AML Expert Flashcards by Dmitriy Mavreshko

Which of the following is not an example of layering

a) Using cash deposited in a bank account to purchase an asset
b) Exchanging cash for a monetary instrument
c) Using an inbound wire transfer to purchase an asset
d) Using an inbound wire transfer to purchase a monetary instrument

The correct answer is B

This answer uses physical cash to purchase an asset, and is a feature of placement. All other answers use money that is already in the financial system and are thus examples of layering.

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What are key effects of money laundering on countries? Choose three.

i) Reputation risk
ii) Losing control of regulatory policy
iii) Being forced into adverse fiscal policies
iv) Losing control of monetary policy

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is A

Counties can suffer reputational risk if they are known as a haven for money laundering, they may be forced to make adverse fiscal (tax and budget) policy to compensate for the tax revenue lost to criminal laundering, and they may lose control of monetary policy as currency flows are directed by launderers out of the country. The country should use regulatory policy to enforce anti-money laundering.

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Which of the following are most vulnerable to the placement stage of money laundering? Choose two.

i) Purchasing diamonds
ii) Overpaying a credit card balance
iii) Obtaining cashiers cheques
iv) Internet casinos

A) i, ii
B) i, iii
C) i, iv
D) ii, iii

The correct answer is B

Gem stones and cashiers cheques can be purchased using cash, making them vulnerable to placement.

Credit cards and internet casinos do not usually allow cash payments, and so are less likely to be used as part of the placement phase.

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Which of the following describes a payable through account.

a) A numbered account where the customer is unknown
b) A correspondent account that can be used directly by the respondent’s customers without the respondent’s oversight
c) Internal bank accounts used to assist in the settlement and processing of customer
transactions. Also known as omnibus, settlement, or collection account.
d) A system where a bank offers accounts to another bank to enable it to perform transactions in a location where it does not have a physical presence

The correct answer is B

C describes a concentration account,

D is a correspondent account,

A is numbered account

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What is a risk of concentration accounts?

a) the underlying customer identification can be lost
b) co-mingling of clean and dirty funds can occur
c) customers may be unaware they are using them
d) confidentiality and secrecy between client and banker

The correct answer is A

The internal accounts used by the bank may be set up so that the audit trail is lost when they are used.

The other answers are not relevant risks to the use of concentration accounts

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What are two risks associated with private banking?

i) The area was not covered by the Wolfsburg group
ii) politically exposed persons
iii) Private investment companies
iv) Lack of competition

A) i, ii
B) i, iv
C) ii, iii
D) ii, iv

The correct answer is C

Politically exposed persons (PEPs) use private banking, and may have access to funds derived from embezzlement or bribes.

Wealthy users of private banking often use private investment companies (PICs) to manage their wealth which may hide the beneficial owners.

The Wolfsburg group did cover private banking, and there is intense competition in private banking, making those answers incorrect.

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Which of the following is a correct statement?

a) smurfs travel from bank to bank withdrawing cash from ATMs
b) smurfing is a way to avoid triggering a currency reporting threshold
c) smurfs are dead people who’s accounts have been taken over by money launderers
d) smurfing requires an insider at a financial institution

The correct answer is B; Smurfing is used to deposit cash at a financial institution below the reporting threshold.

A is incorrect because smurfs deposit cash, rather than withdrawing it.
C is incorrect, smurfs often use accounts set up using dead peoples identities, but the term does not refer to them.
D is incorrect because this is relates to cuckoo smurfing.

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Which one of the following might indicate microstructuring?

a) converting $800 of travellers cheques to a wire transfer
b) using counter deposit slips
c) large cash deposits
d) using cash to purchase a gold ingot

The correct answer is B; Microstructurers often use counter deposit slips as they make many small cash deposits and will have insufficient pre-printed paying in slips.

A is incorrect as there is no cash involved,
C&D both mention either large cash amounts, or expensive items which would not indicate microstructuring, which uses small amounts of cash, typically under $1000.

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Cuckoo smurfing features which three of the following?

i. An unwitting bank account owner
ii. An insider in a financial institution
iii. An accomplice in a foreign country who deposits cash
iv. Concentration of funds

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is D

Although the remitter is expecting funds to be sent via an international wire transfer, in a cuckoo smurfing situation, an insider in a financial institution diverts it elsewhere. The funds are instead deposited as dirty cash by an accomplice in a foreign country into the unwitting recipient’s bank account. There is no concentration of funds as this would cause a discrepancy between the remittance and receipt which would raise the alarm.

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What is the best way to guard against the risk of money laundering by bank staff?

a. Ensure that key staff are registered with the regulator
b. Ensure segregation of duties for all tasks
c. Conduct initial and ongoing criminal background checks
d. Ensure managers review staff work periodically

The correct answer is C

All of these are methods to guard against money laundering risks, however not all of them are effective. Registering staff with the regulator is not possible in all jurisdictions, and may only cover senior roles not all roles that might be at risk of money laundering,

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Risks of correspondent banking include the following.

Choose three.

i) The effectiveness of the regulatory regime may be unknown
ii) The ultimate customers are at arms length
iii) The USA Patriot Act did not address correspondent banking risks
iv) The volumes of transactions are high

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is C
While the regulatory regime may be known, the effectiveness of that regime on any one institution may be difficult to assess beyond standard checklists. The arms-length nature
of correspondent banking means that customer due diligence of the ultimate customer is difficult or impossible, and the transaction volumes are high, so suspicious transactions
are hidden in the noise. The USA Patriot act contained specific provisions concerning correspondent banking in sections 312, 313, 319a & b.

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What is the best way to guard against the risk of money laundering by bank staff?

The correct answer is C
All of these are methods to guard against money laundering risks, however not all of them are effective. Registering staff with the regulator is not possible in all jurisdictions, and may only cover senior roles not all roles that might be at risk of money laundering.

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Why are credit unions (building societies) vulnerable to money laundering?

a) They are small in size
b) They have high levels of cash transactions
c) They offer complex products
d) They are not regulated

The correct answer is B
These financial institutions are low risk because they are small, but they are vulnerable because of the level of cash transactions. They do not usually offer complex products, and they are regulated

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At which stages of money laundering are credit cards used? Choose two.
i) Layering
ii) Structuring
iii) Integration
iv) Placement
A) i, ii
B) i, iii
C) i, iv
D) ii, iii

The correct answer is B

Structuring and placement are methods of disposing of cash, which many credit cards do not permit. They are used for structuring and integration.

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Which of the following are money laundering risks at insurance companies? Choose two:

i) Early cancellation capabilities of car insurance
ii) Salesmen are incentivised
iii) Underpaying insurance and requesting refunds
iv) Cancelling life policies during the ‘free look’ period

A) i, ii
B) i, iii
C) i, iv
D) ii, iv

The correct answer is D

Salesmen that are incentivised may overlook their suspicions, and cancelling life
insurance during the free look period enables the launderer to obtain a refund of clean
money.

Underpaying insurance does not lead to an excess cash balance and cancelling
car insurance early would not lead to a large refund so is not a significant risk of money
laundering.

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What is wash trading?

a. The ability to launder funds using nominee accounts
b. The inherent anonymity granted by many broker-dealers
c. The use of offsetting trades to launder funds
d. The trading of commodities

The correct answer is C

The use of two offsetting trades means that the market can move in either direction and the principle is safe. The loss of dirty money in one account is compensated by the creation of legitimate gains in another trading account. None of the other descriptions matches that of a wash trade.

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Securities dealers are attractive to money launderers for the following reasons.
Choose three:
i. They have information that can be used for insider trading
ii. They use high speed wire transfers
iii. They have a competitive, commission-driven culture
iv. They use cash accounts that are not subject to banking AML controls
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is B

Broker dealers are not party to insider information. They do use wire transfers, which are useful to money launderers, the commission driven culture could cause sales staff to overlook the source of funds, and their cash accounts are not subject to the same level of AML oversight at banking accounts.

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Casinos and other gaming venues are attractive to money launderers for the
following reasons.
Choose three:
i. They offer a plausible source of recently acquired wealth
ii. Gambles can be placed so that there is very little risk to capital
iii. The variety of gambling opportunities are useful at the integration stage
iv. Funds can be made available in different jurisdictions
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is C

Explanation:

C is incorrect because gaming venues offer a means to place cash, rather than integrate it. All of the other answers are correct.

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Which two of the following makes gold the most attractive to money launderers?
i. It has high demand due to religious or cultural reasons
ii. It can be used in the placement phase
iii. It can be easily melted down
iv. It can be used in the layering phase
A) i, ii
B) i, iii
C) i, iv
D) ii, iv

The correct answer is D

Gold can be purchased for dirty cash, meaning it is useful in the placement phase. It can also be exchanged for cash or other items or physically handed to another person with little or no audit trail, making it useful in the integration phase. Although gold is in high demand and can be easily melted down, these are not the most useful features of gold to money launderers.

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Why are travel agents vulnerable to money launderers? Choose one.
A. They sell hotel rooms in high risk destinations
B. Hotels are frequented by politically exposed persons
C. Refunds can be made to third parties
D. They are listed in the FATF 40 recommendations

The correct answer is C

Expensive flights and hotels can be purchased for a third party, who can then request a refund of the cost.

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Vehicle sellers are susceptible to money laundering because of the following
reasons. Choose three:
i. They allow third party payments
ii. They sell high value items
iii. They allow down trading
iv. They allow partial down payments
A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is A

They allow third party payments which can obscure the link between the asset and the source of the funds. They do sell high value items, but this in and of itself does not make the vehicle seller susceptible, so this is not a correct answer. They do allow down trading, with the difference available as a cheque made out from the dealer. They allow partial down payments which could be used for structuring.

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Lawyers are more useful in money laundering than company formation agents
because of the following reason:

a. They have a client-attorney privilege
b. They can represent the launderer in court
c. They can create complex vehicles such as private investment companies
d. They can act as nominee shareholders, directors and secretaries

The correct answer is A

The attorney-client privilege means that some information cannot be released to law enforcement. While a lawyer does represent a client in court, this is not part of the money laundering process. Both lawyers and company formation agents can create complex vehicles and act as nominee, so these factors do not make lawyers more useful.

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Real estate is most often associated with which two of the following:

i. Layering
ii. Placement
iii. Integration
iv. Structuring

A) i, ii
B) i, iii
C) i, iv
D) ii, iii

The correct answer is B

Property is often used to disguise the source of funds, making it useful in the layering phase. It can also be used in the integration phase where an asset such as a holiday complex can be purchased, adding to the air of legitimacy.

Because real estate is costly, it is not usually a good candidate for placement, which would require very large sums of
cash, or structuring, which requires multiple small sums of cash to avoid reporting thresholds.

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Under valuing exports are used to:

a. Move money using nominee accounts
b. Enable the black market peso exchange
c. Create fraudulent transfer pricing schemes
d. Add an air of legitimacy to letters of credit

The correct answer is C

Fraudulent transfer pricing schemes are most often associated with the undervaluing of exports. They can be used in conjunction with the black market peso exchange; however they are not necessary for the BMPE to work. They are not used to move money using nominee accounts. Letters of credit be used to add an air of legitimacy to undervalued exports, but not the other way around.

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What three features of prepaid cards make them most attractive to money launderers: i. Anonymity ii. Widely accepted at merchants iii. High value limits iv. ATM access A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is A The ability to use the cards at a wide range of merchants is a benefit to a normal retail customer more than it is a benefit to a money launderer. The global ATM access allows the transfer of money out of the country, the high value limits make them useful as an alternative to smuggling cash, and the anonymity reduced the audit trail that can be linked to the launderer.

Front companies are useful to the launderer for the following three reasons: i. They generate legitimate cash which can be comingled with dirty money ii. They provide a source of employment iii. They have low overheads iv. They can be sold for high profits A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is C III is incorrect because although criminally controlled front companies do have lower overheads (as they are not subject to commercial pressures such as bank financing costs) these commercial considerations are not the primary reason the enterprise is used by the launderer. The generation of cash with which to comingle funds is a key driver, as is the need to have legitimate employment to avoid suspicion. The high profits that they generate when sold, due to their artificially high turn over is another attraction.

Why would a money launderer purchase a company that he already owned? a. To avoid tax b. To hide money c. To repatriate wealth d. To appear successful

The correct answer is C The money launderer uses offshore wealth to purchase the company that he already owns, thus repatriating the cash and maintaining his ownership of the company.

What is double invoicing? a. The raising of two invoices payable by the same party against the same goods b. The raising of two invoices payable by different parties against the same goods c. A subsidiary purchasing goods from a parent at too high a price d. The creation of an invoice where the goods are non-existent

The correct answer is C Double invoicing is where a subsidiary purchases goods from a parent at too high a price, or a parent purchases from a subsidiary at too low a price.

What is a settlor? a. A beneficiary of a trust b. A lawyer c. A third party d. A person who sets up a trust

The correct answer is D A settlor is the person who creates the trust which defines how the assets of the trust are to be distributed to the beneficiaries. The settlor may be a lawyer, or other legal professional a third party, or even the beneficiary of a trust, however this is not required.

What should banks do in order to mitigate the risk of companies with bearer shares? Choose one. a. Refuse to do business with such firms b. Insist that the shares are handed over to the bank for safe keeping c. Inspect the register of owners d. Enquire as to the beneficial owners of the company

The correct answer is D There is no requirement to refuse to do business with such entitles, however there is no register of owners to check. The bank cannot insist that the shares be handed over, as possession equates to ownership. The bank should satisfy itself as to the beneficial owners of the entity.

What are the main differences between terrorist financing and money laundering? a. Only one of these is covered by the Wolfsburg group b. Terrorist financing can involve the use of legitimate funds c. Layering is used in money laundering, not terrorist financing d. All of the above

The correct answer is B; Terrorist financing can involve the use of legitimate funds for illegitimate purposes. The Wolfsburg group included terrorist financing in the 2002 revisions. Layering is used by both money launderers and terrorist financers to disguise the source of funds

Which of the following statements is true? a. An alternative remittance system is usually more expensive than a bank transfer b. Informal value transfer systems settle balances through the normal process of trade c. Hawala is illegal d. Informal remittance systems are only used in the placement phase of money laundering

The correct answer is B alternative remittance systems usually settle their balances in the normal process of international trade. Hawala is illegal in most, but not all, countries, alternative remittance systems are usually less expensive than bank transfers, and these systems can be used in any phase of money laundering, not just the placement phase.

How can charities ensure they are less attractive to money launderers? Choose three. i. Ensure strict oversight and regulation ii. Use standard bank accounts iii. Use full accounting for all expenditure iv. Conduct field audits A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is B Charities are not subject to strict oversight or regulation, so this would not be possible. The charity can ensure that normal bank accounts are used, so that bank AML controls are in place. Accounting for all expenditure ensures a clear audit trail, and field audits can ensure that expenditure is appropriate.

Which of the following compliance criteria is not a requirement for membership of FATF? a. Freezing and confiscation of funds b. Payment of FATF penalties c. Customer due diligence d. International cooperation

The correct answer is B FATF cannot impose fines or apply other direct sanctions.

What are the three objectives of FATF? i. Monitoring implementation of recommendations by members ii. Promoting AML messages worldwide iii. Encouraging the use of risk based methods iv. Monitoring money laundering trends and countermeasures A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is C Although FATF does recommend risk based measures in its guidance, it's not a specific stated objective.

``` What three of the following items did the 2003 revision to the FATF recommendations include: i. Transparency of legal persons ii. Terrorist financing iii. Predicate offences for money laundering iv. Prohibition of shell banks A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii ```

The correct answer is B The transparency of legal persons was already in the original FATF recommendations

What three of the following items did the 2012 revision to the FATF recommendations include: i. Merging the 9 terrorist financing recommendations ii. Domestic politically exposed persons iii. Setting up financial intelligence units iv. Tax crimes A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is C Setting up an FIU was a function of the IMF and World Bank, further codified by the Egmont Group.

Why does FATF recommend a risk-based approach a. More effective use of resources b. More cost effective approach c. Because FATF better understands risk d. All of the above

The correct answer is A It is recognised that a budget will always be limited, and the risk based approached allows the best use of this budget. The motivation is not to save costs, or for the FATF to specify the risks faced by a specific institution or jurisdiction.

``` In what situations does FATF recommend heightened customer due diligence? Choose three: i. Wire transfers ii. Politically exposed persons iii. New technologies iv. Counter transactions A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii ```

The correct answer is D Counter transactions should be subject to currency reporting thresholds and suspicious transaction reporting, but not enhanced customer due diligence.

FATF recommendations specify which of the following would encounter a FATF designated threshold of €15,000: a. Bank customers carrying out regular cash transactions b. Internet casinos c. Cash dealers of precious stones d. Car dealers

The correct answer is C Dealers of precious metals and stones are subject to a $/€15,000 threshold for reporting when dealing in cash. The same threshold also applies to financial institutions, but only for occasional customer transactions. Internet casinos are subject to a $/€3,000 limit. Car dealers are not covered by the reporting thresholds.

``` Non-Cooperative Countries are measured by the FATF using which criteria? Choose three: i. Loopholes in financial regulations ii. Obstacles raised by regulatory requirements iii. Inadequate AML resources iv. Geographic location A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii ```

The correct answer is D The geographic location is not a measure of cooperation

Which of the following industries does the FATF guidelines not cover: a. Notaries b. Legal professionals c. Trust and company service providers d. High value vehicle sales

The correct answer is D The FATF recommendations cover the others in some circumstances (such as when managing client money, or acting as a nominee shareholder)

According to the Basel paper published in 2001 covering Customer Due Diligence For Banks, what are the four key elements of KYC? a. Identification, transaction profile, monitoring, reporting b. Risk management, identification, monitoring, acceptance c. Risk-based controls, identification, monitoring, acceptance d. Identification, transaction profile, source of funds, monitoring

The correct answer is B Although the order has been re-arranged, these are the four key elements of KYC according to the paper.

What did the Basel paper published in 1997 covering Core Principles for Effective Banking Supervision, recommend? a. Strong KYC, high ethical standards, adoption of the FATF recommendations b. Capital requirements, liquidity measures, monitoring and reporting requirements c. Controls over private banking, correspondent banking, payable through accounts, and shell banks d. None of the above

The correct answer is A The paper covered KYC, the use of high ethical standards in the fight against criminals using the banking system, and urged the adoption of the FATF 40 recommendations.

What did the EU First Directive on Money Laundering (91/308/EEC) cover? a. Terrorist financing b. Drug Trafficking c. International financial services d. All of the above

The correct answer is B The directive only covered drug trafficking and domestic financial services, however, the scope could be broadened by member states to cover other predicate crimes.

What was not introduced into the scope of the EU Second Directive on Money Laundering (2001/97/EEC)? a. Politically exposed persons (PEPs) b. Willful blindness c. Precise definition of laundering d. Bureaux de change and money transmitters

The correct answer is A PEPS were introduced in the Third Directive

What was introduced into the scope of the EU Third Directive on Money Laundering (2001/97/EEC)? Choose three. i. Protection for employees reporting suspicious transactions ii. Collection of statistics on suspicious transactions iii. Life insurance intermediaries iv. Fraud and other serious predicate crimes A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is D Fraud and other serious predicate crimes were introduced in the Second Directive.

Which regional FATF body was created by a inter-governmental treaty? a. MONEYVAL (Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures) b. Eurasian Group (EAG) c. Financial Action Task Force of South America against Money Laundering (GAFISUD - Grupo de Accion Financiera de Sudamerica) d. Middle East and North African Financial Action Task Force (MENAFATF)

The correct answer is C The Financial Action Task Force of South America against Money Laundering (GAFISUD - Grupo de Accion Financiera de Sudamerica) was set up by an intergovernmental treaty.

Which countries are co-operating nations of the Caribbean Financial Action Task Force (CFATF)? a. Nauru, Aruba, Bahamas b. UK, USA, Canada, Mexico, France, Spain, the Netherlands c. Cayman Islands, Guernsey, Seychelles d. Monaco, Luxembourg, Cyprus

The correct answer is B Nauru, Guernsey, Seychelles, Monaco, Luxembourg and Cyprus are known as tax havens. They are not CFATF co-operating nations.

Which of the following activities is carried out by the Egmont group: a. Drafting model anti-money laundering laws b. Promoting the establishment of financial intelligence units c. Recommends controls within private banking d. Partnership with Transparency International

The correct answer is B The Egmont group is a body of financial intelligence units (FIUs)

Which three of the following did the Wolfsburg group cover: i. Standards and policies for KYC, AML and terrorist financing ii. Prohibition of concentration accounts iii. Enhanced customer due diligence for money services businesses iv. Supporting regulators, judges, prosecutors, financial intelligence units and law enforcement A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is D The Wolfsburg group is an association of banks and is concerned with managing banking policy. Not the link to other enforcement bodies.

What does section 311 of the USA Patriot Act cover: a. The ability to designate a foreign jurisdiction, a foreign financial institution, a type of international transaction, or a type of account as a specific concern to be addressed by US banks. b. Prohibiting correspondent accounts for shell banks c. Making correspondent account records available within 120 hours d. Due diligence for non-US private bank customers

The correct answer is A The text is in the content of section 311

What does section 312 of the USA Patriot Act cover: a. The ability to designate a foreign jurisdiction, a foreign financial institution, a type of international transaction, or a type of account as a specific concern to be addressed by US banks. b. Prohibiting correspondent accounts for shell banks c. Making correspondent account records available within 120 hours d. Due diligence for non-US private bank customers

The correct answer is D The text is in the content of section 312

What does section 313 of the USA Patriot Act cover: a. The ability to designate a foreign jurisdiction, a foreign financial institution, a type of international transaction, or a type of account as a specific concern to be addressed by US banks. b. Prohibiting correspondent accounts for shell banks c. Making correspondent account records available within 120 hours d. Due diligence for non-US private bank customers

The correct answer is B The text is in the content of section 313

What does section 319b of the USA Patriot Act cover: a. The ability to designate a foreign jurisdiction, a foreign financial institution, a type of international transaction, or a type of account as a specific concern to be addressed by US banks. b. Prohibiting correspondent accounts for shell banks c. Making correspondent account records available within 120 hours d. Due diligence for non-US private bank customers

The correct answer is B The text is in the content of section 319b

Which three sentences describe the Office of Foreign Assets Control (OFAC): i. Enforces economic and trade sanctions ii. Enforces fiscal policy iii. Applies to all US citizens, regardless of location iv. Applies to all US-incorporated entities, including foreign branches A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is A OFAC is not involved in fiscal (tax and expenditure) matters.

Which of the following statements is correct? a. AML functions should be centralised to ensure efficiency b. AML functions should be decentralised to ensure product knowledge c. AML functions should have a centralised aspect to ensure consistency d. AML functions should be external to the firm to provide objectivity

The correct answer is C AML functions can be either centralised or decentralised, however they should ensure that they have a centralised aspect to ensure consistency. HINT C=C Centralized <=> Consistency

Which three statements describe the motivations behind risk-based approaches to AML? i. They are flexible to meet the risks of different geographical areas, products, and customers ii. They are effective, as companies know better than regulators how to mitigate risk iii. They are cost-effective, because organisations only need to look at the highest risks iv. They are proportionate, and allow an intelligent, rather than a checkbox, approach A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is C Although focusing on only high risks could be a cost saving measure, cost effectiveness should not be a primary motivation for the approach

``` Which of the following types of companies pose a high risk of money laundering? Choose three: i. Art dealers, and dealers in precious stones and metals ii. Restaurants, parking, car washes iii. Travel Agencies, machine parts iv. Electronics merchants, supermarkets. A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii ```

The correct answer is D Electronics merchants and supermarkets are not generally considered to represent a high risk of money laundering

Which group of banking products is the highest risk: a. Deposit taking, retail brokerage, cash advances on a credit card b. Wire transfers, travellers cheques, bankers cheques c. Foreign exchange, savings accounts, checking accounts d. Private banking, fixed income bonds, domestic accounts

The correct answer is B All three of these are high risk as they allow cash management and are negotiable instruments. All of the other answers start with a high risk activity, followed by two activities that are not considered high risk.

What are the four key elements of an AML program? Choose one answer: a. AML certifications; regulator liaison; law enforcement liaison; and documentation standards b. Policies & procedures; senior management sponsorship; on-going compliance testing; and third party oversight c. On-going employee training; designated compliance office ,internal audit testing; and policies, procedures and controls d. Board approval; approved procedures; supervisor testing; and agreed reporting arrangements

The correct answer is C The four key elements of an AML program are internal policies, procedures and controls, with a designated compliance officer with day-to-day oversight of the program. This should be combined with ongoing training and an independent audit function to test the program.

What should be addressed within the AML policies and procedures? a. Risk based due diligence b. Segregation of duties c. Record keeping requirements d. All of the above

The correct answer is D They should all be addressed within the policies and procedures.

``` Which two are important functions of the designated compliance officer? i. Creating training ii. Delivering training iii. Staying current with regulatory and legal changes iv. Conducting reviews of AML compliance A) i, ii B) i, iii C) i, iv D) ii, iii ```

The correct answer is B The training could be delivered by another competent individual once it has been created by the compliance officer in line with the organisation's needs. Reviews of AML compliance should be carried out by an independent function separate from the compliance officer.

Which of the following is not a requirement for customer due diligence: a. Profiles of expected account activity b. Documenting findings c. Conducting investigations into the source of a client's wealth d. Investigating unusual activity

The correct answer is C Although understanding the client's source of wealth should be validated as part of CDD, conducting an investigation without any suspicion is not a requirement.

Basel 2003 account opening guidelines included which three of the following items: i. Government issued unique identification ii. Date and place of birth iii. Occupation, position, employer iv. Countries visited and visas recorded in passport A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is D There is no requirement to review the passport for visas and visits.

Why are politically exposed persons (PEPs) difficult to identify for a retail bank? a. The large volume of transactions makes screening impractical b. The lack of identifying information (e.g. date of birth) makes false hits common c. The lack of PEP name lists make automation impossible d. The secrecy laws of some jurisdictions means identifying PEPs is impractical

The correct answer is B The name lists of PEPs do not include date of birth, which means that larger banks are likely to have many matches based on the name alone.

FDIC guidance issued in 2005 recommended which of the following for 'know your employee' programmes a. Re-screen when a person is promoted b. Subject contractors to the same controls c. Background screen on employment for criminal history d. All of the above

The correct answer is D All of these were recommended by the FDIC

``` Which three of the following would be a red flag in a customer situation: i. Customers who move frequently ii. International use of ATMs iii. Customers who send wire transfers iv. Turning down high interest rates A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii ```

The correct answer is C Sending wire transfers, by itself, is not a red flag Review option 4, turning down high interest rates...why

Which three of the following would be a red flag when dealing with cash transactions? i. Changing large bills for smaller bills frequently ii. Deposits contains lots of fake bills, or very dirty or musty bills iii. Making large deposits without counting the cash iv. Making deposits of currency wrapped in currency straps A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is B Exchanging large bills for smaller bills is common for retail shops that provide change. The others are all red flags.

Which three of the following would be a red flag regarding non-cash deposits? i. Depositing consecutively numbered travellers cheques ii. Depositing bearer bonds iii. Depositing third party cheques iv. Frequent purchase of monetary instruments A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is A Bearer bonds cannot be deposited.

Which three of the following would be a red flag regarding trade finance? i. Changes to the beneficiary of a letter of credit just before a payment is made ii. Letter of credit is for goods not in demand in the exporting country iii. Goods for import or export are at prices above or below normal market rates iv. Commodities shipped through locations without apparent economic or logistical reason A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is A II would be a red flag if the goods were not in demand in the importing country, but the lack of domestic demand could be a good reason to export.

Which three of the following would be a red flag regarding employees? i. Employees carry over vacation days from one year to the next ii. Employee is involved in an large number of unresolved exceptions iii. Employee leads a lavish lifestyle, not in line with the salary iv. Employee circumvents policies A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is B Carrying over vacation would only be a red flag if it amounted to not taking periodic vacations at all in order to prevent someone else taking on their responsibilities while they are out of the office, and potentially revealing wrongdoing

Which three of the following would be a red flag in an insurance situation? i. Changes to the beneficiary of car insurance ii. Early redemption of life policy iii. Unconcerned with early redemption charges iv. Cash payments A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is B It is not normally possible to use car insurance as a money laundering vehicle, and changing the beneficiary on a policy is not usually permitted.

Electronic AML solutions offer which three of the following benefits: i. Monitoring of transactions for signs of laundering ii. Screening of data against known watch lists iii. Efficiencies permitting the outsourcing of compliance functions iv. Automated regulatory reporting A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is C Outsourcing of compliance is not a stated benefit of electronic AML solutions.

What does a subpoena allow? a. Entry of a specific location to seize specific categories of documents or items b. Law enforcement to obtain documents and testimony c. Law enforcement to commence proceedings d. Law enforcement to evaluate documents under client-attorney privilege

The correct answer is B A subpoena allows law enforcement to obtain documents and testimony. The entry of a specific location requires a search warrant, law enforcement can commence proceedings without a subpoena, and law enforcement cannot generally evaluate documents under privilege.

What does a search warrant allow? a. The interview of subjects b. Entry of a specific location to seize specific categories of documents or items c. The arrest of a suspect d. A court case to proceed

The correct answer is B Interviewing subjects can only happen after arrest, and arrest can only occur with an arrest warrant. A court case may come after the search warrant after evidence of criminal wrong-doing is discovered.

Which three of the following are steps that law enforcement should take when performing an investigation? Choose three. i. Documenting activity and transactions; reviewing databases; and reviewing licensing and registration files ii. Analysing financial transactions; Reviewing STRs; and conducting computer based searches iii. Decide whether to prosecute; obtain evidence; cross-examine witnesses iv. Follow the money; identify the unlawful activity; and obtain international co-operation A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is C The points within III would be carried out after the investigation, if criminal wrong-doing was identified

``` What three steps should an institution take to respond to all law enforcement investigations? i. Respond quickly and completely to all requests ii. Narrow overly broad requests iii. Establish a single point of contact iv. Notify the customer A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii ```

The correct answer is D The institution should not notify the customer, which would constitute 'tipping off' in many jurisdictions.

``` When law-enforcement exercise search warrants, what three things should the organisation do? i. Ask for the affidavit ii. Ask for the subpoena iii. Ask for the inventory iv. Ask for the warrant A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii ```

The correct answer is A The affidavit accompanies the warrant, and contains additional information. It may not be possible to obtain, but should always be asked for. The inventory of items removed should also be requested. There would not be a subpoena issued at the same time as the search warrant.

When should you freeze accounts or assets? a. When asked to do so by law enforcement b. Upon receipt of the warrant issued by the court ordering the freeze c. Upon request of legal counsel d. All of the above

The correct answer is B Assets may only be frozen on court order.

Why should 'no comment' be provided to the press when the facts are against an organisation under investigation? a. To prevent appearing foolish should subsequent leaks occur b. Because any admission of wrong doing would cause the share price to drop c. Because any inaccuracies could lead to an investigation by the SEC d. All of the above

The correct answer is C Although the share price may drop, admitting wrong doing during an investigation would be premature, appearing foolish in the light of later leaks is less important than ensuring that true and accurate representations are made to the market.

When should you conduct an internal investigation? a. When you receive an adverse regulatory opinion b. When you receive an adverse internal audit report c. When you receive an employee hotline tip off d. All of the above

The correct answer is C The other situations would warrant remediation of the identified issue, but it should not be necessary to conduct an investigation in order to do this.

Which one of the following statement is correct: a. Documents can be destroyed in line with the document destruction policy even though they may be of use in an on-going government investigation b. Documents cannot be destroyed in line with the document retention policy c. Documents can be destroyed in line with the document destruction policy, provided no government investigation is on-going d. Documents should be retained for a minimum of 6 years

The correct answer is C Once notified of an investigation, documents should no longer be destroyed, as they may need to be provided as evidence. Documents are normally permitted to be destroyed in line with the destruction policy. Retaining documents for a minimum of 6 years, would depend on the specific documentation and the legal requirements of the jurisdiction. It is not a blanket approach to all documents.

Which three of the following are useful techniques to use when interviewing employees: i. Carry out the interview as soon as possible to ensure memories are fresh ii. Interrogation rooms should be set up with bright lights facing the interviewee iii. General background questions should be asked at the start, with contentious questions left to the end iv. Counsel should prepare staff before the interview, and debrief them afterwards to identify the line of questioning. A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is A There is no need to set up bright lights facing interviewees in a interview situation.

What is the main purpose of IMoLIN, International Money Laundering Information Network a. It created and disseminated model laws b. It was created by the UN (United Nations) c. It acts as a clearing house of money laundering information d. All of the above

The correct answer is C IMoLIN was set up with it's main purpose as a clearing house of information. Answers A and B are both correct, but are not the main purpose of the organisation.

What is a 'commission rogatoire'? a. A letter requesting cooperation from a foreign central authority b. A gateway for international cooperation c. Permission from a central authority that allows a foreign investigation to occur d. A letter of decline, where a central authority refuses a foreign investigation

The correct answer is A It is a letter of request, issued to a foreign authority, seeking their cooperation in an investigation. It forms part of the gateway for Mutual legal assistance treaties to operate, however it is not the gateway itself. It is also does not imply permission being granted or refused.

How do FIUs (financial intelligence units) share information internationally? a. Using a commission rogatoire b. Using a multilateral legal assistance treaty (MLAT) c. Using a memorandum of understanding d. Using the Wolfsburg principles

The correct answer is C A memorandum of understanding MOU) is used by FIUs to share information. A commission rogatoire is used by law enforcement under a MLAT. The FIUs adhere to the Egmont principles to share information, not the Wolfsburg principles

What are the principles from the Egmont group related to information sharing? Choose three. i. Free exchange of information, on the basis of reciprocity ii. Grant permission to law enforcement, if appropriate iii. Respect privacy and confidentiality iv. Share information with every member as a matter of course A) i, iii, iv B) ii, iii, iv C) i, ii, iv D) i, ii, iii

The correct answer is D IV is incorrect as the information should be shared with every relevant FIU, but not every member as a matter of course.

According to the 2002 Basel committee "Report on sharing information between jurisdictions in connection with the fight against terrorism" which of the following statements is true: a. Supervisors should disseminate information to government departments b. Information can be used as evidence c. General information about financial activity can be shared between regulators d. Specific information about politically exposed persons can be shared between regulators and used as evidence

The correct answer is C Supervisors should not disseminated information to government departments, information may not be used as evidence, and specific information about PEPs can be shared, but not used as evidence.

Which of the following best describes the Black Market Peso Exchange money laundering method? A. The best known money laundering method used by known terrorists B. An undercover technique to identify politically exposed persons who may assist money launderers C. A method primarily used by narcotics traffickers to transfer value back to the source country D. A method used to smuggle dollars or pesos across the border from the United States to Mexico, and vice versa

Answer: C

How can a financial institution verify the nature and purpose of a business and its legitimacy? Choose 3 answers A. By reviewing a copy of the corporation’s latest audited reports and accounts B. By undertaking a company search or other commercial inquires to see that the institution has not been, or is not in the process of being dissolved of terminated C. By reviewing the company’s website D. By using an independent information verification process, such as by accessing public and private databases

Answer: A, B, D

An anti-money laundering specialist has been asked to create internal anti-money laundering policies, procedures and controls for a recently chartered offshore financial institution. Which of the following should be included? A. A training program for senior management and staff. B. An anti-money laundering compliance program, internal audit program, and procedure manual. C. Basel Committee on Banking Supervision's capital adequacy requirements for the host country. D. Compliance requirements of host and chartering countries.

Answer: A, B, D

Because financial institutions must sort through thousands of transactions each day, which risk-based factors should an institution’s system for monitoring and reporting suspicious activity focus on? A. The institution’s size, nature of business and type and location of its customers B. Whether a bank accepts cash deposits at its ATMs C. Drawing on uncollected funds and depositing of third-party instruments D. Local regulator’s guidelines, economies of scales and budgetary provisions

Answer: C

Why can terrorist financing be very difficult to identify? A. The funds needed to conduct a terrorist act can be relatively small B. It is hard to get a name added to the OFAC list of terrorists C. Because of the various methods used to launder funds for terrorist financing D. Terrorism is not a crime in all countries

Answer: C

Which three are best practices for embedding compliance into an institution’s culture? Choose 3 answers. A. Having the Compliance Officer review and approve the institution’s AML policy B. Requiring senior management oversee and implement the institution’s AML policy C. Requiring periodic and on-going training on AML issues and procedures D. Incorporating compliance with the institution’s AML policy into the annual evaluation process

Answer: A, C,D

A large cash deposit most likely reflects money laundering when it is: A. from a customer who has never conducted a transaction in cash before B. transacted in segments smaller than the reporting thresholds at various times during the day C. followed by an immediate wire transfer to an offshore secrecy haven D. by a customer who operates a cash-based business

Answer: A, C,D

In which three circumstances foes a large-cash deposit most likely reflect money laundering? A. When it is from a customer who has never operated a business B. When it is by a customer who operates a cash-based business C. When it is transacted in segments smaller than the reporting thresholds at various times during the day D. When it is followed by an immediate wire transfer to an offshore secrecy haven

Answer: A, B, D

The Wolfsburg Principles for Private Banking list circumstances that would require additional due diligence, including activities that involve which three of these choices? A. Foreign jurisdictions B. High Risk Countries, including those identified by credible sources as having inadequate Anti Money Laundering standards C. high Risk activities, involving clients and beneficial owners whose source of wealth originates From activities known to be vulnerable to money laundering D. Public Officials, including those individuals who have or had positions of public trust

Answer: B, C, D

Which indicator should be suspicious to a compliance officer at a brokerage firm? A. Trading between accounts controlled by the same person B. Large number of bid/ask prior to market opening C. The client imposed limits to their losses from the outset of the relationship D. A broker splits the bid-ask spread with the investor when matching buy and sell orders

Answer: A or D

``` THE PATRIOT ACT DOES NOT REQUIRE WHICH OF THE FOLLOWING AS PART OF AN APPROPRIATE AML PROGRAM? A.APPOINTMENT OF COMPLIANCE OFFICER B.WRITTEN POLICIES AND PROCEDURES C.INDEPENDENT REVIEW OF THE PROGRAM D.MANDATORY DRUG SCREENING ```

Answer: APPOINTMENT OF COMPLIANCE OFFICER

FAILURE TO REPORT SUSPICIOUS ACTIVITIES CAN RESULT IN PENALTIES OR LEGAL ACTION AGAINST YOU AND YOUR COMPANY. A.TRUE B.FALSE

A: True

MONEY LAUNDERING IS THE PROCESS BY WHICH THE PROCEEDS OF CRIMINAL ACTIVITY ARE INTRODUCED INTO LEGITIMATE MAINSTREAM OF FINANCIAL COMMERCE. A.TRUE B.FALSE

A: True

THE PATRIOT ACT STRENGTHENED SEVERAL ANTI-MONEY LAUNDERING LAWS. A.TRUE B.FALSE

A: True

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