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Flashcards in CH. 1 Deck (51)
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What is Money Laundering?

The taking of criminal proceeds and disguising their illegal sources in order to use the funds to perform legal or illegal acts.


Give an example of the second stage of Money Laundering.

  • Electronically moving funds from one country to another;
  • Moving funds from one financial institution to another; and
  • Converting the cash placed into the system into monetary instruments.


Give an example of the third stage of money laundering.

Purchasing luxury assets like property, artwork, jewelry or high-end automobiles; and investing in business enterprises.


Give an example of the first stage of money laundering.

  • Commingling illegitimate funds with legitimate ones;
  • making foreign exchange transactions with illegal funds; and
  • depositing small amounts of cash into various accounts.


Individual Accountability

What does the Yates Memo say?

Reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.


Issued by then-Deputy Attorney General Sally Yates of the Department of Justice



Electronic Transfers of Money

What are some indiciators of money laundering using electronic transfers of funds?

  • Funds transfers to or from a financial secrecy haven;
  • large, incoming fund transfers from a foreign client with little or no explanation or apparent reason;
  • and fund transfers that have no apparent link to legitimate business.


Remote Deposit Capture

What is Remote Capture Deposit and what risk is associated with it?

A product offered by banks that allows customers to scan a check and transmit an electronic image to the bank for deposit.

The risk associated with it is that it enables a money launderer to deposit checks without having to visit the bank and risk detection.


Payable Through Accounts

What are some of the money laundering risks pertaining to the use of payable through accounts (PTAs)?

  • PTAs with foreign institutions licensed in offshore centers with each bank supervision;
  • PTAs where the respondent bank (the foreign bank) fails to conduct adequate customer due diligence; and
  • PTAs where the sub-account holders have currency deposit and withdrawal privileges.


Concentration Accounts

What is a money laundering risk pertaining to the use of concentration accounts?

The primary money laundering risk pertaining to the use of concentration accounts is the fact that the customer-identifying information may not be included, making the audit trail difficult or impossible to follow.



What is a PEP and what is the primary risk in dealing with a PEP?

A PEP is a “politically exposed person,” meaning a person who has or has had a prominent government or quasi-public position
in a country.

The primary risk in dealing with a PEP is that the source of funds from a PEP may be from corruption.



What is structuring?

Structuring involves taking a large cash deposit and breaking it into smaller amounts to be deposited into separate banks, separate accounts or on separate days in order to avoid currency transaction reports.


Credit Cards

Which money laundering stage(s) are credit cards most likely to be used and what is an example of money laundering through the use of credit cards?

Credit cards are not likely to be used in the initial placement of money laundering. They are more likely to be used in the layering or integration stages of money laundering.

One example of using credit cards for money laundering purposes is overpaying a credit card balance and then asking for a refund. Receiving a check from the reputable credit card company makes it look like the funds received are legitimate.


Third Party Payment Processors

What are some of the risks posed by Third Party Payment Processors (TPPPs)?

  • Multiple financial institution relationships whereby the TPPP’s suspicious activity cannot be seen in its entirety by one institution;
  • engaging in ACH transactions from overseas whereby the suspicious transactions get hidden by the large number of other transactions the TPPP engages in; and
  • the possibility of the return rates stemming from unauthorized transactions are higher than average.


Money Services Businesses

What are some ways Money Services Businesses can be used for money laundering?

  • Cashing checks without obtaining adequate proof of identity;
  • failing to file Currency Transaction Reports when required;
  • and transmitting funds overseas without sufficient due diligence.


Securities Broker-Dealers

What are some of the aspects associated with securities broker-dealers that increase the risk of money laundering?

  • Its international nature;
  • the speed of their transactions;
  • the ease of converting holdings into cash without significant loss of principal;
  • the large volume of wires used;
  • the competitive, commission-driven environment;
  • the practice of maintaining securities accounts in the name of nominees or trusts; and
  • weak AML programs.



What are some red flags associated with casinos and gambling?

  • Paying off gambling debts in cash just under the reporting requirements;
  • purchasing chips, but engaging in minimal gambling and then cashing the chips back in;
  • using the gambling house for banking-like financial services, including wiring funds overseas;
  • betting on both “red” and “black” spaces in roulette; and
  • purchasing chips with cash just under the reporting requirements.


Dealers in High-Value Items

What were two of the key findings by FATF in its report on "Money Laundering/Terrorist Financing Risks and Vulnerabilities Associated with Gold," issued in July, 2015?

  1. The fact that gold is an extremely attractive vehicle for laundering money due to the fact that it is relatively compact and easy to transport; and
  2. the fact that the gold market is a target for criminal activity because it is lucrative and holds its value regardless of the form it takes.


Travel Agencies

List ways in which a travel agency could be used to launder money.

  • Purchasing an expensive airline ticket and then asking for a refund;
  • paying for travel tours with multiple wires just under the reporting threshold; and
  • creating false bookings through tour operator networks to justify significant payments from foreign travel groups.



Name various ways that a gatekeeper -- an attorney, notary, accountant or auditor -- could assist in a money laundering scheme.

  • Creating and managing corporate vehicles or other complex legal arrangements;
  • buying or selling property as a cover for transfers of illegal funds;
  • performing financial transactions, including making deposits, withdrawing funds, engaging in foreign exchange operations, buying or selling stock and sending international wires; and
  • setting up or managing a charity.



What is the primary concern with regard to the use of gatekeepers?

The primary concern with regard to the use of gatekeepers is the fact that they can be used to enhance secrecy and to keep hidden the beneficial owner of an account or transaction.


Real Estate

List reasons why real estate can be an attractive method of money laundering, according to the 2015 report by the Australian Transaction Reports and Analysis Centre (AUSTRAC).

  • It can be purchased with cash;
  • the ultimate beneficial owner can be disguised;
  • it is a relatively stable and reliable investment; and t
  • he value can be increased through renovations and improvements.


Trade-Based Money Laundering

What are two of the most common money laundering techniques involved with trade-based money laundering?

Over and under invoicing.


Black Market Peso Exchange

In summary form (in an example), how does the black market peso exchange (BMPE) work in laundering money?

As an example:

  • the drug trafficker sells drugs for US dollars in the US
  • to avoid smuggling the US dollars back to Mexico the trafficker gives the proceeds to a “peso broker.”
  • The broker finds businesses in Mexico that want to buy goods in the US. 
  • Then the broker buys the US goods with US dollars and has the goods shipped to Mexico.
  • The business in Mexico pays the broker in Mexico in pesos and the broker then gives the pesos – minus a fee – to the drug traffickers.


New products and services

What are some of the money laundering risks pertaining to the use of pre paid bank cards or reasons why they are attractive to money launders?

Some of the risks of pre-paid bank cards include:

  • anonymous card holders;
  • anonymous funding;
  • high value limits;
  • global access to cash through ATMs;
  • lax offshore jurisdictions issuing the cards; and the cards being a substitute for bulk-cash smuggling.


New Products and Services

What are some of the risks listed by FATF in its 2010 report titled "Guidance For a Risk Based Approach: Prepaid Cards, Mobile Payments and Internet based Payment Services"?

Some of the risks on new products and services include

  • anonymity;
  • geographic reach;
  • alternative to physical cross-border transportation;
  • easy access to cash; and
  • the fact that several entities are required to issue prepaid cards – the program manager, issuer, acquirer, payment network, distributor and agents – that may be hard to all supervise or monitor.


Virtual Currencies

What is one of the primary concerns with regard to the use of virtual currencies>

One of the primary concerns with regard to the use of virtual currencies is the fact that beneficial ownership information may be difficult to obtain.


Terrorist Financing

What are some emerging risks for Terrorist Financing?

  • Self-funding by foreign terrorist fighters;
  • terrorists raising funds through the use of social media;
  • new payment products and services; and
  • exploitation of natural resources;


Money Laundering

What is the concept of willful blindness?

The “deliberate avoidance of knowledge of the facts” or “purposeful indifference,” and is the equivalent of actual knowledge.


Correspondent Banking

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

  1. A financial institution carries out financial transactions on behalf of customers of another institution.
    • this is anindirect relationship
    • the correspondent bank provides services for individuals or entities for which it has neither verified the identities nor obtained any first-hand knowledge
  2. 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.


Concentration accounts

What is a concentration account?

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.