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ACAMS > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What is the Definition of Money Laundering ?

A

Money Laundering involves taking criminal proceeds and disguising their illegal sources to use the funds to perform legal or illegal activities

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2
Q

What are the three stages of Money Laundering ?

A
  1. Placement- Introducing cash or assets to the financial system
  2. Layering - Converting proceeds into another form and creating complex layers to obscure the source and ownership of funds
  3. Integration - Using the proceeds of laundered funds in normal to create a perception of legitimacy
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3
Q

What are the economic and social consequences of money laundering ?

(11 consequences)

A
  1. Increased exposure to organised crime and corruption
  2. Undermining the legitimate private sector
  3. Weakening financial organisations
  4. Dampening Foreign Investments
  5. Loss of control in decisions regarding economy policy
  6. Economic Distortion and instability
  7. Loss of Tax Revenue
  8. Risks to privatization efforts
  9. Reputational Risk for the country
  10. Risk of International Sanctions
  11. Social Costs
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4
Q

Who is considered a PEP ?

A

PEPs themselves, Relatives and Close Associates

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5
Q

What are the three types of PEPs ?

A
  • Foreign PEP - Currently or historically entrusted with prominent public functions by a foreign country
  • Domestic PEP - Currently or historically been intrested Domesticaly with prominent public functions
  • International Organisations PEP - Currently or historically been entrusted with a prominent function by an international organization
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6
Q

How do terrorists raise, move, store funds ?

(3 answers)

A
  • Hawala
  • Charities
  • Non Profit Organisations
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7
Q

(Terrorism Financing)

What is Hawala ?

A
  • An informal value transfer system (IVTSs)
  • Leaves little to no paper trail
  • Details of customers are communicated by phone, fax or email
  • Can be used at any phase of the money laundering cycle
  • Layering may be complex by using haldawars in several countries
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8
Q

(Terrorism Financing)

How do Terrorists use Charities / Non Profit Organisations ?

A
  1. Charities and NPOs are vulernable as they:
    * Enjoy Public Trust
    * Have considerable sources of funds
    * Cash Intensive
    * Have a global presence,
    * Subject to little regulation
  2. Funds raised may be diverted to support terrorist activity domestically or abroad
  3. May be perpetrated by internal or external individuals
  4. NPOs often operate in the same environments which terrorists operate in
  5. Criminals attempt to disguise terrorist funding as humanitarian activity
  6. Social Media can serve as a tool to facilitate and enable terrorist funding, recruitement and propoganda.
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9
Q

Typologies

What are the categories of Typologies used in Money Laundering ?

A
  • Banks and Depository Institutions
  • Non-Banking Financial Institutions
  • Non-Financial Businesses & Professions
  • International Trade Activity
  • New Payment Products and Services
  • Corporate Vehicles used to facilitate illicit finance
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10
Q

Typologies

What are the Sub Categories of Banking and Depository Institutions Typologies (1)

A
  • Electronic Transfer of Funds
  • Remote Deposit Capture (RDC)
  • Correspondent Banking
  • Payable-through Accounts
  • Concentration Accounts
  • Private Banking
  • Strucuring
  • Credit Unions / Building Societies
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11
Q

Typologies

What are the Sub Categories of Non-Bank Financial Institutions Typologies (2)

A
  • Credit Card Industry
  • Third Party Payment Processor
  • Money Services Business
  • Insurance Companies
  • Securities Broker-Dealers
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12
Q

Typologies

What are the Sub Categories of Non-Financial Businesses & Professions Typologies (3)

A
  • Casinos
  • Dealers of High Value Items
  • Travel Agencies & Websites
  • Vehicle Sales
  • Gatekeepers
  • Investment and Commodity Advisors
  • Trust and Company Service Providers (CSPs)
  • Real Estate
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13
Q

Typologies

What are the Sub Categories of International Trade Activity Typologies (4)

A
  • Free Trade Zones
  • Black Market Peso Exchange
  • Wildlife Trafficking
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14
Q

Typologies

What are the Sub Categories of New Payment Products & Services (5)

A
  • Prepaid Cards
  • Electronic Money
  • Virtual Currency
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15
Q

Typologies

What are the Sub Categories of New Payment Products & Services (6)

A
  • Public Companies
  • Private Limited Companies
  • Bearer Shares
  • Shelf Companies
  • Shell Companies
  • Trusts
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16
Q

Typologies: Banks and Depository Institutions (1)

Key points of Electronic Transfer of Funds

A
  • A transfer of funds initiated by electronic means
  • Fastest way to move money
  • Illicit fund transfers are easily hidden
  • Often used in layering stage
  • Creates confusion aboutsource of funds
  • Money Launderers can vary amounts sent, can keep transfers small, under reporting thresholds.
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17
Q

Typologies: Banks and Depository Institutions (1)

Key points of Remote Deposit Capture

A
  • A service offered by banks allowing customers to scan a check and send an image to the bank
  • Abused by Money Launderers as it reduces contact
  • May allow different people to process cheques through the system
  • Decreases the ability to identify potential fraud
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18
Q

Typologies: Banks and Depository Institutions (1)

Key points of Correspondent Banking

A
  • An arrangement whereby one bank acts as the agent of another bank in a foreign country
  • The local bank = Respondent bank
  • Large international banks act as correspondents for thousands of smaller banks
  • Correspondent bank provides services for unverified clients, therefore vulnerable.
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19
Q

Typologies: Banks and Depository Institutions (1)

Key points of Payable-Through Accounts

A
  • A type of correspondent banking bypassing the respondent (original) bank
  • Clients may directly control funds at the correspondent bank
  • PTAs hides the source of funds and customers’ identities
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20
Q

Typologies: Banks and Depository Institutions (1)

Key points of Concentration Accounts

A
  • Internal accounts to facilitate processing and settlement of multiple transactions in a bank
  • Aggregating funds from multiple locations to one centralised account
  • May assist criminals when key details are seperated from the account, thus losing the audit trial
21
Q

Typologies: Banks and Depository Institutions (1)

Key points of Private Banking

A
  • A lucrative industry providing personalised and confidential products to wealthy clients
  • Competition may increase pressures on relationship managers to obtain new clients
  • Business interests take precedence over legal compliance
  • Private investment companies may be set up for more anonimity in privare banking
  • Shell companies may be formed to maintain clients’ confidentiality
22
Q

Typologies: Banks and Depository Institutions (1)

Key Points of Structuring

A
  • Designing transaction to avoid triggering a report
  • Smurfing - Is a common structuring technique involving multiple cash deposits under the reporting threshold
  • Microstructuring - is essentially Smurfing, but split into much smaller payments
23
Q

Typologies: Banks and Depository Institutions (1)

Key Points of Credit Unions / Building Societies

A
  • Not for profit financial cooperatives
  • Do not have clients or customers, but members who are also owners
  • Serve the financial needs of their members
  • FATF declares credit unions as banks
24
Q

Typologies: Non-Bank Financial Institutions (2)

Key Points of Credit Card Industry

A
  • Credit Card Associations: American Express, Mastercard, Visa
  • These Associations license member banks to issue bank cards
  • Credit Cards are usually used in the layering and integration stages of money laundering.
25
Q

Typologies: Non-Bank Financial Institutions (2)

Key Points of Third Party Payment Processor

A
  • Bank Customers providing payment processing services to merchant clients
  • Often not subject to AML/CFT requirements
  • Usually Middlemen, therefore difficult for a financial organisation to determine the originator of the transaction
  • May be used by criminals to mask transactions
26
Q

Typologies: Non-Bank Financial Institutions (2)

Key Points of Money Services Business

A
  • Businesses that provide currency exchange, money transmission, check-cashing services
  • Check cashier may be compromised
  • Criminals may use money remitters to trasnfer funds to criminal organisations in destination countries
  • They are overseen by regulators as well as the banks with which they maintain a relationship
  • Many MSBs are small and might not have robust AML/CFT programs
27
Q

Typologies: Non-Bank Financial Institutions (2)

Key Points of Insurance Companies

A
  • Insurance Industry provides cover for multiple clients’ assets
  • Operates through intermediaries, agents, and brokers
  • Sectors such as Life Insurance, Annuities are primary targets for criminals who want to launder money
28
Q

Typologies: Non-Bank Financial Institutions (2)

Key Points of Securities Broker-Dealers

A
  • The Stocks, Bonds and Shares Industry
  • Provides opportunities for criminals to launder their money anonymously
  • An industry run by electronic transfers and paper
  • Real-time mirror trades involve rapid transfers of significant sums of money around the world
29
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Casinos

A
  • Amongst the most proficient cash-generating businesses
  • Billions of dollars flow between customers and casinos
  • Are associated with money laundering because they provide an excuse for recently acquired wealth with no apparent legitimate source
  • Money Laundering in Casinos occurs in the placement and layering stages
  • Casino cashiers may be exploited for placement
  • Intermediaries such as junket agents can be used to place, layer and integrate funds
  • VIP customers may be subject to less scrutiny
30
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Dealers of High-Value Items

A
  • Precious Metals, Jewelry & Art dealers
  • Gold has high intrinsic value in compact form and is easy to transport, can be bought and sold anonymously
  • Gold is an attractive vehicle for money laundering
  • Origins are difficult to trace
  • Can be easily exchanged for cash, or used as currency in most aread of the world
  • Art markets are high risk
  • Shell companies are often used to enhance secrecy
31
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Travel Agencies & Websites

A
  • Cash intensive business
  • Allow use of false identities
  • May be used to commingle legitimate and illegitimate funds
  • Can be used in all three stages of money laundering
32
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Vehicle Sales

A
  • Risks include structuring cash deposits
  • Trading-in vehicles
  • Accepting third-parties payments
  • Car dealerships are vulnerable to money laundering
  • Fraudulent invoices can be used to hide buyer identities
33
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Gatekeepers

A
  • Notaries, Accountants, Aufitors and Lawyers
  • Professionals have the ability to either block or facilitate the entry of illegitimate money into the financial system
  • Gatekeepers responsibilities include identifying clients, conducting due diligence, maintaining records, and reporting suspicious client activities
  • Professional enablers who commit crimes can be imprisoned and likely barred from operating within their profession
  • Gatekeepers special skills enable them to help their clients evade detection using sophisticated money laundering schemes
34
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Investment and Commodity Advisors

A
  • Raw materials such as oil or gold
  • These advisors are in a unqiue position position to observe possible Money Laundering
  • The industry is vulnerable to Money Laundering
35
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Trust and Company Service Providers (CSPs)

A
  • There are gatekeepers who set up trusts
  • Provide legal and administrative functions for corporations
  • TCSPs need to obtain detailed information on customers and understand the source of funds
  • Should always be able to identify the beneficial owners
36
Q

Typologies: Non-Financial Businesses & Professions (3)

Key Points of Real Estate

A
  • Sector is frequently used in Money Laundering Schemes
  • Investing capital in real estate is a classic method of laundering illicit funds
  • UBO can be disguised
  • Relatively stable and reliable investment
  • Value can be increased through renovations and improvements
37
Q

Typologies: International Trade Activity (4)

Key Points of Free Trade Zones

A
  • Designated geographic areas with special regulatory and tax treatments
  • Often located in developing countries near ports of entry
  • Inadequate AML/CFT safeguards
  • Minimal oversight by local authorities
  • Lack of cooperation between FTZ and local customs authorities
38
Q

Typologies: International Trade Activity (4)

Key Points of Black Market Peso Exchange

A
  • A process by which US money derived from illegal activity is purchased by Colombian Peso Brokers
  • The smuggled US dollars are deposited into foreign institutions - And wired back to the US as payments for international trade goods and services
  • Used by drug cartels
39
Q

Typologies: International Trade Activity (4)

Key Points of Wildlife Trafficing

A
  • The illegal trade, smuggling, poaching , capture and collection of endangered speciies and protected wildlife
  • Includes wildlife derivatives such as leather, food, exotic pets
40
Q

Typologies: New Payment Products & Services (5)

Key Points of Prepaid cards

A

Portable, exchangeable and anonymous

41
Q

Typologies: New Payment Products & Services (5)

Key Points of Electronic Money

A
  • Risk factors include High Transaction Limits
  • Customers may hold numerous purses or cards
42
Q

Typologies: New Payment Products & Services (5)

Key Points of Virtual Currency

A
  • A medium of exchange
  • Operates in the digital space without legal tender status
  • High levels of anonymity, can obscure and anonymise transactions
  • Difficult to trace identity
  • Transactions are executed instantly
  • Preferred payment for purchasing illicit goods on the darknet
43
Q

Typologies: Corporate Vehicles used to Facilitate illicit finance (6)

Key Points of Public Companies

A
  • Shares are freely available
  • Information on ownership is publicly available
  • Subject to significant regulation
44
Q

Typologies: Corporate Vehicles used to Facilitate illicit finance (6)

Key Points of Private Limited Companies

A
  • Not publically traded
  • Restricted Information
  • May be owned by one or many owners
  • Subject to minimal regulatory oversight
  • Limited Liability Companies (LLCs) are common corporate vehicles subject to misuse
  • Can be owned or managed anonymously
45
Q

Typologies: Corporate Vehicles used to Facilitate illicit finance (6)

Key Points of Bearer Shares

A
  • Prime Money Laundering Vehicles
  • Bearer shares belong to those who physically hold them
  • No registry of owners, transfer takes place by physically handing over the shares
46
Q

Typologies: Corporate Vehicles used to Facilitate illicit finance (6)

Key Points of Shelf Companies

A
  • A corporation that has had no activity
  • Created and put on the shelf
47
Q

Typologies: Corporate Vehicles used to Facilitate illicit finance (6)

Key Points of Shell Companies

A
  • A company that at the time of incorporation has no significant assets or operations
  • Launderers can create the perception that illicit funds have been generated from a legitimate source
48
Q

Typologies: Corporate Vehicles used to Facilitate illicit finance (6)

Key Points of Trusts

A
  • Trusts are private arrangements allowing the grantor to place assets for future distribution to beneficiaries
  • A trustee is usually appointed to administer the assets in accordance with the instructions provided
  • Can be used to convert illicit cash into less suspicious assets
  • Help Disguise the criminal ownership of funds

ACAMS (2 decks)

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