worth analysis) is used to prove illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. Fraud examiners should use the net-worth method when several of the subject’s assets or liabilities have changed during the period under examination and when the target’s financial records are not available.

Question 37

Which of the following pieces of information is usually contained on the signature card of a personal bank account? A. The address of the person opening the account B. The identification number of the person opening the account C. The name of the person opening the account D. All of the above

Answer 37

D. All of the above ## Footnote To open a personal account, the individual opening the account must provide a signature card, or similar document, evidencing a contract between the customer and bank. The signature card is a source of valuable information. Although its form varies, the card usually contains the person’s name, address, telephone number, identification number, amount of opening deposit (and possibly the source of opening deposit), and security data (e.g., mother’s maiden name). The person’s identification information might be significant, especially if the depositor used an alias. Also, a fraud examiner might be able to trace the opening deposit through the bank’s records to disclose a source of income.

Question 38

Which of the following is a reason why a subject’s credit card records can be useful in asset tracing investigations? A. Credit card charges can provide leads to identifying hidden assets. B. Credit card statements show the source of the funds used to pay a credit card bill. C. Credit card records can show signs of skimming. D. Credit card records are available online for public inspection.

Answer 38

A. Credit card charges can provide leads to identifying hidden assets. ## Footnote Credit card records are important in tracing assets because they reveal a great deal of personal and business information about the account holder. Among other things, information on credit card charges might provide leads to identifying hidden assets. For example, if a fraud examiner notices that the subject used his credit card to purchase items at a marina, the fraud examiner should investigate further to determine if the subject owns a boat. The credit card application and the bank’s copies of monthly statements sent to the cardholder are the records that are most valuable to fraud examiners. Credit card applications require a considerable amount of financial information, and they generally require the same type of information found on a bank loan application. In today’s environment, credit cards might be tied to bank accounts and might not require a separate application. Credit card statements also contain a great deal of important information. Generally, these statements contain the name of the credit card issuer, the cardholder’s account number, a summary of the transactions on the account, payment information, and a list of all the transactions that occurred during that month’s billing cycle (i.e., purchases, payments, credits, cash advances, and balance transfers). Credit card records will document out-of-town travel and, often, they will name people with whom the subject conducts business.

Question 39

Which of the following is something that might be revealed by analyzing a subject’s electronic payment records? A. Assets effectively controlled or held by the subject B. Assets the subject has purchased C. The cities and countries in which the subject conducts business D. All of the above

Answer 39

D. All of the above ## Footnote Electronic payments (or e-payments) refer to any type of noncash payment that does not involve a paper check. Electronic payment records can reveal, among other things: * Assets the subject has purchased * The locations of the subject’s assets (e.g., through the payment of real estate taxes, broker’s fees, or utility payments) * The locations of the subject’s residences and businesses (e.g., through analyzing the payments of utility bills) * Loans the subject has obtained (e.g., through analyzing loan payments) * Payments made to nonexistent employees with direct deposit * The cities and countries in which the subject conducts business (e.g., through analyzing the payments for carrier services to deliver packages) * Assets ostensibly owned by family members or close associates but effectively controlled, held, or gifted by the subject * Hotel payments * The true owner of a property (e.g., through analyzing the mortgage payments and payments for home owner insurance)

Question 40

Which of the following is a reason why a fraud examiner might be tasked with tracing illicit transactions? A. To identify a judgment debtor’s assets B. To determine if a potential defendant can pay if a judgment is ordered C. To facilitate the recovery of criminal proceeds D. All of the above

Answer 40

D. All of the above ## Footnote Often, CFEs are tasked with tracing illicit transactions to assist: * A victim of fraud who wants a tracing search to facilitate the recovery of criminal proceeds * A potential plaintiff who wants a tracing search to determine if the potential defendant can pay a court-ordered sum if a judgment is ordered * A judgment creditor who needs to identify the judgment debtor’s assets

Question 41

Which of the following information CANNOT be obtained from a subject’s safe deposit box record(s)? A. The time and date of people entering the safe deposit box B. The signatures of people entering the safe deposit box C. The identity of people who have access to the safe deposit box D. The record of contents contained in the safe deposit box

Answer 41

D. The record of contents contained in the safe deposit box ## Footnote Banks keep no record of safe deposit box contents and rarely know what the boxes contain, but generally, banks maintain the following records concerning safe deposit boxes: * Rental contract records * Access records and entry logs A safe deposit box’s rental contract records identify the renters, the person or people who have access to the box, their signatures, and the dates of the original agreements and later renewals. They also might contain other identifying information, including the name of the initiating bank officer. The officer’s name could be significant if the subject (who might have used an alias in renting the box) must be identified. Records showing access to the boxes vary from bank to bank. But generally, they contain the signatures of the people entering the boxes and usually the dates and times of entry. The entry records are filed in box-number order. The frequency of entry and the times and dates of entries might be significant and might correspond to the times and dates of deposits, withdrawals from other accounts, or the purchases and sales of securities or property. Of course, proper authorization must be obtained before the bank will turn over any such records.

Question 42

Which of the following statements about Financial Intelligence Units (FIUs) is TRUE? A. FIUs are national centers designed to fight international financial crimes B. Financial institutions file reports detailing suspicious or unusual financial activity with FIUs C. FIUs are designed to improve global cooperation and promote mutual exchange of financial intelligence information D. All of the above

Answer 42

D. All of the above ## Footnote Financial Intelligence Units (FIUs) are national centers that are responsible for receiving and analyzing information on suspicious or unusual financial activity in order to combat international financial crimes. FIUs are also designed to improve global cooperation and promote mutual exchange of financial intelligence information. Financial regulations and legislation obliges banks and other financial institutions to file reports detailing large cash transactions or suspicious activity with FIUs, and the documents and reports filed with FIUs might contain valuable information that can be useful in tracing hidden assets.

Question 43

The net-worth analysis method of tracing illicit funds is recommended as a primary method of proof when most of the subject’s income is deposited in a financial institution and the subject’s books and records are unavailable, withheld, incomplete, or maintained on a cash basis. A. True B. False

Answer 43

B. False ## Footnote The bank deposits method is recommended as a primary method of proof when most of the subject’s income is deposited in a financial institution and the subject’s books and records are unavailable, withheld, incomplete, or maintained on a cash basis. The net-worth method of tracing assets would yield the best result when several of the subject’s assets or liabilities have changed during the period under examination and the subject’s financial records are not available.

Question 44

Which of the following is a common method that fraudsters use to hide their ill-gotten gains? A. Transferring assets into foreign trusts B. Prepaying a home mortgage C. Purchasing a life insurance policy D. All of the above

Answer 44

D. All of the above ## Footnote Any type of asset can be hidden (e.g., real property, jewelry, stocks, bonds, vehicles, cash), and there are many techniques that a fraudster might use to hide ill-gotten gains. Some common techniques for hiding assets include transferring assets into foreign trusts, overpaying taxes, prepaying on a home mortgage, obtaining a life insurance policy, and transferring assets into someone else’s name.

Question 45

The expenditures method (also known as the sources and application of funds method) for proving illicit income involves identifying all assets held by the subject that were acquired earlier, identifying the amount of the subject’s current liabilities, and taking the difference between the two values. A. True B. False

Answer 45

B. False ## Footnote The expenditures method (also known as the sources and application of funds method) compares the suspect’s known expenditures and known sources of funds during a given period of time. That is, this analysis seeks to quantify the cost of the subject’s lifestyle and determine whether the subject’s reported income is sufficient to support his lifestyle. The expenditures method is best used when the subject spends illicit income on consumables (such as travel and entertainment) that would not cause an increase in net worth. Identifying assets previously acquired, identifying current liabilities, and taking the difference between the two is the process involved in the asset method, not the expenditures method.

Question 46

Financial Intelligence Units (FIUs) are self-regulatory organizations (SROs) that exercise authority to create and enforce regulations and standards in the financial industry. A. True B. False

Answer 46

B. False ## Footnote Financial Intelligence Units (FIUs) are national centers that are responsible for receiving and analyzing information on suspicious or unusual financial activity in order to combat international financial crimes. FIUs are also designed to improve global cooperation and promote mutual exchange of financial intelligence information. Financial regulations and legislation obliges banks and other financial institutions to file reports detailing large cash transactions or suspicious activity with FIUs, and the documents and reports filed with FIUs might contain valuable information that can be useful in tracing hidden assets.