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ACAMS Chapter 2 > AML > Flashcards

Flashcards in AML Deck (25):
1

Describe the type of services to third parties that any person or business provides on a professional basis to participate in the creation, administration, or management of corporate vehicles.

Trust and company service providers (TCSP) include those persons and entities that, on a professional basis, participate in the creation, administration or management of corporate vehicles. They refer to any person or business that providesTrust and company service providers (TCSP) include those persons and entities that, on a professional basis, participate in the creation, administration or management of corporate vehicles. They refer to any person or business that provides any of the following services to third parties:
- Acting as a formation agent of legal persons,
- Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons,
- Providing a registered office, business address or correspondence for a company, a partnership or any other legal person or arrangement,
- Acting as (or arranging for another person to act as) a trustee of an express trust, and
Acting as (or arranging for another person to act as) a nominee shareholder for another person.
- p. 72 | Trust and Company Service Providers

2

What characteristics of charities or non-profit organizations make them particularly 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 those areas that are exposed to terrorist activity, and
Often being subject to little or no regulation and/or having few obstacles to their creation.
p. 106 | Charities or Non-Profit Organizations

3

What is the significance of a trust account, whether offshore or onshore, in the context of money laundering?

The significance of a trust account — whether onshore or offshore — in the context of money laundering cannot be understated: It can be used as part of the first step in converting illicit cash into less suspicious assets; it can help hide criminal ownership of funds or other assets; and it is often an essential link between different money laundering vehicles and techniques, such as real estate, shell and active companies, nominees and the deposit and transfer of criminal proceeds.
p. 95 | Trusts

4

According to FATF, what three circumstances should be kept in mind when dealing with possible cuckoo smurfing activity?

The existence of these deposits is not necessarily grounds to reconsider the relationship with a customer.
It could be the indicator of laundering, therefore it should be examined carefully.

Law enforcement will need information on the depositor, so banks should seek to identify cash deposits made by third parties and should retain surveillance footage.
p. 43 | Structuring

5

How can the free-look period be used to launder money?

A free-look period is a feature that allows investors, for a short period of time after the policy is signed and the premium paid, to back out of a policy without penalty. This process allows the money launderer to get an insurance check, which represents cleaned funds. However, as more insurance companies are subject to AML program requirements, this type of money laundering is more readily detected and reported.
p. 53 | Insurance

6

Identify three ways money laundering can occur through vehicle sellers

The industry defined as "vehicle sellers" includes sellers and brokers of new vehicles, such as automobiles, trucks, and motorcycles; new aircraft, including fixed wing airplanes and helicopters; new boats and ships, and used vehicles. Laundering risks and ways laundering can occur through vehicle sellers include:
- Structuring cash deposits below the reporting threshold, or purchasing vehicles with sequentially numbered checks or money orders,
- Trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce complex layers of transactions,
- Accepting third‐party payments, particularly from jurisdictions with ineffective money laundering controls.
- p. 65 | Vehicle Sellers

7

Identify and describe the three sections of the USA Patriot Act concerning due diligence U.S. financial institutions need to perform for relationships with foreign correspondent banking customers.

- Section 312 requires institutions must set up risk based due diligence to mitigate the money laundering risks posed by foreign financial institutions.
- Section 313, which prohibits U.S. financial institutions from opening or maintaining correspondent accounts for foreign shell banks and requires them to take "reasonable steps" to ensure that a correspondent account of a foreign bank is not being used indirectly to provide banking services to a shell bank.
- Section 319, which requires U.S. financial institutions to maintain records with the names and address of the owners of foreign banks for which they maintain correspondent accounts.
- p. 29-31 | Correspondent Banking

8

How can art and antiques dealers and auctioneers mitigate their money laundering risks?

- Require all art vendors to provide names and addresses. Ask that they sign and date a form that states that the item was not stolen and that they are authorized to sell it.
- Verify the identities and addresses of new vendors and customers.
- If there is reason to believe an item might be stolen, immediately contact the Art Loss Register (www. artloss.com), the world’s largest private database of stolen art.
- Look critically when a customer asks to pay in cash.
Be aware of money laundering regulations.
- Appoint a senior staff member to whom employees can report suspicious activities. If there is reason to believe an item might be stolen, immediately contact the Art Loss Register (www. artloss.com), the world’s largest private database of stolen art.

9

Why are hawalas attractive to terrorist financiers?

- Hawalas are attractive to terrorist financiers because they, unlike formal financial institutions, are not subject to formal government oversight and do not keep detailed records in a standard form. Although some hawaladars do keep ledgers, their records are often written in idiosyncratic shorthand and are maintained only briefly.
- p. 106 | Hawala and Other Informal Value Transfer Systems

10

What is the difference in the money trail between terrorist financing and money laundering?

The money trail for money laundering is circular with money eventually ending up with the person who generated it. On the other hand, the money trail for terrorist financing is linear with the money generated being used to propagate terrorist groups and activities.
- p. 99 | Terrorist Financing

11

Describe microstructuring.

Designing a transaction to evade triggering a reporting or recordkeeping requirement is called “structuring.” Microstructuring is essentially the same as structuring, except that it is done at a much smaller level. Instead of taking $18,000 and breaking it into two deposits, the microstructurer might break it into 20 deposits of approximately $900 each. This level of structuring makes it extremely difficult to detect.
p. 39-44 | Structuring

12

Describe several ways commodity futures and options accounts may be susceptible to money laundering.

There are several ways commodity and futures accounts are susceptible to money laundering, including:
- Withdrawal of assets through transfers to unrelated accounts or to high‐risk countries,
- Frequent additions to or withdrawals from accounts,
Checks drawn on, or wire transfers from, accounts of third parties with no relation to the client,
Clients who request custodial arrangements that allow them to remain anonymous,
Transfers of funds to the adviser for management followed by transfers to accounts at other institutions in a layering scheme,
Investing illegal proceeds for a client, and
Movement of funds to disguise their origin.

13

Describe the three phases of money laundering.

Placement is the physical disposal of cash or other assets derived from criminal activity.
Layering is the separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds.
Integration is supplying apparent legitimacy to illicit wealth through the re‐entry of the funds into the economy in what appears to be normal business or personal transaction
p. 15-18 | Three Stages in the Money Laundering Cycle

14

What are the economic effects of money laundering?

Loss of control of, or mistakes in, decisions regarding economic policy,
Economic distortion and instability,
Loss of tax revenue,
Risks to privatization efforts,
Reputation risk for the country, and
Social costs.
p. 22-24 | Economic and Social Consequences of Money Laundering

15

What is one of the most important aspects of due dilligence for a bank when establishing a relationship with a money remitter?

Ensuring the money remitter is properly licensed.

16

How does having a lawyer as a trustee on an account at a financial insittution create vulnerabilities to money laundering at an institution?

Lawyers often serve as trustees by holding money or assets “in trust” for clients. This enables lawyers to conduct transactions and to administer the affairs of a client. Sometimes, the illicit money is placed in a law firm’s general trust account in a file set up in the name of the client, a nominee, or a company controlled by the client.
p. 95-96 | Trusts

17

What is the most basic difference between terrorist financing and money laundering?

The most basic difference between terrorist financing and money laundering involves the origin of the funds. Terrorist financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be used legally.
p. 97-98 | Terrorist Financing

18

What general characteristics of terrorist financing can a financial institution look at to avoid becoming conduits for terrorist financing?

FATF's report entitled "Guidance for Financial Institutions in Detecting Terrorist Financing" published April 24, 2002 describes general characteristics of terrorist financing that a financial institution can look at to avoid becoming conduits for terrorist financing, including: (a) Use of an account as a front for a person with suspected terrorist links, (b) Appearance of an accountholder’s name on a list of suspected terrorists, (c) Frequent large cash deposits in accounts of non-profit organizations, (d) High volume of transactions in the account, and (e) Lack of a clear relationship between the banking activity and the nature of the accountholder’s business.
p. 103 | Terrorist Financing

19

Describe four types of risk associated with money laundering faced by a financial institution.

Reputational risk is described as the potential that adverse publicity regarding an organization’s business practices and associations, whether accurate or not, will cause a loss of public confidence in the integrity of the organization.
Operational risk is described as the potential for loss resulting from inadequate internal processes, personnel or systems or from external events.
Legal risk is the potential for lawsuits, adverse judgments, unenforceable contracts, fines and penalties generating losses, increased expenses for an organization, or even the closure of the organization.
Concentration risk is the potential for loss resulting from too much credit or loan exposure to one borrower or group of borrowers.
p. 21-22 | Economic and Social Consequences of Money Laundering

20

Why are bearer bonds and bearer stock certificates prime vehicles for money laundering?

Bearer bonds and bearer stock certificates, or “bearer shares,” are prime money laundering vehicles because they belong, on the surface, to the “bearer.” When bearer securities are transferred, because there is no registry of owners, the transfer takes place by physically handing over the bonds or share certificates. Bearer shares offer lots of opportunities to disguise their legitimate ownership.
p. 96 | Bearer Bonds

21

How does having a lawyer as a trustee on an account at a financial insittution create vulnerabilities to money laundering at an institution?

Lawyers often serve as trustees by holding money or assets “in trust” for clients. This enables lawyers to conduct transactions and to administer the affairs of a client. Sometimes, the illicit money is placed in a law firm’s general trust account in a file set up in the name of the client, a nominee, or a company controlled by the client.
p. 95-96 | Trusts

22

What are the two main reasons correspondent banking is vulnerable to money laundering?

By their nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution. This indirect relationship means that the correspondent bank provides services for individuals or entities for which it has neither verified the identities nor obtained any first‐hand knowledge, and

The amount of money that flows through correspondent accounts can pose a significant threat to financial institutions, as they process large volumes of transactions for their customers’ customers. This makes it more difficult to identify the suspect transactions, as the financial institution generally does not have the information on the actual parties conducting the transaction to know whether they are unusual.

p. 27-29 | Correspondent Banking

23

What is a concentration account?

Concentration accounts are internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day. These accounts are also known as special‐use, omnibus, settlement, suspense, intraday, sweep or collection accounts. Concentration accounts are frequently used to facilitate transactions for private banking, trust and custody accounts, funds transfers and international affiliates.
p. 34 | Concentration Accounts

24

How can the free-look period be used to launder money?

A free-look period is a feature that allows investors, for a short period of time after the policy is signed and the premium paid, to back out of a policy without penalty. This process allows the money launderer to get an insurance check, which represents cleaned funds. However, as more insurance companies are subject to AML program requirements, this type of money laundering is more readily detected and reported.
p. 53 | Insurance

25

According to a 2001 report, “Money Laundering in Canada: An Analysis of RCMP Cases,” what are the four related reasons to establish or control a shell company for money laundering purposes?

Shell companies accomplish the objective of converting the cash proceeds of crime into alternative assets,
Through the use of shell companies, the launderer can create the perception that illicit funds have been generated from a legitimate source,
Once a shell company is established, a wide range of legitimate and/or bogus business transactions can be used to further the laundering process, and
Shell companies can also be effective in concealing criminal ownership. Nominees can be used as owners, directors, officers or shareholders.
p. 88-92 | Shell Companies